#610 The On-Chain Metrics OG w/ David Puell & Will Clemente

Will Clemente is a Finance Major at East Carolina University. He has quickly become one of my favorite writers on all things bitcoin, including deep dives on various onchain analytics. We are joined this week by David Puell, the OG on-chain analyst. Subscribe to Will’s new email newsletter here: https://btcbywc3.substack.com/ Read Daivd’s work here: https://medium.com/@kenoshaking In this conversation, we discuss the history of on-chain analytics, what happened over the last few months, current market structure outlook, and what to look for moving future. ======================= Revolut is a finance app in the US and UK, that say they're the simplest way to access crypto. Sign up today at Revolut.com/pomp and make 3 card transactions to get $15, which you can exchange for any tokens Revolut supports. As usual, when you move your money from fiat to crypto your capital is at risk. See T&C's for details. Revolut is a financial technology company. Banking services provided by Metropolitan Commercial Bank, Member FDIC. Cryptocurrency services provided directly by Paxos Trust Company, LLC. ======================= Whether you're an experienced crypto trader or just starting out, Kraken has the tools to help you achieve financial freedom. With the new Kraken app, you can easily buy and sell over 60 of the most popular cryptocurrencies in just a few minutes. Featuring a sleek new design and an easy-to-use interface, you can now take your crypto portfolio with you on the go, 24/7. Visit kraken.com/pomp to learn more or search "kraken" in the app store. ======================= With over $1B AUM, Amber Group is a world-leading crypto finance platform helping institutions and individual investors to buy and sell cryptocurrency, earn yield, manage risk and access liquidity. Amber App new users only - earn 16% APR on BTC, ETH and USD stablecoins! Click on the link to sign up now: https://www.ambergroup.io/?utm_source=10508 =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  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 a finance major at East Carolina University. He has quickly become one of my favorite writers on all things Bitcoin, including deep dives on various on-chain analytics. We're joined this week by David Puel, the OG on-chain analyst. You can subscribe to Will and David's work, both by clicking on the links in the description. In this conversation, we discuss the history of on-chain analytics, what happened over the last few months, the current market structure outlook, and what to look for moving forward. I really enjoyed this conversation with both these guys, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors.

• 0:46Anthony Pompliano?

  First up are my friends over at Revolut. Let's go back to the basics for a second. I've partnered with Revolut, a finance app in the US and the UK that say they're the simplest way to access crypto. They're putting their money where their mouth is, too. You can sign up, make three card transactions, and get $15. That's right, $15. What can you do with the $15? You can exchange it for Bitcoin or any of the other tokens Revolut supports. Yes, they are crypto-enabled. These guys have made it easier to get some skin in the game. As usual, when you move your money from fiat to crypto, your capital is at risk. Sign up now through revolut.com/pomp to get a $15 reward and put them to the test. Revolut.com/pomp. Go check it out and you'll get that reward. Next up is Kraken. For the last 10 years, Kraken has been one of the best platforms for trading crypto

• 1:28Anthony Pompliano?

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• 2:13Anthony Pompliano?

  the world, it's no question crypto is the alternative. With Amber App, you can easily earn high yields on your crypto assets. Amber App is an all-in-one crypto finance app designed to help you earn, swap, trade, and invest in crypto. You can earn interest instantly simply by depositing assets to your wallet and you receive daily interest payouts. You can also customize fixed-term investments between 1 and 360 days to enjoy higher yields with flexible redemptions. Whether you're a long-term holder or trading on market moves on Amber App, you can earn interest on your own terms and do more with your crypto. Check them out at ambergroup.io or click on the link in the description to find out more about what they're offering. All right, let's get into this episode with Will and David. I hope you guys enjoy this one.

• 2:52Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 3:21Anthony Pompliano?

  All right, guys. Bang, bang. Got a very special episode for you today. We've got both Will and David here. David, maybe let's start with an introduction from you. The audience knows Will, likes Will, keeps coming back, listening to Will, but maybe you can give us kind of a quick overview of your background and then what you spend your time doing day-to-day.

• 3:40Speaker 02

  Hey, Pomp. Thanks for having me. Yeah, so I've been involved in Bitcoin pretty much full-time since 2017, I guess. Dabbled in since 2015, but pretty much very minimal amount. My original background is actually literature. I have a major in Spanish literature, but I turned into finance mostly because of Bitcoin.

• 4:10Speaker 02

  I wanted to finance a little bit in 2016 and then mostly in 2017 when I pretty much went down the rabbit hole in Bitcoin and all that stuff. First, from a technical analysis perspective and then from on-chain analytics, which is what I'm, the area out of which I'm most known for in the space. I've, you know, I've created several industry-wide use metrics in terms of indicators based on on-chain data. And I was a co-founder of Adaptive Capital, which closed last year.

• 4:51Speaker 02

  And since then, I've been pretty much, you know, independent researcher and trader on my own. Recently published a three-part series with Arc Invest on, you know, as a manifesto of on-chain analytics for the institutional and retail audiences that Arc Invest has. And have a few other research pieces coming up. And that's about it.

• 5:25Anthony Pompliano?

  Awesome. Will, maybe I'll let you kind of take the lead with some of the questions around the on-chain data and what David's saying.

• 5:32Speaker 03

  Sure. So David, I guess we could just start with, you know, what do you think about, you know, kind of the evolution of on-chain? I know you kind of really dove into it heavily in, you know, around 2018. You know, kind of talk about the evolution of on-chain, you know, the early metrics and kind of where it's, where it is now and then kind of where you see the space moving in the next, perhaps, you know, five, 10 years.

• 5:54Speaker 02

  Well, I think if we go back to the history, it's been very interesting. You know, as a research field in general, you can actually track the history of it. I think it started 2016 and 17, mostly out of Willie Wu and the CoinMetrix team, led by Nick Carter. They pretty much are the first wave pioneers in the whole thing. I think I'm more from the second wave. So the first situation, most people know it by now, is NBT, which is a metric. It's pretty much inverse velocity. It's a way to track velocity on the network, which, you know, is not that useful in terms of signal anymore.

• 6:38Speaker 02

  But after that, I think with Nick Carter's publication on realized capitalization, I think that that metric specifically pretty much brought on a huge golden age, you could say, or at least first wave of, you know, massive, very brilliant minds from all, you know, backgrounds getting into the space, trying to analyze Bitcoin and the data science behind it, to try to get a sense of the inner economics of the thing, right? From a data science perspective.

• 7:21Speaker 02

  So I guess I was one of the second wave pioneers in that golden age. Created MBR ratio and a few others.

• 7:32Speaker 02

  Now I think we're in a third,

• 7:36Speaker 02

  in the data service provider wave, if you could say, where you have the Glassnode, CryptoQwen, CoinMetrix, Wellmap. A bunch of very smart people trying to get an edge on the best metrics and the best insights into how to, you know, transform the data into reliable signals. That generates observer effects in and of itself. So that gets, you know, it's a kind of a race to the bottom sort of thing. So you have to, now we're at a stage where... You had the pioneers and now you have to figure out the way to remove the noise from the signal and stick to a better strategy if you're an active manager especially.

• 8:22Speaker 02

  And also if you're just an observant, right? You know, capturing data from the blockchain.

• 8:28Speaker 03

  So David, I want to ask you, you know, what kind of metrics do you look at and you know, just in general, what things aside from on chain, you look at to kind of gauge your, your, you know, outlook on market structure, whether you're talking about specifically in a bear bull cycle, but just in a broader sense, you know, what are those kind of, you know, infrastructural things that you look like, I mean, that you look at to kind of build your, your base, you know, and then you kind of look at more, you know, zoomed in things to, to create a shorter term, you know, bias on the market. But what do you look at in a broader sense, I guess?

• 9:03Speaker 02

  Okay, on chain, in terms of on-chain stuff,

• 9:08Speaker 02

  I try to focus on, on metrics that

• 9:12Speaker 02

  somewhat determine the primary trend, which is quite difficult because in Bitcoin history, you don't have as many samples as you'd like. You know, I suppose, you know, compared to the Dow Jones or the S and P or whatever. It's just a 12 year history. So I think for the most part, you know, several oscillators like the MVRV ratio are quite, quite useful in terms of getting a sense of

• 9:39Speaker 02

  in a very wide range, if you're under or overvalued.

• 9:44Speaker 03

  Can you just explain for listeners what MVRV is? I think there's a lot of people that aren't even sure what that is and also touch on the disease conversion as well.

• 9:52Speaker 02

  Yeah, so MVRV is, it stands for market value to realized valuation. It divides market gap by realized gap, you know? And what it means is it compares the current market capitalization.

• 10:08Speaker 02

  It compares it to the cost basis of the whole market in realized gap. So realized gap is as opposed to market gap where you multiply supply times price, right? So you give the current price to each coin in the total circulating supply. You give the price where that coin last moved.

• 10:31Speaker 02

  So that in aggregate creates the cost basis of the market. It means the point where, on average, every buyer bought their Bitcoin. So it creates like a sort of mean reversion mechanism where you can compare current market cap with that mean. And it's usually very reliable in terms of detecting overextension or, you know, some exuberance in the market. And when it goes below that, when market cap goes below realized gap, the cost basis. It's usually, you know, the time where it's a great, great spot to accumulate.

• 11:12Speaker 02

  Where, you know, when most people are at a loss, where most holders in the market are at a loss. That's when you should be buying, you know, as in any market. So I usually track of that. In terms of on-chain, in terms of swing movements, I like a SOPR. Which is spent output profit ratio, which compares the price

• 11:39Speaker 02

  of the aggregate of coins when they were, you know, last moved. Or the price where they were spent, right? So it's very hard to explain this on a chart. But without a chart.

• 11:57Speaker 02

  But it's basically trying to track how many people in the market are in profit or in losses at any given time. And whenever you're in a bull market as a primary trend, whenever you go back to break even, the ratio goes back to one and resets at break even. That's usually a very good signal that we've bottomed. And in bear markets, most people are at loss, right? So whenever that ratio goes back to break even from below, it's a very good signal that we've topped. So that metric gives you a very good sense of bottoms in bull markets and tops in bear markets.

• 12:37Speaker 02

  But apart from on-chain, I always track funding rates, specifically derivative premiums or discounts on the perpetuals, perpetual contracts. I think that's with a couple of on-chain metrics, that's the most reliable signal in the whole market. And it's very well known.

• 12:58Speaker 03

  If I could just punch in real quick, you know, what are your thoughts about funding here? Because it looks similar to March. I don't think it's been as deeply negative as it was after March. But we have had, you know, overall, a general cluster of negative funding. So do you think that we've reached, you know, a long enough period of that negative funding? Or do you think we need to see, you know, a big drawdown in that?

• 13:24Speaker 02

  Well, I've always said there's like three main rules when analyzing funding rate or perpetual premium or discount. First rule is the longer the deviation, the wider deviation, the better the signal. We got that huge deviation. I mean, the widest one was in the COVID collapse, right? It was like a thousand dollar deviation in terms of price delta between the perpetual and spot price. Right now, we have a very healthy deviation. The second rule would be the longer the signal, the longer the regime, meaning negative regime or positive.

• 14:05Speaker 02

  What I mean by negative regime is when derivatives price is well below spot price in those perpetual contracts. That's very good because it signals that one or two things or both. That, you know, there's one, there's more demand for spot than for contracts, which is very good. That's why the price of spot is above the price of derivatives. And the other one is that if there's an overabundance of open interest in the market in those contracts, most likely those contracts are shorts. So in terms of liquidity, it's very bullish as well, right? So either are like whatever the case may be, whether the circumstances are setting up in the spot market

• 14:49Speaker 02

  or in the perpetual contracts, it's bullish either way, right? And if you add that open interest or open value in terms of BTC, you can track whenever there's going to be an explosion. Most likely that explosion and volatility is going to follow whatever regime we had.

• 15:08Speaker 02

  The month before that or the couple of weeks before that, right? So if that funding regime was negative such as right now, most likely we're going to go up and vice versa. And the third, the third rule of funding rates or premium specifically is that I think it tells more a story about spot than a story about perpetual contracts. Most people think that, oh, most people are short, therefore we're going, you know, we're going up. But it's just because people are short because the market is so levered. I, I, I disagree with that. I think whenever you have very long, like right now, we've had a month and a half of the very least

• 15:50Speaker 02

  period of negative funding and negative premium across the board in Binance and Bitmex and Bybit and, you know, in aggregate metrics I use.

• 16:04Speaker 02

  You, you know, it pretty much denotes an over the man for spot about anything else, right? Do you see the same thing with expiration of contracts when you go into backwardation? But backwardation in Bitcoin is much more scarce than negative funding in the perpetuals. So for the most part, I think it's more useful as a signal because it gives you a, a direction one way or the other most of the time. And

• 16:37Speaker 02

  and I, I don't know, so far, despite any, you know, possibilities of an observer effect in the market on that particular metric, I haven't seen it fail since pretty much 20, middle of 2018. So let's see what happens.

• 16:53Anthony Pompliano?

  David, how, how much of this is kind of the metrics when they meet macro environment? The metric prevail versus the macro environment? So obviously COVID is kind of a perfect example where you get a bunch of folks who are watching on-chain metrics or starting to learn about it. And then out of nowhere, COVID happens, there's all this monetary stimulus. Do you have thoughts in terms of the relationship between maybe like macro or external factors versus on-chain metrics? And how you kind of balance those two things? Or do you feel like the macro ends up being worth understanding? But really the on-chain metrics continue to survive regardless of what, what the tailwinds of the macro environment are?

• 17:35Speaker 02

  Well, it depends on what time, what type of mindset you have. Um, if you're a day trader, you know, just look at order books, right? If you're a swing trader, I think funding is a, and a couple of on-chain metrics are very useful. Uh, despite whatever macro thing, uh, may be setting up. Um, if you're an active manager, you know, uh, uh, uh, a Wall Street type, type, uh, mindset. I think macro and on-chain, I pretty much your, your giveaway. With a little bit of funding rate, I do think funding rate, uh, works in, in all, uh, in all timeframes and all mindset.

• 18:14Speaker 02

  I think it's a very important, uh, descriptor of market activity in a very synthesized, visually synthesized way.

• 18:25Speaker 02

  Uh, so to give an example, uh, previous to the COVID collapse last March, uh, in hindsight, obviously, uh, you could see a, a severe increase in, in funding rates going to positive, right? And you can actually see a lot of the price deltas in, in coming out of China, Chinese exchanges, going through the roof, uh, in the sense that most of the West was buying. So the prices in Coinbase tended to be higher than the prices in Hobi or, or OKX. Um, and on top of that, there was more, because you know, the Chinese were the, the, the first ones to start pricing in COVID

• 19:10Speaker 02

  and going into cash from risky assets in general. Um, and on the other hand, also you, you saw a very prolonged, almost a, um, month, it was all, almost a month of sustained negative, sorry, sustained positive premium on BedMacs in most derivative exchanges. Meaning, you know, that perpetuals were more expensive than spot.

• 19:39Speaker 02

  Usually a very bearish signal and you know after that you know the market collapse fifty something percent. So I think that both on-chain and and funding rate in general.

• 19:54Speaker 02

  I think they they help you one confirm. A lot of the macro theses you may be diagnosing in the market as an active manager because you know most active managers are the thing that they use and you know day traders and crypto speculators they don't care about macro that much. So if you're in that mentality, I think macro, your your your usual set of tools for macro analysis, macroeconomic analysis, that's one. And then, you know, analyzing the liquidity of the market in on-chain as an inner economics lets you confirm your macro thesis and even more important than that.

• 20:36Speaker 02

  It also gives you, it synthesizes a lot of information that you as an active manager sometimes it's very hard to grasp because you're you're trying to synthesize a lot of sources and interpret them in your mind. And I mean, some active managers are extremely, extremely good for that. But what they do, you know, just looking at derivatives premium, just looking at a few metrics that SOPR or NBRB or

• 21:07Speaker 02

  a few exchange inflows and outflows or minor outflows, stuff like that. It gives you a sense to, it synthesizes the the inner economics of Bitcoin quite well and get and lets you take action in a in a more educated way, you could say.

• 21:27Speaker 03

  David, I want to ask you, so, you know, just just kind of walk the audience through your your perspective on, you know, the the bull run and then kind of where we've got to the point where we are now, you know, kind of the the key drivers that pushed us up, you know, cash and carry trade, grayscale, and then, you know, some of the the things that kind of accelerated the move down, such as, you know, the the liquidation stuff, you know, do you do you see, for example, like, you know, the Chinese miners, do you think that played a huge role in the push down, you know, things like that? Just so just kind of walk us through from from the, you know, early bull run to to now?

• 22:03Speaker 02

  I think the Chinese, um, um, yeah, it played some, um, it, it was, it paid a part, but I think the, the most important factors were, you know, pretty much just institutionals uh, taking profits. They saw, you know, two X, three X, whatever in returns on a, you know, in less than six, eight months. So, and they, they're not fools, they just take profits out the way they think about everything. So, that's one. And the other one is, you know, the GPTC trade, arbitrage trade unfolding pretty much.

• 22:46Speaker 02

  You know, as, as long as that premium persisted, that, that trade was profitable on the, you know, unlocking periods, depending on the unlocking periods, um, the clients had. And as soon as, as premium started, you know, going negative, that pretty much, uh, collapsed the, you know, first it suggested some spot selling for sure. But more than that, it, you know, uh, collapsed the incentives to go into that trade and start, you know, um, adding new money and new capital into the market.

• 23:24Speaker 02

  So I think that, that, that was the major role in the collapse.

• 23:29Speaker 02

  After that,

• 23:32Speaker 02

  I, I don't think the Elon tweet, I mean, the Elon tweet was the, was the trigger, right? But at that, at that point, I think most institutionals had taken profit at that point. Uh, it was a three month, they had a three month window to do it. So I think they were pretty comfortable about it. I do expect a lot of movements like that, where, you know, a lot of the liquidity modeling that goes into forming tops and bottoms in the market is going to be much more tampered. You already saw that in 2019 and 2020. But I think it's going to be even more substantial now, uh, where, you know, the incentives to suppressing liquidity

• 24:17Speaker 02

  uh, or volatility for the longest period of time in order to getting another positions, major positions. Um, I think that's gonna, um,

• 24:29Speaker 02

  That's gonna make the incentives for wider consolidation periods in tops and bottoms. Let's see what happens.

• 24:41Speaker 02

  Yeah.

• 24:41Speaker 03

  Yes. So how do you see exactly, I mean, you kind of touched on there, but you know, how do you see institutionals kind of changing the shape of the market where, you know, Bitcoin has been majority retail driven for the longest time? You just talked about, you know, the suppression, but aside from that, is there anything else that you think is affected by institutionals being involved in terms of market structure? And then I also want to talk about the volatility that you just touched on, you know, we're kind of in this really tight volatility band here. I think that the previous two that were this tight were A, when we were, when we originally broke down from 65K. And then before that, in like late July of last year, that kind of propelled us into the bull market. So, you know, if you have any comments there.

• 25:28Speaker 02

  In terms of whether, I think your question in summary was, are we in a bull market or a bear market? Something like that. I think

• 25:41Speaker 02

  so far, I've seen a lot of friends that have gone extremely bearish, very bearish. I think, I mean, the most reliable signal in the market is bullish and has been bullish for month and a half now.

• 26:01Speaker 02

  On chain, if you see a few metrics, if you track, you know, stuff like volatility adjusted, MBRV ratio, a bunch of metrics that give you oscillation. We never, we were never, we technically never were at such levels of exuberance as 2013, 2017, those tops way, you know, a few months ago when we were back in, you know, 60, 60K or so. We didn't see that. We did see some overextension in the market, but not at, you know, 2017, late 2017 levels. So that's one. The other one.

• 26:48Speaker 02

  A lot of midterm signals in on-chain like SOPR, for instance, are signaling right now that we are very neutral. Like the market, like the primary trend hasn't been defined, but funding rate is quite bullish and has been for a while. So even if we go to, let's say, 27, there's still a very high, a very decent possibility, as you say, of regaining some momentum to the upside. Now, if we get rejected at, you know, whatever, 48 to 55K, whatever point of resistance in that,

• 27:32Speaker 02

  at those levels, and then collapse from there, that would be a lower high and that's very, you know, a very high likelihood that the trend is down for the midterm basis, for the rest of the year at least. In terms of cyclicality and timing, you know, you know, if you start to count time after

• 27:58Speaker 02

  the market bottom in 2018, late 2018, and then after the halving day, in terms of cyclicality, we haven't technically thought that should come at the end of the year, November or something. But, you know, that we don't have as many samples in the history of Bitcoin to argue that with high conviction, right? So as of now, I'm just taking it step by step.

• 28:27Speaker 02

  I'm personally bullish in the short to midterm. Even if we go to 27, at the very least, I expect decent dead cat bounce. And then I'm going to take it day by day at 48, 55 and all that stuff. Look at, you know, the usual metrics. And then if we get rejected, that's pretty much bear until 20K. If we don't, we go to 12K high. That's pretty much it. I'm just taking it day by day.

• 28:58Speaker 03

  Do you see, you know, at least, at least my personal view has been that we're kind of in this reaccumulation phase. And Willie pretty much agrees, and then Checkmate also has recently been talking about getting some kind of supply squeeze. Do you, do you see anything that, that suggests that as well? I was curious to see your opinion on that. You know, looking at like a liquid supply ratio, you know, exchanges trending down. You know, looking at like liveliness trending down, showing, you know, more coin days being created than, than destroyed, like some things like that. Do you, do you see that similarly, or do you have a different opinion?

• 29:33Speaker 02

  Yeah, I mean, liquid, liquid supply has been net illiquid, right? We've been net illiquid for like a month now. Which is, as opposed to like, you know, at the top in the collapse, when we were net liquid. I've seen your charts, the recent chart you sent me, dividing illiquid supply by total circulating supply. Which is, it shows consistent reaccumulation in the market since COVID, non-stop, pretty much. You know, coins are just getting moved to, to illiquidity.

• 30:11Speaker 02

  Since then, in a, in a, in a, in a way that hasn't been registered before historically. That's very healthy.

• 30:23Speaker 02

  So all things point towards the same, you know, signals we, we saw below 20K last year.

• 30:32Speaker 02

  Price action, however, has been horrible, absolutely horrible. So, but I guess that's part of the fun, right? You, you wanna make things look as awful as possible before, you know, leaving everyone behind. That's just the way markets work.

• 30:48Speaker 03

  It almost seems like there's this divergence where you have this kind of underlying accumulation, especially over the past couple of weeks. But then price keeps trending down and like, I don't know, when, when I go back and look at some of these things in like September or even like in, you know, January on a, on a smaller scale. You had the same divergence, but not nearly on the same magnitude that we have now. So I don't know, maybe you think differently, but the way I see this is like, the larger the divergences, once that information gets priced in, the larger the, the squeeze will be, if you will.

• 31:19Speaker 02

  Oh yeah, that's for sure. The, the only point is, you know, being correct about the diagnostic, right? The divergence. Uh, yeah, but I do agree the divergence is quite large at this point, you know, uh, meaning the divergence between price behavior specifically and on-chain fee on-chain activity and funding rate, right, for the last month and a half or more. Yeah, that's been, I think that's been the, the craziest divergence I've seen since, I don't know, but not even COVID, because in the COVID collapse, you still had a huge capitulation, right? And a huge mark of, okay, this, this, this, the, there's a li- a, a, a great likelihood

• 32:04Speaker 02

  that this is gonna be a, a B bottom, right? This is just gonna bounce because it's a, the, the, the drop was just massive and quick and violent. Uh,

• 32:17Speaker 02

  premiums went haywire, on-chain, what was haywire. Um, apart from COVID, there, there wasn't a fundamental reason. And then once you had the stimulus and the inflationary he- hedge narrative, um, that was pretty much, you know, an easy ride from there. And then that was just a year of non-stop uptrend, right? Some consolidation, some chop here and there, but it was non-stop uptrend from five thousand to sixty thousand. It was insane. So of course you're gonna have job broadens like this. Uh, that's one of the reasons why I wouldn't be surprised

• 32:58Speaker 02

  that we may go to forty-eight, fifty, fifty-five, something like that, and then collapse back to twenty K and retest the all-time high, you know, the, the multi-year all-time high level. But, you know, who knows, who knows?

• 33:13Anthony Pompliano?

  So David, in, in that scenario, I think that's a really interesting, uh, thing. And this is probably the number one question that I see people in the comments whenever Will and I talk about on-chain metrics is they're trying to figure out, um, you know, should they be trading via on-chain metrics? Should they just be dollar cost averaging? Um, how do you think about the on-chain metrics themselves and what you see there versus the applicability to, uh, trying to pick up more? Bitcoin. And I think that you just brought up a great point where if you said to somebody, hey, you know, we're sitting around 30,000 today. Bitcoin is going to ride up to 45, 50, $55,000, then it's going to collapse to 20,000, then it's going to go back to an all time high. That is immense volatility compared to traditional assets.

• 33:56Anthony Pompliano?

  And so if somebody knew with perfect foresight and certainty that that's going to happen, obviously what you would do is you'd buy at 30, you'd sell at, you know, 55, you'd buy back at 20 and then, you know, and kind of play around with that volatility. But obviously nobody knows. And so how do you think about potential scenarios versus what you actually do with capital?

• 34:17Speaker 02

  Well, it depends on, on one, your timeframe and two, your, the role in the market you want to take. Do you want to be a permanent holder? That's fine. Just sell your coins 10 years from now. That's fine, right?

• 34:34Speaker 02

  I'm sure there's going to be some adoption in the next 10 years, right?

• 34:39Speaker 02

  If you're an active manager, meaning setting up spot or even, you know, some margin trading, some lever trading with low, very low leverage, meaning less than one X leverage.

• 34:56Speaker 02

  And you want to play around with that as an active manager or in that mentality? And maybe take positions that last at the very least, a few weeks, few weeks to months. And you have the temperament to, to hold that and just, you know, devote yourself to your day job and your children or something. You can do that and that would be very useful, right? Maybe you can take some, accumulate some here and maybe assess some on chain metrics and funding and a few technicals or whatever at 55. And if it doesn't look good, you sell, right? Or some portion of it, whatever. And then go back to 20, keep some dry powder and all that stuff.

• 35:40Speaker 02

  It depends on your timeframe and it depends on your, if you're a day trader, just look at the order books and just play around and do 40 operations per day. It just depends on the role you want to take on the market as a whole. And I think every, every role is fine and the market needs every single role.

• 36:00Speaker 02

  To retail investors, I recommend, I don't know, it's hard to recommend, I don't want to make financial recommendations.

• 36:12Speaker 02

  All I can say is, if you want to be in Bitcoin, you do have, you know, exposing yourself to the asset and the risks and volatility therein, or lack thereof. I think it's a crucial part of your Bitcoin experience. Because that's the only way, when you have skin in the game, that's the only way, where you can gauge your own psychology against the asset. And you can manage your exposure better, you can manage your time devoted to analyzing Bitcoin in general better.

• 36:46Speaker 02

  And you're gonna analyze, you know, you can keep track of when did you make the best and the worst decisions? And iterate upon that. And I think it's very different for every single person. I think some people just don't care and just want to hold.

• 37:04Speaker 02

  So I think just going discreetly with a wise position into the asset, if you want to go and start experiencing yourself. Even if you lose money, it's a win in terms of getting your psychology used to how Bitcoin works and behaves.

• 37:22Anthony Pompliano?

  Got it. And I guess one other question, and kind of the same thought process here is, when you talk about something where at thirty thousand, you know, you wouldn't be surprised if it went to forty-five, fifty thousand, then back down to twenty thousand. Is that all within volatility of a bull market? At what point do you say, hey, maybe we're not in this bull market where people were thinking, we were going to see a hundred, two hundred, two hundred fifty, you know, five hundred thousand dollar price points? Just how do you think about that volatility with the backdrop of, you know, kind of the repricing after halving and kind of that bull market thesis?

• 37:56Speaker 02

  Well, if we stick to the bull market thesis, ideally, this would be the bottom, this or twenty seven or something like that. And then we go all time high and then top at, you know, a hundred, whatever. And then we have the real collapse and maybe go back down to twenty or forty or whatever in the time span, the time span of a year or something, right?

• 38:21Speaker 02

  That's, that can happen, for sure. That's the way Bitcoin has behaved in the past. You can also have localized primary trends, as we saw in 2019, where you have the plus token era, right? That's a good way to put it. Where price went from three thousand to fourteen thousand in the span of about six months, and then it collapsed from fourteen to six, and six to ten, and ten to five with COVID, right? So, in that whole period, you had a Ponzi scheme in China,

• 39:03Speaker 02

  restricting the supply off the market, creating an apparent artificially, an artificial appearance for the demand, which wasn't going on. Like, the truth is, there wasn't that much EU money coming into the asset, as opposed to just a bunch of Chinese getting scammed in China, getting into the asset. And so that drove a mini, mini bubble, you could say, into fourteen K in the span of a few months. And then you had a mini, a mini bear market cycle, where you had, you know, the unfolding on the plus token scheme, where the CCP confiscated

• 39:46Speaker 02

  all those funds and was pretty much selling it into the open market via Huo, via OKX. That's verified via blockchain analytics. And after that, after that huge amount of supply, which was at the time up to two hundred thousand Bitcoins, it's, you know, one percent, one, two percent of the supply.

• 40:12Speaker 02

  We, the market was liberated from that oversupply and then after, after that you had the whole, the whole, you know, COVID getting priced in to pretty much all assets in the world.

• 40:26Speaker 02

  So I think unless there's huge

• 40:33Speaker 02

  gray swans like that, like plus token or COVID, whether known or unknown, because I mean the plus token was, we should have known when it was happening. It was mostly worth of mouth when the top was already in. So it was just about, about tracking those coins and seeing how much were, were sold already to get a sense of, okay, that's done. We can like continue with the up trend now. And with COVID, it was just like, you know, suffering a a period of two or three days of absolute collapse and then recovery.

• 41:12Speaker 02

  Unless we have that, we should be on a fundamental way in a, in a, in a primary bullish trend.

• 41:23Speaker 02

  I haven't seen even institutions FOMO that much. In fact, I do think they took profits quite diligently at, you know, between 50 and 60K. So there's no, what, what the same, you know, the same intuition that makes me think that they took profits at those levels gives me the intuition that they would be accumulating here and, and a 20K. Because that's how they think. So, so far I don't see the evidence of the primary trend being.

• 42:04Speaker 02

  You know, being a more than six months of downtrend, you could say. But who knows, I'm taking it, as I've said, uh, uh, one thing I've learned over my years in Bitcoin and analyzing and, you know, keeping my eye in the, in the chart for, for several days at a time, is that, uh, I, you need to take it day by day and, and make your, your decisions accordingly. Uh, it's very hard to predict, um, a year in advance. Even if you're very, very sure of certain factors, sometimes you have black swans, gray swans, and they pretty much,

• 42:42Speaker 02

  um, you know, make your whole feces disappear and, and, you know, quickly. So take it day by day.

• 42:54Speaker 03

  I, I want to ask you, so, you know, how can people get involved in, in understanding on-chain? Um, you know, some of this stuff might sound really interesting to people that we talk about every week. But, uh, I want to kind of give you an opportunity to give some resources because you were actually the first person that I hit up when I had started trying to, you know, get into this stuff. Um, it was originally, I, I watched a video of Willie on, on McCormick's podcast, but then, uh, that, that same night I DM'd you and then you told me to like check out Glassnode Academy and play around in Excel and stuff. Um, so, you know, do you have any, anything else that aside from those two things, you know, how can people kind of get involved in the space?

• 43:32Speaker 02

  Well, I, I think, um, fortunately for most people, uh, you have very good people to follow, you know, such as Willie, Checkmate, uh, Nick, um, and even though the guy said Glassnode or CryptoQuant, I think most of the information is, uh, has been neatly packaged in all the data service providers. Uh, the most widely used, you know, CoinMetrix, CryptoQuant, Glassnode, and few up and comers like Well, Wellmap and... I don't remember which other, but I think those are the main ones.

• 44:15Speaker 02

  Some of the services are a bit expensive, so you know, once you have skin in the game, I guess you adjust your, the value for that information. A lot of them have free metrics that you can explore to see, you know, if they're useful to you. And I'm not, I'm not sure if CryptoQuant and CoinMetrix. Glassnode has an on-chain academy of sorts, where you can actually track every metric with a very deep explanation of, on what it's actually tracking, how it's calculated, and how you can actually use to extract some signal out of it.

• 45:02Speaker 02

  So yeah, it's pretty much just going to the main service providers, data service providers, and explore their websites. Most of them have very good descriptions of each metric. And in the case of Glassnode, at least from what I know, you have a full, you know, academy on the whole thing.

• 45:22Anthony Pompliano?

  And David, where can people find you on the internet if they want to learn more?

• 45:27Speaker 02

  Yeah, you can follow me on Twitter and Medium at KenoshaKing. It's not keynote shaking, it's Kenosha, like the city. King, like the, you know, like a king. KenoshaKing, that's my handle. I pretty much keep updates on what I do there. So it's the easiest way to follow me.

• 45:52Anthony Pompliano?

  What is the significance of Kenosha?

• 45:55Speaker 02

  So, that's a very good question, because nobody ever asks.

• 46:02Speaker 02

  It's actually a play on words on a Thomas Pynchon

• 46:08Speaker 02

  phrase, the Kenosha Kid from Gravity's Rainbow. I'm a big fan of Thomas Pynchon, so it's just taking the Kenosha Kid and put the king in there.

• 46:20Anthony Pompliano?

  King is better than the kid, I love it.

• 46:23Anthony Pompliano?

  Will, where can we send people to follow you on Twitter or subscribe to your newsletter?

• 46:29Speaker 03

  Yeah, sure. I just wanted to, you know, first say thanks, David, for coming on and, uh, you know, putting up with me, like, bombarding you with charts all day long.

• 46:37Speaker 02

  Give them going, bro.

• 46:39Speaker 03

  You guys saw our conversation. You just see it's like, pretty much me sending him like five or 10 charts in a row, and then he'll just comment back on what he thinks of them. Uh, but anyway, on a serious note, uh, you know, appreciate you and, uh, you know, thanks for kind of communicating back and forth with me. Um, and yeah, so I'm on Twitter at W Clemente III, and then I also do the, the weekly newsletter with Pomp, and then as well on, on my Substack. Um, you can find that in the link in my bio. Uh, it's BTC by WC3.substack. But I want to ask you, David, are you guys doing, are you doing anything else with, uh, ARC, or are you guys done with that kind of series you were putting?

• 47:17Speaker 02

  Uh, we're publishing part three in the next few days to weeks. Uh, I'm not sure the date, but it's coming up in the next, uh, soon.

• 47:27Speaker 03

  And is it like each, each one, you're like progressively going deeper and deeper into the different metrics, or, because I remember like the first one you did was just like really broader, like pot of waves and stuff like that.

• 47:37Speaker 02

  Yeah, so the, the, the way we, we wanted to set up that, that whole piece is, uh, it's a non-chain manifesto, but it's pretty much just trying to divide the different uses, the, the, the, the different, uh, mindsets and roles of market participants, as mentioned, uh, by Pomp and you, and yourself. Uh, it's trying to bring, you know, if you're just a stakeholder or an observant, right? If you're a mic green of the world that maybe tracks some Bitcoin data, but it's, it's not exposing to the asset, those are the metrics for you, described on part one, right? If you're a holder, part two, and now it's, it's going to be more for active managers.

• 48:19Speaker 02

  Just as you know, Ark and Kathy Wood, they are active managers and they have a a different mindset on how to think about Bitcoin. So the part three, it's mostly for active managers, which is different from traders, actually. Traders think very different from active managers. So it's trying to going from the broader to the narrower. And part three is going to be mostly devoted to, it's going to have a few new metrics, brand new metrics that

• 48:54Speaker 02

  Ark and I have devised and shows the mass example of how active managers can use some of this very transform or very specific metrics to get some signal off the market.

• 49:11Anthony Pompliano?

  All right, David. Well, listen, we really, really appreciate you coming on. Will and I have really enjoyed these conversations with various folks, but you're an OG, man. You have been at the forefront of this for a long time. So we appreciate it. We'll definitely have to bring you back in the in the future and keep up the great work. Highly suggest people go follow you and we'll talk soon.

• 49:34Speaker 02

  Thanks for the invite, man.