#846 Investors Are Running To Bitcoin w/ Dylan LeClair

Dylan LeClair is the Senior Market Analyst at UTXO Management, a digital asset fund investing in the analog to digital transformation of money and the emergent financial system. This week, my brother John helped fill-in and interview Dylan. In this conversation, they discuss Bitcoin's recent pump, the short squeeze, market structure, and how the Ukraine/Russia war is affecting the Bitcoin price. Dylan joins us every Tuesday on "The Best Business Show." To see the video with the corresponding charts that Dylan references throughout the interview, go to "The Best Business Show: LIVE" YouTube Channel ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. ======================= Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish Hybrid Order Book pairs the high-performance of a traditional Central Limit Order Book with automated market making. Powered by deep Bullish Liquidity Pools, backed by the multi-billion dollar Bullish Treasury. So, you can trade with certainty and at scale across variable market conditions. Learn more at Bullish.com or follow @Bullish on Twitter. Because the future belongs to the bullish. *Not investment advice. Digital assets and cryptocurrencies are high risk products. Consult your professional advisor before dealing in them. Bullish’s services are available in select locations only and not to U. S persons. Visit https://bullish.com/legal for important information and risk warnings- ======================= Fundrise is largest direct-to-investor real estate investment platform out there, giving you the opportunity to achieve upside of an asset class previously reserved for institutions and high net worth individuals. That’s right, Fundrise is making high-end private market real estate investing accessible to everyone via an easy-to-use, automated platform. See for yourself how over 190,000 investors have built a better portfolio with private real estate. It takes just a few minutes to get started with as little as $10. Go to Fundrise.com/Pomp today and, for a limited time, get $10 when you place your first investment. That’s Fundrise.com/Pomp =======================

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. Dylan Leclerc is the Senior Market Analyst at UTXO Management. He also writes a newsletter with Bitcoin Magazine. In this conversation, we talk about Bitcoin, on-chain metrics, we talk about Bitcoin's price, the market structure, and what to expect in the coming weeks. I really enjoyed this conversation with Dylan, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. This episode is brought to you by Eight Sleep. Eight Sleep is the single best product that I have purchased over the last three years. It completely changed my life. I'm not joking, pay attention. The Pod Pro Cover, which goes over your mattress by Eight Sleep, is the

• 0:47Anthony Pompliano?

  most advanced solution on the market for thermal regulation. It pairs dynamic cooling and heating with biometric tracking. You can go to eightsleep.com/pomp to check out the Pod Pro Cover, and you save $150 at checkout. They currently ship within the United States, Canada, and the UK. And I told you, it changed my life. It helps me sleep deeper, helps me sleep longer. I feel much more refreshed, and I have better energy. You want to know how I have relentless energy every single day? Because I sleep on an Eight Sleep. Seriously, go check it out, eightsleep.com/pomp today. This episode is brought to you by Bullish. Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish Hybrid Order Book pairs the high performance of a traditional central limit

• 1:31Anthony Pompliano?

  order book with the automated market making. Powered by deep Bullish liquidity pools backed by the multi-billion dollar Bullish Treasury. So you can trade with certainty and at scale across variable market conditions. You can learn more at bullish.com or follow @bullish on Twitter. Because the future belongs to the Bullish. Now, this is not investment advice. Digital assets and cryptocurrencies are high-risk products. Consult your professional advisor before dealing in them. Bullish's services are available in select locations only and not to US persons. Visit bullish.com/legal for important information and risk warnings. Go check them out at bullish.com or follow @bullish on Twitter. Today's episode is brought to you by You all know I believe that the best investors both understand and seek out extreme asymmetry.

• 2:15Anthony Pompliano?

  Fundrise is here to help you do just that. It's the largest direct to investor real estate investment platform out there, giving you the opportunity to achieve upside of an asset class previously reserved for institutions and high net worth individuals. That's right. Fundrise is making high end, private market, real estate investing accessible to everyone via an easy to use automated platform. Its 1 million users already know that the investment with Fundrise is capable of producing strong appreciation returns and income generation, while helping to stabilize a diversified portfolio. That's more important now than ever in our inflationary environment. See for yourself how over 190,000 other investors have built a better portfolio with private real estate. It takes just a few minutes to get started with as little as $10.

• 2:57Anthony Pompliano?

  Go to fundrise.com/pomp today and for a limited time, you'll get $10 when you place your first investment. Again, that's fundrise.com/pomp. Go check it out and when you make your first investment, they'll give you $10 on top of it. Fundrise.com/pomp. All right, let's get in this episode. I hope you guys enjoy this one.

• 3:15Speaker 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.

• 3:38Anthony Pompliano?

  Dylan, what is going on, my man?

• 3:41Speaker 02

  John, running the show, huh? Let's go.

• 3:43Anthony Pompliano?

  How are you doing?

• 3:44Speaker 02

  Doing good, man. Doing good. Bitcoin's pumping.

• 3:47Anthony Pompliano?

  What is your, what is your sentiment about the market right now? How are you feeling about Bitcoin kind of increasing, having that giant increase yesterday?

• 3:53Speaker 02

  I mean, it was definitely a massive short squeeze. It was, it was something that I think a lot of people weren't expecting. I was kind of shocked just at the magnitude of it, but definitely not something on a medium term, long term time horizon that, that is shocking at all. I mean, we talk about, you know, coming on here every, every Tuesday and talking, talking the market and talking about a potential decoupling happening. I mean, that's, you know, these days like we had yesterday. That's that's kind of what we're looking at, right? Like equities down, kind of chopping around Bitcoin up fifteen, sixteen percent as a lot of sideline cash and managers all over the world are watching. It was definitely something to behold.

• 4:32Speaker 02

  Nice, nice. And then we have some charts from you that I'd love to get to. Your first chart is talking about the US Treasury bond yields. Can you talk about what this chart means? Yeah, so over the last couple, couple of weeks, couple of months here, we've talked a lot about the kind of the macro environment. And since November, really, the Bitcoin market has has taken a big hit and a lot of the stuff that we're looking at from a market perspective. You know, in terms of Bitcoin is actually quite healthy. We weren't seeing a huge distribution happen. We weren't seeing the traditional kind of bear market. You know, the bear market metrics that you see in terms of on-chain, what you're really seeing was those kind of macro sellers, right? Because you had the Fed kind of pivot with inflation at at forty year highs.

• 5:16Speaker 02

  And really what you started to see was the bond market started to croak. And so you saw yields were selling off in a big way, rising, which means that credit was selling off and the equity market took a downturn as well. And so I think just just recently, in the middle of February, what you saw was yields actually look to have at least momentarily topped. And you saw kind of a Fed pivot with with this next chart. I have the Fed funds. It's basically the Fed funds futures. So here is basically a prediction market or futures market for for how many hikes the Fed is going to get in. So we have it for March, June, September, December, and you can kind of see a big reversal in a lot of these in the middle of February.

• 5:56Speaker 02

  And at the same time, coincidentally, you also saw the price of Bitcoin bottom in a big way. And so I think that's that's the market walking back how many hikes that the Fed is going to get in, basically saying, we're not going to be as as tight with future monetary policy. And, you know, something like Bitcoin is going to react in a big way to that. Yeah, we obviously had those rates come down a ton since since the pandemic started in early 2020. But then you have a chart talking about the target Fed fund rates. Can you just talk about what you mean here? Yeah, so this is basically, this next chart is showing this dynamic. In are you talking about the chart that we just showed or the next one? The next one, the next one, the the target. Yeah, so this is for the March meeting and basically this is the market's probability of

• 6:40Speaker 02

  of how many rate hikes are going to come in March in real time. So you see basically until like, what was it like January, February, there was like the market was giving no chance for the Fed to hike whatsoever twice. So two rate hikes would be a 50 basis point rate hike. And all of a sudden in February, you what you saw was that probability blew out to 94%, 93.75%. And this chart actually put it up yesterday, the market's now giving the Fed a 5% probability of two hikes and basically 95% chance of only one hike. And so what we saw was kind of this peak moment of hawkishness and and equity markets Bitcoin cratered and and the volatility across asset classes really blew

• 7:24Speaker 02

  out. And so we kind of see with this chart, you see that Fed put almost in real time. It's quite remarkable. And I think it just kind of speaks to to where we are in terms of the, you know, the macroeconomic environment. Yeah, and it's giving it a 0% chance for no rate hike. Yeah, I mean, we'll see about that. I think the Fed's kind of cornered politically. And so, you know, there's a lot of pressure on them and 25 basis points. It's it's not that much when you think of inflation at, you know, 7%, maybe maybe higher with a lot of this kind of geopolitical uncertainty happening over in Europe. So we'll have to wait and see. But yeah, I think I think more so than anything, that 25 basis point hike is just kind of a symbolic thing that hey,

• 8:06Speaker 02

  we're doing something here. We're not, we're not letting this thing just completely run on its own. Gotcha. And then Bitcoin is obviously a very volatile asset, but it looks like the S and P is also pretty volatile, based on what you're showing here. Can you talk about this S and P and then the volatility index? Yeah, so we've, we've talked a lot about the VIX, which is this volatility index. And it's kind of a sentiment or a gauge of of risk off in markets. And so you saw in March of 2020, this this volatility index really blew out. And it was at the same time, if you overlay the Bitcoin chart, when the VIX, you know, really Really went to like eighty, it was the same time that Bitcoin cratered like fifty percent in just a matter of days or even in the same day. And so what we see here is we're kind of now entering

• 8:50Speaker 02

  this regime of of higher volatility in general for for equity markets. And so if you overlay this on on shorter timeframes with the Bitcoin price, you saw that the local bottom in twenty twenty-two was when the VIX hit thirty-eight. So it was like that local high in the VIX was the local bottom for Bitcoin. And and as that volatility came back in, lowered a little bit, Bitcoin recovered, the S and P recovered. And so I think we're in this regime of of higher volatility in general for equities. And so I would expect the volatility to remain there for Bitcoin as well. But it just kind of shows, you know, how shaky things are with with this kind of regime of high, high inflation, low yields, and credit markets are kind of gurgling under the surface.

• 9:30Speaker 02

  Are you looking to see that volatility be be correlated in the future as well? Or do you think that's kind of like a one-off instance with Bitcoin and the S and P? Yeah, I think it just kind of this this really shows, or I guess quantifies kind of the risk-on, risk-off sentiment. And really, if anything, I think the one of the bigger reasons why Bitcoin bottomed first is you have kind of two types of allocators in this asset class. I mean, more than that, but generally speaking, you have the kind of crypto natives, Bitcoin native adopters that that aren't aren't trading based on vol, you know, volatility in equity markets or credit markets, and they're just adopting Bitcoin as a monetary asset, and maybe increasingly so as

• 10:10Speaker 02

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

• 10:50Speaker 02

  That's why we saw this momentarily decoupling, but in the future, I expect, you know, that correlation will remain at least to an extent because kind of everything, especially Bitcoin equities is a function of this like central bank liquidity tide. And if they, you know, if the tide pulls back, Bitcoin is going to, going to struggle to do great, even though I, I think outperformance is, is still my base case over a, a longer term time horizon. So I expect correlation to remain, but I think, you know, what really defines Bitcoin is these momentary periods of huge outperformance where a lot of your returns will, will be made. Gotcha. Yeah. So those, those returns will be in like short bursts. And then we have another chart talking about the Bitcoin supply and what has moved in the last three months. Can you, uh, can you talk about this chart?

• 11:32Speaker 02

  Yeah. So, you know, throughout this, this drawdown, we've, we've highlighted, um, you know, I have on, on the show as well as just kind of in general, um, highlighted how strong the on-chain side of things were, uh, in terms of, of Bitcoin, uh, supply and just how really we hadn't really seen the demand side come in. So, so if and when those macro tides turned, which we've seen a little bit, I don't know if we're out of the woods yet in terms of macroeconomic geopolitical uncertainty. But if and when those kind of tides turn in terms of marginal sellers becoming marginal buyers, what we'll really see is, is a big outperformance. And so what we're seeing here is the percent of supply, Bitcoin supply that's circulating supply that's moved within the last three months is near all time lows.

• 12:15Speaker 02

  It's not quite at all time lows, but it's just there. And so we kind of have this really, really small free flow of Bitcoin out there that are being traded that are available, uh, on the market. And so this is just kind of showing just, you know, we're in quite rare air. It's, it, this is far from what a top looks like, and you can definitely see that from the price action itself. Uh, but really this is just kind of showing how squeezy, uh, the market kind of, kind of can be. And so I think this is one of the things that we've been showing. Uh, but I, I kind of love this chart just to show, you know, how prime the Bitcoin market is to explode higher if we see those, you know, marginal buyers return in a big way. And we, we just started to see that yesterday, in my opinion. Would you expected a bigger move, uh, percent wise of coins, given what's happened internationally in the last month or so?

• 13:00Speaker 02

  Is just kind of right on target. Yeah, I mean, I think really what this is showing is just like kind of that convicted hobler base, just continuing to scoop up those coins. Especially, you know, we saw these really low figures throughout much of 2020. We saw somewhat of a distribution into 2021 as Bitcoin went parabolic. And since then, we've seen a reaccumulation with a slight deviation of trend with somewhat of this macro uncertainty. But I think really, you know, the exciting thing is that we have a potentially a bunch of new allocators into this asset with all of the stuff happening geopolitically from kind of like a, almost like a risk off standpoint, where, you know, sovereign debt has become a lot more risky, where we have sanction risk, credit risk,

• 13:43Speaker 02

  all of this stuff happening, you know, there's 150 million people in Russia and you really have to feel for them because there's an autocratic dictator doing all this stuff that that they probably have, you know, want nothing to do with and their currency devalued by 50% overnight, their stock market crashed by 50% overnight and they're basically shut off from the global financial system. So, you know, it's, I think it's somewhat a little bit insensitive to be like, hey, Bitcoin fixes this Bitcoin, Bitcoin, Bitcoin, when a bunch of people are suffering and there's a war breaking out. But ultimately, this, this does highlight the need and importance of this, of a global decentralized monetary system that anybody can voluntarily opt into, right? The censorship resistance of it, you know, Russians that have nothing to do with Putin are, you know, being punished because of this.

• 14:28Speaker 02

  And so I think there's, there's a lot of new allocators to this asset that, you know, are gonna, gonna enter in the next, you know, in the coming weeks, months, years that, that haven't had exposure before. Gotcha. And then you have two charts here talking about the BTC alley perps. Can you just go ahead and talk about what this chart means? Yeah, so part of the reason why Bitcoin, you know, we, we talk about derivatives a lot and there's, you know, we talk about the macro, we talk about on-chain and, and really what makes these, and those two things matter a lot. But overlay that with, with derivatives and that's why you see these really explosive moves. There's a reason that Bitcoin will, you know, do nothing for a couple of days and then sometimes, you know, it seemingly randomly explodes.

• 15:10Speaker 02

  Load fifteen percent up in a day and a lot of that has to do with how people are positioned in derivative markets. And so we have this purpose funding rate, which basically, which is basically, you know, this derivative market is tethered to the spot market. Is tracks a spot market through this funding rate. So if derivatives are higher than the spot price, we're going to have is is long positions are going to pay short positions just to enter the market. So it really places a financial incentive to keep this derivative market close to that spot price. And with this kind of color of scale, this blue and red, we see when those that funding rate is positive or negative.

• 15:47Speaker 02

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

• 16:31Speaker 02

  Yeah, it seems like everyone's trying to judge if we're in a bearable market and people don't really know. What are your thoughts on are we in a bear market, a bull market? Are we neutral right now? Yeah, I mean, you know, there's a lot of technical definitions in Wall Street. It's twenty percent off the highs is a is a bear market. And so we've, in Wall Street's definition, we've been in a bear market for a while, but I think we're kind of in a in a secular bull. And people may say, you know, a couple of weeks ago, how are we in a bull market fifty percent, you know, closer to sixty percent off the highs? And I really just think those that traditional four year cycle that a lot of people think about of of parabolic boom and then eighty percent bust. That's that kind of mental model may be a little bit obsolete and not saying we can't draw down eighty percent or go parabolic again.

• 17:15Speaker 02

  But just, you know, the profile of Bitcoin, the liquidity profile of Bitcoin, the asset has. Has changed and that there's no doubt about that. And so, you know, you're seeing a lot of people basically use it as a check on the Fed. It's kind of like a a signal of of central bank responsibility. And that's kind of what I was trying to display in the first couple of slides. So to put a bull or bear label on it is pretty tough. And I think, you know, there's some, there's some headwinds with the macro environment that, you know, Bitcoin could just chop around here a little bit. But it is, it is very telling to see this massive decoupling. And I know personally, there's a lot of risk managers that are watching the move over the last couple of days and and feeling like they are, they are fully underexposed. And so I think that's a catalyst for potentially much higher prices over the, over the coming year.

• 17:59Speaker 02

  Yeah, we saw we're about 36% down from the all time high. So by Wall Street's definition, we're definitely in a bear market. Yeah. And maybe, maybe something more like 40 or 50% in Bitcoin is more appropriate. So, you know, maybe, maybe we are technically, maybe we aren't. I think more of a crab market where we're chopping around a little bit is, is the answer. And then does it matter how long we actually stay down for? To be considered in a bull market or a bear market? Yeah, I mean, I'm not, not too sure there. I mean, in terms of how, how I'm playing it, I'm happy to accumulate. I know, you know, it's, it's nothing but a thing like, like I've been saying. And so, yeah, I'm sure, I know you

• 18:37Speaker 02

  pop guys are feeling no different. It's just nothing but a thing. And I, I don't really worry too much about the technicalities of, of bull or bear. It's just, you know, it's just the market. Gotcha. Gotcha. Yeah. And then we have another chart talking about kind of the Bitcoin price and then open interest? Yeah. So this is just kind of showing that, that short squeeze, right? So we have open interest contracts and for, for viewers, there are for every short, there's a long. There can never be more longs, more shorts. It's always equal positioning. So what do you, what do you see when Bitcoin is pumping from say 42 to 44,000 like it did yesterday? We see how, how underneath pain, how open interest tanks at the same time?

• 19:16Speaker 02

  That, what that means and maybe their liquidations, and maybe they're not. I, I believe a lot of it was just shorts closing out before their liquidation price. But open interest tanking as Bitcoins pumping means that the move was shorts covered. Their their positions and actually the open interest was declining as a result. So it was people that sold their Bitcoin via derivatives, sold Bitcoin derivatives, and then had to cover as the price was rising. And so that was basically a textbook short squeeze yesterday. So it's just kind of a visual on what we're talking about in terms of, you know, the these derivative market dislocations. Gotcha. And then moving forward, how are you thinking about kind of your Bitcoin and what you're doing in the market with your personal money? Is it just still accumulating here or?

• 19:59Speaker 02

  Yeah, I mean, you know, I've been I've been growing my Bitcoin stack and a little bit of a cash position for a while here. I, for the most part, I'm always a buyer. And so while I do kind of do a little bit more more stuff with derivative market positioning, then I would probably advise for the average person in terms of, you know, just maybe sometimes shorter timeframe, medium timeframe positioning, hedging, all that sort of thing. You know, I'm a buyer every hour, like I've said, and I'll happily do that at the highs. I'll do that at the lows and everywhere in between because I think Bitcoin is the best money the world's ever seen. So, you know, there's the trading aspect of it. There's the market analysis aspect of it. Kind of, you know, asymmetric risk reward opportunities, but longer term, you know,

• 20:43Speaker 02

  there's there's nothing that can compete with Bitcoin as a monetary asset. And so in that sense, it always makes sense to be a buyer. Yeah, I agree. And you and myself as well, I think we have the advantage of being young, being able to take that kind of long time horizon instead of, hey, I need liquidity within two years, five years, whatever it may be. With Saylor's quote, he goes, the best time, the best timeline for investing in Bitcoin is forever and never selling it. So we'll see where the technology goes. And then Eight Sleep is one of our sponsors here. What like crypto trades 24/7. So how has your sleep changed over the last year or two as you've gotten more into it? Yeah, I mean, it's definitely, especially with with, you know, having some, maybe some positions, trading, all that.

• 21:24Speaker 02

  It definitely makes it fun to, you know, never to never have an off day trading 24/7.

• 21:31Speaker 02

  Five, I mean, uh, it definitely doesn't help probably, you know, it'd be nice to have a have a weekend off here, but it makes it exciting. And, uh, you know, so oftentimes the biggest moves come on like a Saturday night or something crazy. So, uh, you know, it probably doesn't help my sleep schedule, to be honest with you.

• 21:48Anthony Pompliano?

  Gotcha. Gotcha. All right. Thanks Dylan for joining us. I really appreciate it. Um, we also, where do we send people to find you on the internet?

• 21:54Speaker 02

  Yeah, you can just find me on Twitter, Dylan Leclerc underscore. Um, a lot of the charts I showed today are a sneak peek or preview of, uh, the monthly report we're dropping on Wednesday. Uh, so check that out, uh, on the, for the deep dive. You can find that in my, uh, the link in my bio. Uh, so it's a letter that I produced with Bitcoin Magazine covering kind of all the stuff, macro, uh, on-chain analytics, Bitcoin derivatives. Uh, we like to kind of put it all out there. So, uh, appreciate you having me on. And, uh, you know, you're killing it solo today, man.

• 22:24Anthony Pompliano?

  Appreciate that.

• 22:25Speaker 02

  Catch you later.

• 22:27Anthony Pompliano?

  Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.