#755 Bitcoin On-Chain Metrics and Leverage 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. In this conversation, we discuss bitcoin, on-chain metrics, market structure, and what to expect from the rest of the bitcoin bull market. ======================= My friends at Coin Cloud will give you $50 in FREE Bitcoin when you buy $200 or more at any of their 4,000+ machines. Use promo code POMP to get your free Bitcoin. For details or to find your nearest Coin Cloud machine, visit www. Coin. Cloud/Pomp Coin Cloud has been serving customers since 2014 and has established itself as the world's leading digital currency machine (DCM) operator. More than just a Bitcoin ATM, Coin Cloud machines make it easy to buy and sell Bitcoin and 30+ other digital assets with cash. To find your local ATM and get $50 in free Bitcoin, visit www. Coin. Cloud/Pomp ======================= With 10M+ users, Crypto.com is the easiest place to buy, and sell 100+ cryptocurrencies. The Crypto.com Visa Card gives you up to 8% back instantly, and 100% back on Spotify and Netflix. Also, Crypto.com lets you earn up to 8.5% p.a. on BTC, and 14% p.a. on stablecoins. Get $25 when you download the Crypto.com App with code "pomp". Download the App now: https://crypto.onelink.me/J9Lg/pomppodcast2021 ======================= Ethernity.io: The world’s first authenticated and licensed NFT platform, trusted by over 150,000 members. Digital NFTs and exclusive real-world unlockables, authentic partnerships with athletes and artists. Visit Ethernity.io, where you can buy and sell authenticated NFTs from top notable figures, rights, license, and IP holders you can’t find anywhere else; the start of an entire ecosystem bringing utility to #NFTs. =======================

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. First up is Crypto.com. They're helping to mainstream the crypto industry, signing major global partnerships with multiple sports, including Serie A, the Italian Football League, the UFC, and my personal favorite, Formula

• 0:44Anthony Pompliano?

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• 1:27Anthony Pompliano?

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• 2:11Anthony Pompliano?

  team I've found that does things right. They put together a special offer for listeners of the show. You can get $50 in free Bitcoin when you buy $200 or more at any CoinCloud machine and use the promo code PUMP. Again, find your local ATM at coin.clohead/pump, coin.clohead/pump and use promo code PUMP. Last but not least are my friends at Athernity. You might have noticed just how many NFT projects are coming onto the market lately. The problem? It's becoming harder and harder to determine the true lifelong value of NFT collectibles. Meet Athernity, the world's first authenticated and licensed NFT platform, trusted by over 150,000 members. On Athernity.io, you can buy digital NFTs and redeem real-world

• 2:55Anthony Pompliano?

  unlockable collectibles and experiences. At Athernity, our team believes in transparency and legitimacy. That's why they partner directly with the individual, the team, the brand, or the league, so you know what they buy is the real deal with a value that will stand the test of time. So visit Athernity.io to register for upcoming collections, buy and sell in the marketplace, and much more to come, from the app to packs to virtual worlds and gaming. Go visit them at Athernity.io. Again, that's Athernity.io. All right, let's get in this episode. I hope you guys enjoy this one.

• 3:28Speaker 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.

• 3:51Anthony Pompliano?

  All right, we got Dylan, we got Dylan Leclerc is coming on to talk about on-chain metrics and market structure. Dylan, you there? Yo, guys. What's up, man? How are you? Living, man. Living. Fun times. All right, it's very, very, very fun times. Uh, let's start first just with, give me a sentiment check on Bitcoin, the market, macro, etc. Like, how are you feeling right now? Yeah, I don't think we've talked since.

• 4:15Speaker 02

  Bitcoin nuked on the weekend, what was it, two weeks ago? That was fun. Got some liquidations, some volatile price action after some consolidation. I'm feeling good. I think a lot of, a lot of people were expecting Bitcoin to go parabolic, including myself. I'm on the record for saying that. But I don't think the structure of, of I guess this, this bull market or what Bitcoin's gonna do in the coming, coming months and years has, has really changed at all. It's just, you know, what Bitcoin does kind of takes the path of Max Payne.

• 4:43Anthony Pompliano?

  All right, let's look backwards before we kind of look at where we are right now. Walk us through kind of your understanding of we absolutely busted through all time highs, went to $69,000, nice. And then we've drawn down into the 40s. What's driving a lot of that? Is that macro shock? Is that just pure liquidations? Market got too frothy, too much derivative stuff? Like what's really driving that drawdown?

• 5:05Speaker 02

  Yeah, I mean, so a lot of it is that, you know, derivatives or, you know, traders, speculators were, were out of position. So, you have the underlying spot demand for Bitcoin. You have people like yourself, like, you know, the listeners of this show. People going out and just buying Bitcoin on Cash App or Strike or Coinbase or whatever it is, and they're exchanging fiat for dollars. And then there's kind of speculators that can use Bitcoin, they can use other cryptos, they can use stable coins and they can basically on margin or with leverage, bet on the price of Bitcoin to go up. And if you see too many people kind of off sides doing that at once, essentially, you know, when the price broke 69,000 or briefly tapped it there, a lot of the market was levering up.

• 5:49Speaker 02

  And so, so you kind of see even traders that are bullish on Bitcoin, you know, whales with, with a lot of capital, who are long-term extremely bullish on the asset will, you know, try to, try to get those and successfully did get those, those traders liquidated, you know, make them forced sellers. And so that's kind of what a lot of this price action is recently. I think some of it has to do with a little bit of macro uncertainty. Oh, you know, the Fed is, is starting to taper. I included some charts about, you know, euro-dollar futures and the, and the Dixie, which we can talk about in a minute. But I think there is some sort of, you know, risk off sentiment in markets. We saw the VIX, which is the volatility index for the S and P spike, right before those, that massive weekend liquidation a couple of weeks back,

• 6:30Speaker 02

  hit, hit, I think 35, which was the highest it had since, since January of this year. So there was more of just a risk off element, you know, it wasn't just Bitcoin. But I think, you know, that's, that's getting priced in and has. Been getting pricing for the last week or two.

• 6:44Anthony Pompliano?

  All right, let's talk about now. We've got Bitcoin realized price and currently the market cap sits at about 892 billion, which newsflash is below a trillion for those keeping track at home. But the realized cap's only 461 billion. Tell us kind of what you think this is showing us.

• 7:02Speaker 02

  Yeah, so I kind of color coordinated this chart over time and you can kind of see realized price. It's like almost like a non volatile Bitcoin chart, right? It's not as, you know, much of a boom and bust and more just kind of a steady uptrend with these, these big reevaluations. Every, you know, highlighted in green. And so, so the green is, is basically a bubble market and that's when the realized price, this orange line is, is curving upwards, going parabolic. And so realized, realized cap, realized price. Realized cap is basically the aggregate of every UTXO or every Bitcoin technically on the network when it was last moved. So that's kind of, I would, I like to call this like almost not an intrinsic value, like maybe a subjective value

• 7:46Speaker 02

  of Bitcoin and network. And we can see this with full transparency. And so basically realized cap or the realized price has been somewhat of a bear market floor. You've seen it cross under that a few times throughout history and that's been generational buying opportunities. But I think realized cap, realized price is like the most pure form of kind of quantifying the monetization process of Bitcoin. And so right now we're kind of in this consolidation phase where realized cap is appreciating to the tune of about 700 million since the bottom of the market in May or in June. And so, you know, we're still increasing, but we're not, we're not seeing the tens of billions, hundreds of billions of dollars of inflows into the market, which would, you know, need, need the price, which we'd need to see for the price to go parabolic.

• 8:30Anthony Pompliano?

  Okay. And then what about taking this exact same realized market capitalization, but doing the 14 day moving average? You've got these really fancy arrows that you drew on here. What was this showing us?

• 8:40Speaker 02

  Yeah, it's just the same chart is zooming in a little bit. You can kind of see what's, what's happening at a closer view. And so I put the 14 day moving average just to kind of smooth out some of the volatility. But what you see is the slope of that realized cap. For that realized price increase is kind of showing these market phases. So the reason that this that realized price or realized cap goes kind of vertical is two reasons. There's one, old coins are selling, but it's really that's that's because of the first reason, which is there's so much capital, there's so much, you know, new money flooding into this market, flooding into this asset class. And so you get a combination of those two, you get a basically a green bull market. You see this, you know, realized price appreciate by maybe an order of magnitude or two.

• 9:23Speaker 02

  And so we're not in that kind of green phase yet where we're seeing these massive capital inflows. But I think the catalyst is what's to come in potentially 2022 or later. But and that's kind of the macro uncertainty in the macro situation that we're we're seeing play out in real time.

• 9:39Anthony Pompliano?

  Okay, before we move on to the next chart, I want to go back to the zoomed out version, the first chart that we showed. And again, I'm not a genius, but I can read colors. And every time I see yellow, it's followed by green. I never see yellow then red. Is that a rule? Is there any like a way else to read into this? Or do you always get green after yellow?

• 9:58Speaker 02

  Yeah, I mean, that's historically, that's what we've seen. The red means essentially that there's there's on chain losses, there's realized losses. So a coin's acquired in 2017 for 20K on chain. And you can see this with full transparency in the Bitcoin UTXO set. Anybody can can spin up a full node, download the entire history of the network and see this happening. And that coin later moves for, say, $3,000 in 2019. That's a that's a realized loss. There was a $17,000 loss on chain. You can if it was one Bitcoin, you know, this is just an example. And so when you see basically like, say, at the top of the market in 2017 to the bottom of the bear market, the realized cap decreased by like one or the realized price decreased by like $1,000.

• 10:41Speaker 02

  And so so basically, the whole time, that whole 80% drawdown, it was just coins transferring hands and a lot of top buyers were transferring those weak hands or transferring to strong convicted hodlers. And so, yeah, I think I think, you know, the yellow is always followed by the green because I labeled it accumulation slash pre parabola. And that's just kind of what you see is that, you know, just Steady increase that's that plateaus or you know a slight uptrend that's that's kind of the you know mark of a of accumulation trend and then following accumulation that's usually when Bitcoin goes parabolic but you know history rhymes but you know doesn't

• 11:17Anthony Pompliano?

  Let's see what happens. All right, let's get to our third chart here. We've got the Bitcoin market value to realized value ratio. Explain what this is before you tell us what this chart's showing. It's just for the people that have forgot.

• 11:27Speaker 02

  Yeah, so I'm just basically taking the first couple of charts we showed and we're just running a ratio of that. So when realized when the when the price goes far above the realized price, you can see basically like the past bubbles in the Bitcoin market, you see this ratio really overextend to the upside. And so that's kind of, you know, even if you're super bullish long term on Bitcoin, the lower this goes, the more attractive it is to buy on a relative basis. And so you kind of see at every top of the bull market, this this ratio really overextends. The price has been up at the margin and not a lot of activity is happening on chain in the sense that not a lot of coins are moving. And so any new buyer has to come in and really has to push up this price on the margin. And then there's this massive kind of

• 12:09Speaker 02

  distribution and reaccumulation. And that's when this ratio kind of bottoms. And so I'm not saying we're going to go to this below the green line, which means that price would go below the realized price, which is currently 25K. But that's that's kind of the the ultimate floor. And we see that floor kind of rising every single day. You see these these kind of reevaluation bubbles happen with Bitcoin. It doesn't trade in linear fashion. And so the market value to realize value ratios, I think, is one of the best tools to kind of evaluate this process happening in real time. And you know, despite all the volatility, essentially, you're just seeing this this asset accrue value in real time with full transparency.

• 12:45Anthony Pompliano?

  If Bitcoin went to $25,000, I'd sell this table, this computer, this microphone, everything y'all ain't gonna hear from me. I'll be backing up the truck. I hope that happens.

• 12:54Speaker 02

  Likewise.

• 12:55Anthony Pompliano?

  Yeah, we'll be doing videos off our phones and sitting on the floor together. It'd be perfect. All right, you also have two charts here, which I don't think we've covered before. The first one is December 2022 Euro dollar futures. And I know most people don't know what this is. So explain what we're looking at here, why you Think this is important.

• 13:13Speaker 02

  Yeah, so the euro dollar market or euro dollar futures, it's essentially the offshore dollar market. And what this is showing is essentially it's it's a futures market betting essentially betting on on the Fed funds rate. Right? So this is December 2022 and a euro dollar market at 100 would mean that the Fed funds rate is at zero, zero, zero basis points. And so if the if the euro dollar futures market is at 99, what that's saying is that basically traders, the consensus right now in the market is that the Fed is going to hike three times in 2022 from 25 basis points to 100 basis points. And so this is something that I think, you know, even even just 100 basis points, 1% Fed funds rate,

• 13:55Speaker 02

  it's pretty laughably low with inflation at 6, 7%. But, you know, I think there is some cost for concern potentially with how risk risk assets such as equities and a lot of just, you know, really everything in the everything bubble is priced off these laughably negative real yields. And so if the Fed hikes three times, I think there potentially could be some sort of maybe risk off event or some sort of volatility. And it's just one of the things that, you know, that we're keeping an eye on and heading into 2022.

• 14:24Anthony Pompliano?

  Okay, then we've got the US dollar currency index, the DXY. Why is this important?

• 14:29Speaker 02

  Yeah, so it's kind of interrelated with the Fed's fund rate, but the, you know, everybody likes to talk about, including myself, about inflation in the US, CPI, maybe, you know, PPI, the the producers index coming in at 10% year over year. But, you know, what's what's really important in terms of the global financial system is the dollar relative to other fiat currencies. Because, you know, us in the US, you know, domestically, we're worried about what things cost in in dollar terms. And when that's rising, we're saying inflation's inflation's bad. But a lot of foreigners, you know, there's a lot of foreign denominated or US denominated debt out there held by foreigners. And so when the dollar is strengthening relative to their currencies, to their local currencies, whether it's the euro,

• 15:13Speaker 02

  the N, the ren, the renvee in China, you know, these foreigners have to sell dollar denominated assets. And Bitcoin is, you know, is is the denominator in Bitcoin is the dollar. And so say in March of 2020, what do you see the Dixie do? You see that that's super spike and that's basically the reason every single asset on the planet sold off in a huge way. You can think of it as the dollar was getting bid in that scenario. And so the dollar strengthening throughout 2021 relative to other fiats is notable. And if this trend continues, you can kind of expect some some downwards pressure on risk assets, Bitcoin included.

• 15:48Anthony Pompliano?

  Got it. And then when you start to look at this next chart that we have here, this is the historically, the historical daily transfer volume. I have no clue what this means. So you're gonna have to educate me along with everybody else. What is this showing us?

• 16:00Speaker 02

  Yeah, so this, these next two charts here, a little bit different than our kind of usual usual talk, but I've seen a lot of chatter recently, especially with Ethereum and Bitcoin and the EBT C chart kind of nearing breakout levels. And so I will, we'll talk about that in a second. But what this is showing is the historical daily transfer volume of the Bitcoin network. And I apply just a two week moving average to it. And then I, the, the orange line of what it's showing is what is the transfer volume? And this is change adjusted transfer volume for those that are a little more technical.

• 16:33Speaker 02

  But you know, disregard that. But this is showing, the, the orange line is showing how much volume is being transferred on chain for every $1 in fees. And so what we essentially see is over the last decade from 2011, I just, I just chose a date on the chart to today, despite Bitcoin's daily transfer volume going from 100,000 to 50 billion. The settlement efficiency of the Bitcoin network has stayed the same. And so, and so it's pretty, pretty remarkable to see that despite this thing being adopted by millions, tens of millions, hundreds of millions of people and the on-chain transaction volume in dollar terms increasing by orders of magnitude.

• 17:12Speaker 02

  The settlement efficiency of the network has actually, depending on where you're plotting it against, has actually increased. And so for anyone that's saying Bitcoin is inefficient or slow or can't scale, they're not looking at the data or they're uninformed. And so I think, you know, it's, it's pretty. Pretty remarkable when you when you kind of dig into it.

• 17:29Anthony Pompliano?

  All right. And now the last one we have is you line up Bitcoin and ETH mean transfer volume per $1 in fees. What is this showing us?

• 17:38Speaker 02

  Yeah, so this is kind of what I was referring to a little bit earlier. You know, there's a lot of especially on crypto Twitter or people that are coming into the space. They like to pit Bitcoin and ETH against each other. And I think I think it's really just missing the point in that they're two entirely separate things by far. Bitcoin is a global monetary asset. It's apolitical. It's a non sovereign digital bearer asset that no one can manipulate, that no one can change. It's meant to do two things extremely well better than anything before, and that's store and transfer value across the internet in a digital native way. Where Ethereum or, you know, other cryptocurrencies, as they're called, are, you know, smart contract platforms, or you can build DApps or DeFi protocols and all these sorts of other things.

• 18:23Speaker 02

  It's not competing with Bitcoin. And I think the framing in general by most people, especially in the crypto space, you log on to Coinbase, one and two Bitcoin and ETH. And people say, what's better? What should I own? You know, is ETH going to flip in Bitcoin without really understanding that the the two markets that they're competing for are completely different? And, you know, despite maybe them competing for inflows because people download the Coinbase app, they're really just not competing. So what this is showing is essentially that, you know, I just in the previous chart, we showed Bitcoin's transfer volume per $1 in fees. And that basically that settlement efficiency staying constant for the last decade with some volatility. And this chart is showing Bitcoin versus ETH in that regard.

• 19:03Speaker 02

  And so as Ethereum scales, as blockchains in general scale, with Ethereum doing NFTs, DeFi, DApps, ICOs, whatever the next thing that Ethereum or these smart contract platforms can do. It's in in terms of it as a settlement network, a value settlement network, it's it's far inferior compared to Bitcoin. So for every for every $1 fees Ethereum, the base layer transfers $212 of value with Bitcoin at $67,000 of value. And so I just think the framing is wrong in general. I get a lot of questions. I get a lot of DMs every day. What do you think about Ethereum? What do you think about Solana? What do you think about XYZ? And I think just in general, the total adjustable market for

• 19:46Speaker 02

  for apolitical, non-sovereign money in in the digital age is a few hundred trillion dollars. And the value of a smart contract platform, or you know, whether it's centralized, decentralized, or somewhere in between, and you can have that debate all day. I think it's it's just different. And I think it's a lot less, but that's just a personal opinion. So I think in general, the framing is wrong. And I think this kind of data is pretty interesting to look at.

• 20:11Anthony Pompliano?

  Okay, so I got a couple more questions. And we're going to take some questions from the audience and my brothers as well. First one is 90% of Bitcoin has now been mined. We talked about it earlier on the show. What's your thought process there? Is that an important milestone? Or, you know, it was 89.9% a couple of days ago. Now it's 90. It's a round number. It sounds nice, but doesn't really change anything.

• 20:30Speaker 02

  Yeah, I mean, I think it's it's just pretty remarkable when you think about, especially just in 2021, all of the the, you know, announcements and all of the news of new kind of capital flooding into the Bitcoin mining space. I don't know how many there are. I think 20 publicly traded miners in the United States. And you just you see just these companies raising massive amounts of capital to invest to mine the last 10% of the Bitcoin supply over the next 100 years. And that supply issuance is the curve is, you know, front loaded. So you're going to see 5% of that or around 5% of that Bitcoin mined in the next, you know, about four years or so. And so by 2030, I think it's around 99% or very close to it. But just in terms of how much capital, how much resources,

• 21:13Speaker 02

  and how much energy is going to be dedicated to mining this last 10% of Bitcoin issued, it's pretty remarkable. And it makes me it makes me FOMO and buy some more Bitcoin.

• 21:24Anthony Pompliano?

  All right. The other thing is that we just saw while we've been talking Lemonade, which is a publicly traded tech-enabled insurance company, they've added Bitcoin to their balance sheet. It's a very small amount. It's around a million dollars or so. How do you think about public companies adding Bitcoin to their balance sheet? We've obviously Michael Saylor continue to buy aggressively. Is this just a continuation of the trend? Or do you feel like there's been Some shift in sentiment among public executives.

• 21:50Speaker 02

  Yeah, I mean, I think there's still, you know, Michael Saylor is far ahead of the curve. And I think if you're, if you're watching this and, and are actively stacking Bitcoin, you are ahead of the curve as well. You know, these, these companies and these corporations, these institutions, they move really slow, have a lot, some, you know, Michael Saylor has 75% of the voting rights at MicroStrategy. He can do what he wants. A lot of these companies, you know, like Twitter doesn't even have Bitcoin on the balance sheet and Jack was the CEO. So what is, you know, kind of what does that say in terms of other kind of competing interests and just the information asymmetry? And so I think, you know, that trend is, is going to continue and it's going to pick up. But just in terms of allocating to Bitcoin from a corporate level, the accounting standards still are kind of unfavorable where if Bitcoin draws down, it's a, it's a loss on your earnings.

• 22:36Speaker 02

  Some of these things, they will change in the future, but I think that the trend where you see pensions, you see corporate treasuries, you see insurance funds, just, you know, just a small allocation to begin with, they're allocating for years, decades into the future. And I think that's, that's just something we're going to see continue, but it'll take some time.

• 22:54Anthony Pompliano?

  All right, Joe, John, what questions do you have? And then we'll do audience questions. Hey, Dylan, I just want to know, like, just give us your general thoughts on kind of where we're headed for the next three, six, nine months, kind of seeing everything in the market structure, not necessarily price wise, but you're just what you're seeing kind of on chain and your overall feeling.

• 23:08Speaker 02

  Yeah, so I mean, I would really love, honestly, I think just some more consolidation as, as an adding as it is for some that want to see us go parabolic. I think just from kind of what we're seeing on chain from the derivative side of things where traders keep getting ahead of themselves, I think do for some, for some choppiness. I think a lot of the speculators, it'd be, it'd be great if, if they left the market and, you know, I'm not, not hoping anybody leaves or gets burned, but I think some, some boredom would do us good. And I honestly think the next kind of bullish catalyst is, is you're going to see the Fed try to hike, they're going to try to taper their asset purchases and just off of, you know, going off historical precedent of the last, you know, really 20 years, anytime

• 23:51Speaker 02

  the Fed has tried to pull back the stimulus, pull back the punch bowl, it blows up in their face. And I, I don't think this time is different at all. And so I think that's, that's really when you see Bitcoin just explode is when, you know, the taper, the. The, you know, rate hikes just blow up in their face and that's when Bitcoin is, is going to get bid. Probably similar to March of, of 2020, when, when everything sells off and then Bitcoin recovers first and then outperforms everything. I would, I would imagine that, uh, would repeat again. And so that's kind of my sentiment over the next, uh, really year or so. I mean, however, long the timeline takes, I think, I think Bitcoin is more of a macro asset than ever, and I think that's really bullish.

• 24:31Speaker 03

  Gotcha. Dylan, I've seen some charts recently about just like the general market of S and P 500 and Bitcoin and the correlation with that. What do you think around Bitcoin being correlated to other assets or in general to the overall market structure?

• 24:45Speaker 02

  Yeah, I mean, that's, that's a great point. Bitcoin increasingly as it grows in market cap is, is just a function, I, I believe of, the liquidity of the kind of the everything bubble, um, you know, in, in, in traders' terms, Bitcoin is just a, a high beta risk asset. And over the short to medium term timeframes, I, that is true, right? In March of 2020, when Bitcoin, uh, sold off really first, it, it almost front ran everything selling off. Uh, it bottomed before everything else. People said Bitcoin, the Bitcoin experiment failed. It's not recession proof. It's not, it's not a hedge. It's not a diversification. And when, in reality, Pop, I actually remember you having a great post about this. It was just a liquidity crunch. The dollar got bid.

• 25:25Speaker 02

  And so I think, I think that's what you're really seeing is that, um, in the everything bubble, everything's going to go up. And then if credit contracts, everything goes down. Uh, and really the, the outperformers are, are, you know, kind of the reaction when they, when they respond to, to the bust. And so, um, I think that, that's unchanged and Bitcoin will, will draw down if equities go down 20%. And that's a good thing, um, because they're going to have to reinflate everything just with, you know, the political incentives and, and everything else. And so, um, you know, over the short to medium term volatility or correlations to other risk assets don't disprove, uh, the kind of the Bitcoin thesis that it's the best money the world has ever seen. It just kind of reinforces how, uh, overextended, how far gone we are in this kind of fiat credit, everything bubble.

• 26:10Speaker 03

  Yeah, I, I think that, uh, what you're specifically referring to is in March of 2020, uh, I literally wrote the piece.

• 26:15Anthony Pompliano?

  It was like explaining what liquidity crisis are and I went back and I looked at the 2008, 2009 global financial crisis. And I was like, hey, look, when people get scared, when there's uncertainty, when there's some sort of fear in the market, they end up selling their assets and they go for the dollar. They want security. And so like, we're in a liquidity crisis. Don't be, you know, kind of short term thinker, understand what's happening. Prices may go down, you know, more, but ultimately the liquidity crisis does get solved, especially if the government steps in. And then that day Bitcoin fell 50%. And I gotta say, even though I, you know, conceptually understood what was happening, it still doesn't feel good, right? You know, you buy after like the 20% down, but it goes down another 20%, you're like, okay, cool. Like, you know, I'm a genius. It goes down more like, dude, what is this going? You know,

• 27:00Anthony Pompliano?

  how low is this thing going? And is this maybe not liquidity crisis, but are we watching it go to zero? And, you know, obviously, the, what I call the fear buys ended up being pretty good, but, but it's crazy. You know, even when you know that this is how liquidity crisis work, they still don't feel good for, you know, anyone who's living through it, right?

• 27:19Speaker 02

  Yeah, exactly. I think that's, that's why it's also important to not be overexposed. I mean, you can, I'm, I think we're all extremely bullish on Bitcoin, but even having, you know, 2X leverage on your Bitcoin position, right? Where if you're allocated to Bitcoin at 200% of your net worth is, is pretty dangerous, right? Because these, these events can occur, right? Bitcoin was on a Saturday night, two weeks ago, it was down 20%, right? Like, these things are gonna happen again, whether it's natively in Bitcoin with the derivatives market, or the macro uncertainty causes Bitcoin to completely unwind and it kind of cascades on each other, right? So, you know, always having that perceived collateral, the Bitcoin that you're stacking, if that event occurs, then you can take advantage of that increasingly so with,

• 28:04Speaker 02

  you know, the ability to collateralize your stack, get fiat liquidity, all these things. Bitcoin's increasing like financialization. It's actually a net positive, but you never want to leave, you know, you never want to become a forced seller in one of these events. It's, it's the worst thing you can do. And so I think that's just important to say.

• 28:20Anthony Pompliano?

  Correct. I'm going to take a couple of questions from the audience real quick. I'll just fire them at you. You you go ahead and let me know what you think. So first one comes from YouTube user Luca, who says, Dylan, are people selling for the tax year?

• 28:32Speaker 02

  I think that's probably something to do with it. You know, Bitcoin, despite the recent pullback, despite the the kind of midyear bear market, would be down 30 something percent from the all time high. I mean, it's still it opened the year at 29,000, right? So there's still a lot of gains on the table. And so you're seeing, I think you're seeing that in equity markets, you're seeing that in Bitcoin, just if you're looking at, say, like S and P, the momentum has stalled, there's definitely some profit taking. And maybe there's some, there's some wash selling, right? With Bitcoin, if you buy it at 60K, then you can sell it at 40K and harvest that capital loss and rebuy right back, which you can't do with legacy. So I think that is occurring, but just kind of one of the many factors in the market today.

• 29:12Anthony Pompliano?

  Okay, Vincent McKeever asks, do you believe there's any market manipulation by whales happening right now?

• 29:18Speaker 02

  No, I think the opposite, to be honest. I think when people say market manipulation, they're actually mistaking it for a free market in the sense that Bitcoin has a has the UTXO set, there will only ever be 21 million, you can verify ownership on chain. And any manipulation that is occurring is free market forces. If if someone wants to with 10,000 Bitcoin wants to market sell on Bitmex right now, they're completely open to do that. And you know, that's the free market at work. Volatility is expressing itself in this asset class through derivatives or spot. And that's just all free market forces. And so in a world where the Fed comes and, you know, saves the day every time the the stock market falls 20%,

• 29:56Speaker 02

  people aren't used to this kind of wild volatility and and, you know, no circuit breakers, no, no intervention, right? This is the wild, wild lesson. I think that's, that's the way it should be. So in terms of manipulation, no, I think it's, it's actually quite the opposite. And it's a beautiful thing.

• 30:10Anthony Pompliano?

  All right, then we've got Lloyd Gonzalez asks, any price correlation to days people get paid? Have you seen any analysis where there's either heavier buying or any sort of price fluctuations when? People actually get paid on like the first and the 15th?

• 30:22Speaker 02

  Uh, not that I've seen. I think in terms of if you're looking at just kind of recent price correlations, I think the thing that has merit is if you're looking at kind of session times. So I think over the last month or month or two, and this, this may be off, but I saw a pretty good post about Bitcoin's performance during United States market hours, during Asian market hours, and then kind of the time in between and during Asian market hours over the last month or two. And we saw this in the summer as well. Bitcoin has underperformed pretty, pretty good versus when the US is like, you know, trading or open, even though people are buying 24/7, right? Like I'm buying hourly on strike. But regardless, I think, you know,

• 31:02Speaker 02

  there is some merit to maybe different regions or different time zones selling, selling off. And that's just something to see, you know, play out over, over different time spans. It's interesting to look at.

• 31:13Anthony Pompliano?

  Awesome. All right. We've got two people who asked pretty much the same question. So Estevan Torjic, I believe is how you pronounce it, and then Saleem Al. They're basically asking about protracted cycles or do you believe in a lengthened kind of bull market cycle? And kind of that goes to the question of like, how do you expect maybe the next 90 days, you know, of the new year, kind of Q1 to play out as well?

• 31:33Speaker 02

  Yeah, so I am a believer in the lengthening cycle thesis, if you want to call it that. I think in the early days, I mean, Bitcoin is always just driven by additional adoption of, of, you know, people understanding the monetary asset. But I think disproportionately the halvings played a huge effect in the early days, just with, with, you know, the relative size of the new issuance, you know, being cut in half. Whereas now the inflation rate of Bitcoin annualized is about 1.8%, decreasing that to, you know, 0.9% in 2024 is significant. And in the sense that no one can control it and stop it from happening. But in just in terms of relative market impact, it's, I think it's smaller than it was in the past. And so the lengthening cycle thesis, I think, has a lot of merit. And I think more so, you know, there's this kind of underlying adoption curve.

• 32:18Speaker 02

  If you want to look at, say, realized cap or realized price of that occurring, that's great. But more so, I think, especially in the coming years, the Bitcoin adoption will be a result of kind of the macro environment and people being forced into an alternative, a viable, a viable alternative, you know. Something that can't be printed.

• 32:37Anthony Pompliano?

  Richard Stevens asks what your opinion on the stock to flow model is, and I'm assuming that the thought process is obviously in November, it seems that there was some sort of violation of kind of Plan B's opinion. Now, again, I think his view is that the stock to flow model isn't necessarily violated. But how do you look at stock to flow, the accuracy or efficacy of that? And has anything changed there?

• 33:00Speaker 02

  Yeah, people, you know, people always have strong opinions on stock to flow. And I was always just of the opinion that it was a really cool way to kind of visualize absolute scarcity and supply and elasticity. You know, I, when the stock flow model was released in, I believe, the spring of 2019, I FOMO stacked very, very hard. So I'm grateful for Plan B. And, and it was kind of one of the things that made the, the supply elasticity and the programmatic scarcity of Bitcoin click for me. And I think it did it for a lot of people as well. And so, you know, is it invalid or valid, or is it, you know, statistically, you know, significant? Or all these things that you can kind of look at? I mean, I don't know. And I, to be honest, I don't really care. I think, you know, Plan B is, has opened a lot of people's eyes to Bitcoin and, and kind of

• 33:45Speaker 02

  this reality of the absolute scarcity of it. And so, you know, whether, whether the model is valid or not, or is various, you know, stock to flow, cross asset model, all these different things. I think it's just, it's just, you know, all models are invalid. It's just some are useful, right? So none of this is, is, you know, true per se. It's just, you know, it's just a way to kind of think of things in different ways. And so I, I don't really know. I just, I think it's a cool way to kind of visualize it.

• 34:13Anthony Pompliano?

  All right. And then how do you think about lost coins or Satoshi's coins? Earlier, we were talking about Chainalysis has an estimation that 3.7 million Bitcoin are lost. There's estimations that Satoshi has, you know, 800,000 to a million Bitcoin. If that is true, and let's just use round numbers, there's somewhere between kind of four and a half to five million Bitcoin that are lost or held by Satoshi. That'd be a big percentage of the total 21 million Bitcoin supply. Like, do you have any idea in terms of how accurate those numbers are? And also, do you have any thoughts in how that impacts kind of future price or supply demand economics?

• 34:50Speaker 02

  Yeah, I think, I mean, for anybody that hasn't kind of dug through the Bitcoin Talk forums and all that, there's some pretty early OG discussions about all this, and it's kind of fascinating to dig through it all. Satoshi actually was quoted saying lost coins are a donation to everybody. They make their coins more valuable. And so Satoshi's coins are presumably Satoshi's coins, a million of them or something around there, having never been moved. It's, you know, kind of an altruistic donation to everybody. And so, you know, it's kind of one of the things about Bitcoin that as you really fall down the rabbit hole, you kind of come to understand is that if I acquire this thing, whether it's through mining or through, you know, if you acquire Bitcoin in any sort of way, it's proof of worth. You're exchanging some sort of valuable good or service and someone

• 35:33Speaker 02

  else is paying you with Bitcoin. And if you never sell that, if you never put it back on the market, well, it's increasing everyone else's relative purchasing power. It's basically increasing everyone else's productivity. So it's a pretty interesting kind of thought experiment in the sense that, you know, say if Michael Saylor never sells Bitcoin, well, you know, everyone else in a way almost got a little bit richer. And so I think, I don't know, I don't know how many coins Satoshi has. I don't know how many are lost. I think the two to three to four million ballpark is pretty accurate. But over time, I think, you know, more Bitcoin will be lost. And so, you know, your purchasing power will will increase as a result. And so, you know, it's a pretty cool thing.

• 36:12Anthony Pompliano?

  All right. And then the last question I have is obviously, we've seen the El Salvador Bitcoin backed bond, and that seems to be a pretty interesting way for nation states to get more exposure to Bitcoin, but also to give certain types of investors who couldn't buy Bitcoin directly, some exposure as well. What's the implications of that or the impact on the market? And do you think that we'll see more of that happening at kind of the municipal or nation state level? You know, as we kind of continue here.

• 36:39Speaker 02

  Yeah, I think it's really, it's a really interesting model, especially for, for countries that can't print their own currency. Right? El Salvador was, was that first nation that is dollarized, that doesn't have a central bank, that doesn't have their own currency. And so it was like, all right, I'll just plug into this open monetary network and build around it. And so, you know, I kind of suspect other nations that are in a similar position will do the same. And in terms of the Bitcoin backed bonds, I mean, the entire kind of sovereign debt bubble, right? There's 100, 200, I think, you know, I would say around $400 trillion of assets, you know, really more so debt that are priced just, you know, basically completely backwards. It's, you know, real yields are negative everywhere.

• 37:21Speaker 02

  So all of these contracts are guaranteed to lose money if fiat is debasing. And, and what we know about fiat is it has to debase. And so, you know, a Bitcoin backed bond and giving kind of these capital allocators an alternative that, you know, potentially with a lot of upside is very, very interesting. And, you know, I don't know if, if the bond has officially been subscribed to or not, but it'll be interesting to see how it trades. And I think with, with it kind of being on the liquid network, we'll see this, you know, these Bitcoin backed bonds trade on, say a Bitfinex or an FTX, just like, you know, other kind of crypto assets would. So I think that's a pretty interesting kind of development as well.

• 37:57Anthony Pompliano?

  Got it. Joe, Joe, you guys got anything else? This is super valuable, Dylan. So thank you so much for taking the time to, to come on. Dylan, how do you think about drawbacks? Like, do you think that we're going to see another, you know, 80% drawback or something like that when we, whether we hit that top of the cycle yet or not, but do you think when it does come that we'll see that?

• 38:15Speaker 02

  Yeah, I mean, I, I think in terms of an 80% drawdown, what you really need is a blow off top. And, and we got that to an extent, but not really. I think the, the summer almost was a bear market in itself. And so for, for an 80% drawdown, what you'd really need is, is some mega blow off top with, you know, and with Bitcoin at a trillion dollar asset class or 890 so billion. I think, I think it's a lot harder to do compared to when Bitcoin was a $10 million or a billion dollar asset class. And so for an 80% three, 80% drawdown, three year bear market. Market. I think, I don't know. That's not my base case at all. I think we're kind of, you know, more so of the, say like the rounded tops and rounded, rounded bottoms that we've seen in 2021. I wouldn't be surprised at all to see that continue. And actually, that's somewhat of my, of my base

• 39:00Speaker 02

  case. Bitcoin just kind of chugs along over the next, you know, one year, two years, however many years it takes until, until, you know, there is no more cycles and Bitcoin, you know, kind of melts away all the fiat. But I, I think we're still a little bit away from that. And so, you know, the, the 40, 50%, 60% drawdowns, but not so much a three year cycle or three year protracted bear. I think that's more so kind of my base case. But, you know, I've been wrong in the past. So we'll see, I guess.

• 39:29Anthony Pompliano?

  Gotcha. Quick follower update. He's at 97.1,000 followers, closing in on 100K. Just absolutely blowing by people on the internet. What a, if you hit it on Christmas Day, that's legendary. What? No, he's gonna hit a hu- he's gonna hit 100 in the next two, three days, probably. But, uh, can we still get to 150, you think?

• 39:48Speaker 02

  That's, that's, that's tough, pump. It depends. I, I wouldn't count it out. It depends what the price does. I don't know, man. I think we got a shot. I lost my, I lost my check mark for wrong think. For what? For wrong think on Twitter. The day Jack left. Wait, what happened? Uh, I don't know. I don't know. Wait, you lost your blue check mark? Yeah. The day Jack left. No way.

• 40:15Anthony Pompliano?

  Jack left?

• 40:16Speaker 02

  Yeah. Get the hell out of here.

• 40:19Anthony Pompliano?

  Hey Twitter folks, I know you're watching. Listen, give it back. That's what we need. Give it back to him. Why'd you guys take that from him? That wasn't yours to take. That was his. He earned that.

• 40:28Speaker 02

  Was there any explanation or no? I, no, it just said I wasn't notable anymore.

• 40:36Anthony Pompliano?

  They said Bitcoin's price fell too much. Never mind.

• 40:41Anthony Pompliano?

  All you Bitcoiners, shut the hell up. Jack ain't here no more.

• 40:45Speaker 02

  That's all.

• 40:46Anthony Pompliano?

  All right, man. Listen, thank you so much for doing this. I dropped your Twitter link into the chat. Make sure you guys go follow him. Obviously, if they're gonna take his blue check mark, the best way to get revenge is to let's get him to 150,000 followers by the end of the year. But I appreciate all the hard work you're doing. I think people are learning a lot. So, uh, for those that don't know, Dylan is going to be coming on every Tuesday now, moving forward. So, uh.

• 41:10Anthony Pompliano?

  That's how we welcome people. He's part of the union. He's definitely not part of the union. Yes, he is. Dylan, do you want to know the fastest way to get uninvited to the show is join the union? Just so we're all clear here. That's not true, Dylan. It's a mandate.

• 41:20Speaker 04

  I thought I already joined.

• 41:21Anthony Pompliano?

  You already did, and we told, we, uh, we pay out in Bitcoin. We haven't sent you yours yet, but. Oh, now the, now the union is paying out people. I thought the union is supposed to collect the dues.

• 41:29Anthony Pompliano?

  It's kind of like a Ponzi scheme. We collect money and we just pay it back.

• 41:33Speaker 03

  We collect money, we take a feed to process the money, then we send it back out.

• 41:36Anthony Pompliano?

  Yeah. All right. We gotta go. I appreciate you coming on, man. We'll do it again next Tuesday. Thanks, Dylan.

• 41:40Speaker 04

  Hey, guys.

• 41:41Anthony Pompliano?

  Later, buddy.