#1300 Reflexivity & Elementus | Bitcoin Network Data Is VERY BULLISH

Today’s episode is a joint podcast with the team at Reflexivity Research and the team at Elementus. From Reflexivity, we have Will Clemente (Founder). From Elementus we have, Max Galka (Founder & CEO) and Alex Mologoko (Head of Research). This conversation covers a brand new massive report covering year-in-review of 2023 of everything that happened on-chain. Topics include bitcoin rally, open interest, wallet activity, inscriptions, stablecoins, and more. ======================= Introducing Espresso - the world’s most interactive portable display. They have a portable screen that is incredibly light, comes with a nice stand, and the user interface is very easy. Anyone who listens to this podcast can go to ⁠us.espres.so/pomp⁠. They have a brand new offer waiting for you. ======================= BetOnline.ag is a proud sponsor of the the Pomp Podcast. Use crypto to bet on sports, play poker and enjoy casino games at BetOnline. Visit https://promotions.betonline.ag/pomp and use promo code POMP100 to receive a 100% matching bonus on any crypto deposit. BetOnline boasts no crypto transaction fees, and processing is anonymous, instantaneous and secure. ======================= Pomp writes a daily letter to over 250,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

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. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's episode is a special one. It is a joint podcast between the team at Reflexivity Research and the team at Elementus. From Elementus, we have Max Galka, who's the founder and CEO of the company, and we also have Alex Molugaku, who is the head of research at

• 0:44Anthony Pompliano?

  Elementus. From the Reflexivity Research side, we have Will Clemente, who is the founder of that business. Why are there four of us on this podcast? Well, it's because Reflexivity Research and Elementus just put out a brand new massive report. It is a year in review, 2023, of everything that happened on-chain. We talk about what drove the Bitcoin rally at the beginning of the year. We then get into the Bitcoin performance by geography and open interest. We talk about Bitcoin wallet activity. We talk about inscriptions, stable coins, and much, much more. This episode is jam-packed with insights, and I am super excited for you to listen to it. So here is my episode with the team from Elementis and the team from Reflexivity Research on the year in review using on-chain data.

• 1:27Speaker 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.

• 1:51Anthony Pompliano?

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• 3:19Anthony Pompliano?

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• 4:04Anthony Pompliano?

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• 4:11Anthony Pompliano?

  All right, guys. Bang, bang. I've got an awesome group here with us. I thought maybe the first place we could start, Will, Reflexivity and Elementus came together. They did this year review of on-chain activity. And the first question you guys hammer on is, what exactly is making Bitcoin's price go up as we went into the beginning of the year? Help us understand what you guys found.

• 4:31Speaker 02

  Yeah, absolutely. This was a really exciting report that we put together. There's a ton of kind of year in review reports, but I don't think anyone's done one from from an on-chain perspective. So we're excited to put this out. As you mentioned, the first thing we kind of dived into was kind of breaking down what's driven Bitcoin's price performance throughout 2023. So, you know, if you don't live under a rock, you've probably seen that Bitcoin has been one of the best performing assets of the entire year. And you kind of look at it aggregated, measured against equities as opposed to individual equities. It is the best performing asset class, or was the best performing asset class of 2023. And there's a couple of kind of factors that have been driving that, you know, one is just mean reversion after Bitcoin and crypto got beat down so bad.

• 5:14Speaker 02

  You've got kind of an inflection point in the liquidity cycle. And then also, the biggest one is kind of front running of the recent Bitcoin ETF approval and launches that we saw over the last couple of weeks. And people have been continuing to keep a close eye on. And we break that down into kind of data to try to kind of build a picture of the type of market participant that's been driving Bitcoin over the last, call it, you know, 12 to 12 to 15 months. There's a couple of interesting kind of subsets that we can break it down into. And in the report, we broke it down into three. One is on-chain capital flows, primarily looking at flows around Coinbase. The second is activity by geographic trading session.

• 5:54Speaker 02

  Then the third is activity within the derivatives landscape. So maybe, Pop, we dive into, first of all, looking at some of this on-chain kind of capital flows, particularly around Coinbase. So in this first chart, we have basically a month-over-month chart of Coinbase prime and the amount of Bitcoin held within Coinbase prime. And so what we can see is that throughout the year, we've seen continued increase in the amount of Bitcoin held within Coinbase prime. What does this indicate? Alongside the transaction volumes picking up, it signals that there's more activity taking place within Coinbase's prime and custodial arms.

• 6:37Speaker 02

  And that shows an increased amount of activity from this kind of US-based institutional cohort that particularly uses Coinbase. When we look at Coinbase relative to some of the other crypto native venues, Coinbase is well known for being kind of the most regulated, publicly traded, you know, top five accounting firm audited. Exchange relative to maybe some of the other venues offshore that are a bit more kind of in the realm of kind of Wild West. And so, you know, a lot of these US-based hedge funds, high net worths, family offices, etc. like to use Coinbase as opposed to some of the other venues. So maybe that's some good context on why we're looking at Coinbase in particular here. So we've got the picture kind of being painted of, you know, increased amount of Bitcoin

• 7:19Speaker 02

  held in Coinbase custody as well as their prime arm as well. And then when we look at flows within the two as well, we see very similar dynamic of, we saw continued outflows from Coinbase Prime, particularly leading up right after the BlackRock filing into the actual ETF launch. So, you know, that looks like a lot of kind of front-running of the ETF. And then when we shift over to the kind of geographic trading premiums, this is another really interesting point to kind of hammer on in terms of looking at the type of market participant that we saw throughout 2023. In the chart that we have in the report, we have the US trading hour, basically cumulative

• 8:03Speaker 02

  return, and then we also have APAC and then EU. And so what we can see is that particularly after the initial BlackRock filing in July of 23, we saw that the US trading hour premium really started to show relative to APAC and the EU. And so that's just another data point to kind of illustrate that, you know, Bitcoin's rally throughout the back half of 23 was primarily driven by these US-based firms. And then the last one that I thought was also really interesting was shifting over to the derivatives landscape, looking at activity around the CME. So the CME, you know, very similar to how Coinbase is used as the the spot exchange of choice relative to some of the other offshore venues.

• 8:48Speaker 02

  The CME is is is used by primarily kind of, you know, regulated US-based hedge funds, institutions, et cetera, as opposed to, you know, trading perpetual swaps on some of these offshore venues. You know, in particular, you know, traditional financial players are probably going to use CME as opposed to, you know, maybe going to use a Bybit or a Binance. And so this is an interesting signal for the activity taking place, you know, by those, by those, that cohort of of market participants. And so what we saw throughout 2023, once again, particularly after the filing for BlackRock in July of 23, is a massive uptick in both futures, open interest and volume on the CME. We saw this shoot up from right around 2 billion to reaching all-time highs of over

• 9:33Speaker 02

  6 billion. In the chart, you you'll be able to see basically this this massive run-up following the the filing in July. And so this is kind of another piece of information to kind of construct this picture of who really kind of drove drove Bitcoin up throughout the year. And so, you know, our our kind of thesis through through putting all these data points together about the the type of market participant throughout 23 is is basically painting this image of, you know, at the beginning of of Bitcoin's kind of lifespan, it was particularly, you know, kind of cryptographers and and very much, you know, people that were deep in the weeds about, you know, building out something similar to Bitcoin and then latched on to Bitcoin once it was clear that that was kind of the best form of of sovereign, you know,

• 10:18Speaker 02

  scarce money that was ever created, that was this, that was digitally native. As we kind of progressed throughout Bitcoin's lifespan, then it kind of shifted towards retail, high net worths. You know, over the last couple of years, we started to see some hedge funds and some of these TradFi players start to dip their toes in the water. But I think it's pretty clear throughout 2023 that the dominating type of market participant that really drove Bitcoin up was this kind of US-based, perhaps, you know, more traditional finance oriented type of player.

• 10:48Anthony Pompliano?

  So it's fascinating to look at this data, but how you get the data, I think is a pretty important question. I think maybe Max, Elementus, obviously, the technology you guys have built allows you to provide incredible attribution to these wallets, understand capital flows. And there's a lot of the things that Will is talking about here is kind of the analysis or conclusions are driven by this technology of mapping wallets. Describe a little bit as to how Elementus does this.

• 11:13Speaker 03

  Sure. Well, I'd say at the very highest level, there are two components to it. There is the clustering and the attribution piece. So the clustering I would define as just data science methods for figuring out which addresses roll up into the same owner. And there's a lot of different ways of approaching that, different kinds of heuristics. There's lots of academic papers out there that you can look online about some of the base methods for doing that. That's where the majority of our technology sits. And so the methods that we use go quite deep to be able to connect wallets together. So for something like a, say Coinbase, Coinbase, the exchange, they have called 100 million addresses on the Bitcoin blockchain.

• 11:56Speaker 03

  Our mission with them is to be able to identify the wallets on chain and understand the connections and to be able to group them all into kind of one entity. Now, from that point, we need to be able to go out then and say, okay, we have this network of 100 addresses that are all the same actor, like who is this? And for that, we need to go out and be able to put a label on it. So that's the attribution piece.

• 12:21Anthony Pompliano?

  And how do you find out who it is? Like, what are some of the ways or methods that you would use to do that?

• 12:27Speaker 03

  Well, the easiest way would be for Coinbase, you just sign up for Coinbase, you deposit a small amount of Bitcoin. Now you have one Coinbase address and then you can extrapolate that and say, okay, the other 99.999 million addresses are also Coinbase. When you get to some of the other entities that are not quite so easy to sign up for, if you're talking about something, some of like the legal stuff, darknet markets, ransomware, or even if you're talking about institutional buyers, hedge funds, some of these kind of actors, you know, those ones not as easy to identify by just signing up and interacting with. So for those, you know, we have to get clever in our approaches, but.

• 13:11Anthony Pompliano?

  And so as you've done this, as part of this report, there's this entire breakdown of wallet activity. Walk us through a little bit as to what some of the conclusions from that analysis is.

• 13:20Speaker 03

  Yeah, okay. So yeah, this is a really interesting one. So, you know, my background, I come from a background in TradFi. So I worked for nine years at Deutsche Bank and Credit Suisse as a trader. I traded tons of fixed income markets. So, you know, I was on the front lines and looking at every piece of information that was out there for understanding markets. Seven screens in front of me, I was on top of everything. What this represents is something that's not even possible in TradFi, which is that you can look across the entire market and you can see what the cost basis is, what the average cost basis is for everyone who holds Bitcoin, right? And that's because you can see when the positions were put on, you know, the price of Bitcoin at that time.

• 14:04Speaker 03

  So you know what that person has in that trade. So what this is looking at is the average cost basis at which Bitcoin is held on the market. So it's actually quite intuitive. If you look down to the chart on page 13, the market value to realized value. So what this is looking at is, well, it's comparing what did the average person pay for Bitcoin versus what is the current price of Bitcoins? So how much, how much profit do people have in the market? And what you'll see is that, is that occasionally the market price for Bitcoin will drop slightly below that cost

• 14:45Speaker 03

  basis number, but it tends to stay there for only a very short period of time, right? Because, you know, presumably people are not willing to sell at a price below which they, the price at which they purchased it. So this is, is a remarkably reliable indicator, which, you know, this is, we're looking over here, here over a 10-year time horizon. And even though those kind of opportunities don't appear all that often, the trend seems to be near 100% accurate. That when you see Bitcoin below, dip below the cost basis, that is a very strong buy signal.

• 15:29Anthony Pompliano?

  And when you guys look at this, obviously, there's a lot of on-chain data providers, right, that are kind of selling that data. But the attribution and the collection that you all are doing can be used for a multitude of different purposes. And so what are some of the other ways that you can actually use this wallet attribution for either commercial purposes or for individual investors?

• 15:54Speaker 03

  Well, I would say this is a very big, right? So like, in traditional finance, it is almost impossible to find reliable market indicators, right? Indicators that are predictive of where the market's going to go. The one we're looking at here is an example that very clearly does accomplish that. So some of the things we're working on with our customers is that there's a lot of other ones like that that exist within these markets. You know, for someone coming from the TradFi world, like, that's kind of unthinkable that there could be like, these kind of hidden diamonds just sitting around, but there truly

• 16:36Speaker 03

  are within Bitcoin and crypto. And so a lot of what we do with our data is try to identify some of those indicators. And those can be a lot of different things. So that's one of the ways and some of the primary customers we're working with right now is helping people to identify trading opportunities. If we're looking kind of more generally and kind of more broadly is to really where this whole ecosystem is going, well, like, the Coinbase Commerce addresses that we've identified, excuse me, not Coinbase Commerce, Coinbase Custody addresses we've identified, those ones are particularly significant. If you start under the assumption that uptake of these ETFs is going to be a big driver of

• 17:21Speaker 03

  Bitcoin in the future, people aren't necessarily going to know, like, in real time, like,

• 17:29Speaker 03

  You know, uh, how much buying of these is happening and where they're going and how much Bitcoin is, is needing to be purchased in order to back the ETFs that are being created. Um, but that's all stuff that we can track on chain. So over the course of the year and even right now, that's something that we're looking at very closely is, uh, movements and growth of the size of the Bitcoins sitting in Coinbase Commerce as a, as a proxy for, um, the uptake of the ETF.

• 18:01Anthony Pompliano?

  Got it. And then when you look at, uh, these wallets, it seems like, uh, there's a lot of Bitcoin that hasn't moved in a very, very long time. Is there any way to determine, is that Bitcoin lost? Or is that Bitcoin just in the hands of, you know, people with very strong, uh, kind of diamond hands?

• 18:20Speaker 03

  Yeah, yeah. Uh, well, yeah, this is another big one that we're looking at as well, because you know, when you look at, at the, the size of these, of the companies that have launched these ETFs, guys like BlackRock, Fidelity, VanEck, um, uh, you know, lots of really big companies that, that are thinking really big with this, right? BlackRock didn't launch this to make a few million bucks, right? BlackRock, BlackRock launches new products to make huge amounts of money. They have trillions under management. So I think a big open question here is, uh, when you're trying to answer the question of, well, will like the buying of these ETFs, which I expect to be substantial, um, that

• 19:02Speaker 03

  for every Bitcoin bought in ETF, there needs to be some actual Bitcoin that someone is willing to part with. And, um, so a big question is like, how easily is that Bitcoin going to come out? And you're, you're entirely right. You have, um, of 21 million Bitcoin, that is the final number that will be mined of all time. Uh, just right off the top, you have a million of it that's owned by Satoshi and that's not going anywhere. Um, you also have other big chunks of it that are lost for various other reasons. I think there was a big chunk that was sitting in a landmine somewhere or landfill somewhere.

• 19:38Speaker 03

  And you have you have lots of other chunks that for various other reasons are likely never to come out. And I've seen some quantifications of that number. And I've heard 2 million ish thrown out as a rough estimate. But I think you start looking beyond that. And then you have, say, you know, the Bitcoin that I have sitting on my treasure wallet, which is in my closet somewhere. And, you know, which I may not even be focused on crypto right now. So I may not be likely to, you know, no matter how high the price goes to go in and sell it. And I think,

• 20:13Speaker 03

  you know, as if the start, the price starts ticking higher and it feels like we're in a like a bull run, I think you also kind of get this reverse scenario where higher price doesn't necessarily make people more likely to sell it could actually make you more likely to want to hold it. So what's amazing about Bitcoin is that we can actually survey the entire ecosystem, the entire economy of all of these positions, and start to put together some metrics on like how these different positions respond to different price movements. So that's a long way of saying, I don't have an answer right now on how easily that Bitcoin will come out. But I think it's a

• 20:57Speaker 03

  very relevant question for like, what happens with this ecosystem going forward.

• 21:01Anthony Pompliano?

  Yeah, that makes a ton of sense. Well, maybe you can walk us through the inscriptions, which obviously was a huge part of Q4. There was tons of explosion in fees. And I think a lot of people didn't understand or see this coming. But being able to see on chain what's happening there is pretty enlightening.

• 21:19Speaker 02

  Yeah, absolutely. Inscriptions were one of the most exciting developments, at least from an on-chain perspective throughout 2023. So take a step back, what are inscriptions? Our inscriptions are kind of a newly discovered feature, if you will, of the Bitcoin blockchain is created through loophole in the end of 2021, a soft work, which was called Taproot. It enables users to basically store text, media, etc. in the metadata that's attached. To the smallest numbered units of a Bitcoin called a Satoshi. There's 100 million Satoshis in every Bitcoin. And so you might have seen Eric Wall or Udi kind of pushing ordinals widely on Twitter. They've caused kind of a ton of controversy

• 22:04Speaker 02

  within the Bitcoin community, if you will. Some people feel that they're a detriment to the network because they increase fees and increase the amount of data that you need to download to run a node. Other people say that they're great for the network because they raise fees. And then also, you know, kind of take away the the long term security budget issue that a lot of people have voiced about Bitcoin. Reality is the answer is probably somewhere in the middle, but nonetheless, as activity for inscriptions has picked up, it's become a a bigger and bigger conversation kind of within the within the community. When we look at the amount of fees that have been generated upwards of $200 million of fees for the Bitcoin network just from the transactional activity around ordinals, which of course benefits miners directly.

• 22:48Speaker 02

  Although it maybe makes the kind of, you know, small transaction for, you know, if you're trying to buy a cup of coffee or something like that with the Bitcoin base chain. I'm of the belief that that's not necessarily what the base chain is supposed to be used for. It does make, you know, obviously, you know, transactional costs slightly higher for for those types of those types of transactions. But overall, the the increased amount of fees benefits miners. And then in theory, that should, you know, create a higher incentive for for miners to want to continue to bring on more machines to to capture those fees. And then as a byproduct of that, secure the Bitcoin network. And so one fun fact was this is no longer the case of as fees have drawn down over the last month by about 80% since when we pulled some of this data initially.

• 23:32Speaker 02

  But at one point in December, Bitcoin reached the number one blockchain by transaction fees over the last seven days and 30 days. And I don't think this has happened, at least in a very long time. I'm not sure if I've ever seen that happen. Usually ETH dominates the the kind of number one spot for for blockchains by transaction fees. And so just kind of a testament to the amount of activity that's taken place and kind of the frenzy around. Inscriptions that we've seen at one point also inscriptions made up over 25% of daily fees on the Bitcoin network. So this is something that I think is exciting to continue to watch for a couple of reasons. But you know, I would expect that if we have kind of a raging speculative bull market, you'll probably see

• 24:15Speaker 02

  inscriptions continue to persist in full force. You know, we saw kind of the speculative bubble, if you will, around NFTs in 2021. And I think there's a decent probability that we may see something similar around inscriptions. And then I guess to kind of segue inscriptions into the next chart that we have is looking at hash rate. So you know, as I, as I just mentioned, as fees are increased on the Bitcoin network, it creates a stronger incentive for people to or for miners to continue to add more machines onto the network and try to compete to increase the amount of hash hash rate that they're generating, to compete for the amount of fees so so that they can increase their revenues.

• 24:58Speaker 02

  As we can see in this chart, hash rate has just continued to absolutely rip throughout 2023. It makes the China mining ban of summer of 2021 just look like a blip on the chart. And so, you know, I definitely don't think this is fully driven by inscriptions. But you know, if you do have kind of an elevated regime of fees for the network, that should continue to kind of, you know, further, further advance that that rise in hash rate that we saw throughout the year.

• 25:26Anthony Pompliano?

  Now, when we see so much of the miner activity, we also know that they outperformed Bitcoin during 2023 in terms of the financial return. Should we expect continuations of these trends, hash rate going up, fees going up, miners outperforming the underlying? Or could this have maybe been an anomaly? And actually, the outperformance by the miners of the underlying is something that people shouldn't expect moving forward.

• 25:52Speaker 02

  Well, I think typically, if you go back and look over the last couple of years, miners usually trade with beta to the underlying Bitcoin. And so what does that mean? It basically just means that when Bitcoin goes up, the miners tend to go up more. When Bitcoin goes down, miners tend to go down more. Um, and so, you know, with that, there's a ton of volatility around these miners. And I think one kind of mental model, at least that that I've used for thinking about allocating to miners is, uh, they're similar to a call option on on BTC. So, you know, if you think BTC trades at, call it 100K plus over the next, you know, 12 to 16 months, um, you know, miners are probably going to outperform that. Just given the way that that they trade relative to BTC, um, you know, in the short term, we're recording this on, you know, January 22nd.

• 26:36Speaker 02

  You've seen some reversion miners went on a pretty aggressive run. Uh, it seems like, um, it seems like maybe they were kind of being used as proxies for front running some of the ETF launches and filings and launches. Um, and then also, uh, as I mentioned a minute ago, um, we've seen the the fees that were elevated over the last, call it month and a half, kind of come down. They're down about 80% month over month. So we've seen, you know, some of that that inscriptions activity that was fueling fees higher cool off in the short term. Um, but, you know, when I think about maybe allocating to miners, the kind of general, general heuristic that I use in my mind is they're very similar to, um, call options on BTC.

• 27:15Speaker 02

  And then you kind of have that added X factor of, you know, if we do see kind of this prolonged regime of ordinals activity, or they go on some type of, you know, speculative runs similar to how NFTs on Ethereum did in 2021. Um, you know, that would significantly increase fees for miners across the board. I mean, just to kind of put it into into perspective, uh, in the middle of, uh, I guess, I guess, kind of on average, uh, across Q3, 2023, fees hung out around, you know, 750K to a million dollars a day. Um, during kind of the peak of of this recent kind of wave of of ordinals in December. Fees reached upwards of $23 million, which was the highest single day of fees ever generated

• 27:57Speaker 02

  for the network. And so you know, you think, okay, if this persists for two or three months, especially again during a bull market, where you also have, you know, just people, you know, using the Bitcoin network more in general, that could, that could be pretty effective for, for some of these public mining equities. So it's just one thing I think to continue to keep an eye on for sure.

• 28:19Anthony Pompliano?

  Alex, let's talk about stable coins, which is the last part of the report, but to me is maybe the most interesting part, just given a couple of years ago, no one thought that stable coins would be that big of a deal. Now it's a major part of the crypto ecosystem and maybe even global finance. What are some of the takeaways based on this analysis?

• 28:40Speaker 04

  Uh, well, yes, the stable coins are certainly the backbone of DeFi. The fastest growing part of the crypto ecosystem today. And we have two charts in the report covering stable coins. One is showing a change in total stable coin market capitalization. And the other one is velocity, aggregate velocity of money for the stable coins. So what we see

• 29:14Speaker 04

  throughout 2023, the market cap of stable coins mostly contracted with that trend reversing only in the fourth quarter of the last year. So what, what happened can be attributed to

• 29:37Speaker 04

  several trends. First of all, we had the Silicon Valley Bank running the bank scare in the beginning of 2023, which also affected the other two big so-called crypto banks, Silvergate and Signature, that was also seized by the feds before running the bank really started. We know that, for example, Circle and Coinbase deposited funds back in USDC, stablecoin with Silicon Valley Bank and Silvergate.

• 30:18Speaker 04

  Bank which at some point resulted in panic surrounding that particular stablecoin, trading with a discount as wide as 10%. That scare resulted in USD market cap reduction through the year where that stablecoin was mostly redeemed, which was partially offset by the increase in federal market utilization.

• 30:53Speaker 04

  The other trend that contributed to the reduction in market cap was the shutdown of Binance USD as Binance native stablecoin administered by Paxos. And Paxos was affected by the same Silicon Valley banks, Kiarkis, Paxos. Main depositary institution was Signature Bank, which was seized by Federal Reserve, as I already mentioned.

• 31:32Speaker 04

  So right now, the USD is in redemption only mode and no new units are being issued. The units of the USD are only being redeemed. But yeah, in the end, it all worked out. In the fourth quarter, we've seen expansion of stablecoin market cap, which basically means the expansion of fiat capital base in crypto ecosystem, which is a sign of things to come. We're looking forward towards Bitcoin halving to really kick off the bull market.

• 32:15Speaker 04

  Because stablecoin market cap expansion is normally associated with speculative phases of the bull market, as you can see on the chart.

• 32:29Anthony Pompliano?

  So when I look at these stablecoins, one of the things that jumps out to me is...

• 32:36Anthony Pompliano?

  Internationally, there's been lots of adoption, but also where they've been adopted has been pretty interesting. You know, USDT on Tron is not exactly where many people thought there would be adoption of stable coins or any of these products, but that seems to be a very popular use case. How do you kind of decipher maybe the narratives versus this is just the on-chain data tells a story that is hard to argue with because it's more objective and more kind of factual?

• 33:04Speaker 04

  Uh, yes, certainly, stable coins have different use cases. And because Tron is a relatively low-cost chain, it became super popular in Asia for electronic transactions by passing the global banking system. But not just in Asia. For example, one of our coworkers just mentioned that you can pay with USDT on Tron for a taxi ride in Venezuela,

• 33:41Speaker 04

  for example. So Tether is actually seeing the most adoption as payment rails, whereas USDC is the most popular DeFi instrument representing fiat dollar.

• 33:58Speaker 03

  Just to add on, and my thoughts on this, the, you know, I think the use of the volume that's traded on Tron is roughly similar to the volume that's traded on Ethereum, which was a stat that really blew my mind when I first heard that because Tron is not something that's used for a whole lot else. So I think what it represents in the DeFi or stablecoin space is really, I think what Alex alluded to, which is like a shadow banking system. And that could be money laundering, it could be capital flight from out of one country into another, Venezuela, for instance. But I think that's what that segment of the stablecoin ecosystem is.

• 34:40Anthony Pompliano?

  Got it. And then maybe another, you know, kind of question is like, as we enter this world where there's multiple assets, you know, you see Larry Fink on national television talking about tokenizing different, you know, kind of traditional assets, et cetera. Will we be able to use some of these same technologies to track on-chain the same movements, et cetera? And so, you know, a technology like Elementus has now kind of can evaluate the entire financial market if everything goes on-chain?

• 35:09Speaker 03

  Yeah, and it's a really interesting concept, and I might even take it a step bigger that, you know, some of the conversations we're having right now are with Generative Ventures, whose thesis is really on this new digital economy that's forming, and that's kind of some combination of blockchain technology and artificial intelligence. And yeah, what like what we're working on together right now is quantifying some of these base economic metrics, such as a GDP, right? That, you know, you can look at how much Bitcoin on a very raw level is transacted on a daily basis. But quite different if you're talking about people exchanging one financial asset for another

• 35:52Speaker 03

  for speculative purposes versus somebody paying for some kind of good or service. And like the the number of use cases that fit into that second category of like actual economic transfers, so real value being created through the blockchain is really starting to proliferate. So, you know, these are the conversations we're having. I think it's a really exciting prospect. The idea of of an entire economy where, well, everything can be calculated very, very precisely from bottoms up as opposed to the traditional economy where economists are looking at sort of big picture indicators and making estimates of things.

• 36:35Speaker 03

  That I think, yeah, as as the use of blockchain proliferates into real economic use cases, yeah, the level of transparency is really going to be a, you know, a big shift, and it's going to be something very different.

• 36:50Speaker 02

  Yeah, I completely agree with Max. You know, the thing that kind of captivated my mind a few years ago, kind of initially diving into on-chain data was this idea of if Bitcoin is to become kind of the global settlement layer for everything, you know, it becomes very much akin to looking at maybe, you know, the St. Louis Fed data, right? As opposed to just looking at, you know, what are on-chain flows so that I know how to speculatively trade it over like a couple of months time horizon? So I think, you know, the on-chain data will definitely evolve from, as Max eloquently just said, from maybe being used for kind of market analyzing or, you know, kind of speculative purposes around coming to conclusions about, you know, the state of the market

• 37:35Speaker 02

  or different dynamics around the market to more kind of viewing holistically where this kind of new world is with Bitcoin as kind of the settlement layer. And then I guess one other piece to tag on is, you know, as as you have things such as, you know, securitization of different, I'm sorry, as you have the tokenizations of different securities or things brought on-chain, all of a sudden, you're able to kind of view these things in a level of granularity that you were never able to do before. I think one example we touched on towards the beginning is inscriptions, right? Like, you know, you could see in real time that minor fees were going up for, you know, these publicly traded equities, but you know,

• 38:19Speaker 02

  that wouldn't have shown until the end of the quarter, whenever the company released their earnings. So you know, I think holistically will be, you know, kind of evolve into, you know, a way to view kind of granularity of the economy itself that you've never had before, as well as, you know, different companies or assets that are brought on-chain in a level of granularity that you've never had before.

• 38:42Speaker 03

  Yeah, and you know, one other just aspect I would add on to this is, um, you know, something that I way, some way that I see that a lot of these different trends that ties them all together is, um, well, you have like ETF stuff happening right now, which is a way of taking digital assets and packaging them for buyers who really are not set up to hold digital assets.

• 39:07Speaker 03

  But you have some of this, the tokenization of real assets is actually just the reverse of that. It's, it's tokenized, it's tokenizing traditional assets for buyers that can't hold traditional assets, but can hold digital assets. So in both cases, kind of a bridging of the gap between traditional markets and or traditional financial markets and crypto financial markets. And you might throw stable coins in there as, um, you know, another element to that. And,

• 39:37Speaker 03

  well, a lot of the new, uh, trends that we're seeing, um, D pin would be another one where it really does feel like some of the, um, yeah, the new developments that we're seeing are less sort of crypto self-contained and much more,

• 39:54Speaker 03

  connective between, uh, traditional and, um, and digital.

• 40:00Anthony Pompliano?

  So my last question, I guess, is, uh, Max, maybe you can just, if you had to describe someone, what does Elementus do? What is the technology? Obviously, I'm very bullish. Uh, I'm an investor and think highly of both the team, the technology and what you're building. But like, how do you describe it to someone?

• 40:15Speaker 03

  We help people make better, smarter, more informed decisions on the blockchain.

• 40:19Anthony Pompliano?

  And how do you do that?

• 40:20Speaker 03

  Uh, well, we, we do that through data. So, uh, we can help inform people of information that happens in the blockchain. Coming from traditional finance, right, as a, as a trader, but even all the people around me that I was working with. Everything in finance is, um, well, information is the fuel of finance. Uh, for understanding risk, for understanding opportunities. Those are very sophisticated markets. As this market starts to approach traditional finance evolves, and I think there's, you know, a lot of open-ended questions, but I think some things you can guess pretty well how it's going to evolve, and some things are going to look quite like traditional

• 41:00Speaker 03

  finance. The data piece is going to become increasingly important. And so with our data, we can help people to understand risks better, so that some of these internal teams within investment banks can go to their managers confidently and be able to articulate the opportunity they want, the risks that it poses, and be able to quantify that with numbers. Or for those teams that are looking around for opportunities and really want something to focus on, we can help them do the exploratory work to find those. Yeah, and just generally speaking, we can help people to have a much closer pulse on the market. So being able to understand what's happening off-chain, you know, a lot of

• 41:45Speaker 03

  news makes it's way to crypto Twitter, which is tends to be, I think, most people's source of information, and it's a it's a great one. And there's a lot of stuff you can learn on there. You can't learn on the blockchain. But there's also a lot of information, a lot of things that happen on the blockchain that don't make its way out, such as FTX, you know, that's one that could have been identified, you know, a year or more before it blew up, as with some of the other big companies that blew up. So we help people make better, smarter, better educated decisions by using our data.

• 42:24Anthony Pompliano?

  And maybe we can just go around real quick. Will, where can you find you on the internet?

• 42:30Speaker 02

  Sure. First of all, you could check out our research firm, Reflexivity Research, at ReflexivityResearch.com. You check me out on Twitter at W Clemente III.

• 42:40Anthony Pompliano?

  Awesome. Alex, if somebody wants to get in touch with you?

• 42:43Speaker 04

  Element's website is obelixelementis.io and my Twitter handle is A. Malgalka.

• 42:51Anthony Pompliano?

  Amazing.

• 42:51Speaker 04

  There's a lot of O's.

• 42:54Anthony Pompliano?

  Max, you take us home. Where can they find you?

• 42:56Speaker 03

  Well, if you want to find me on Twitter, I am Galka underscore Max.

• 43:02Anthony Pompliano?

  Amazing. I appreciate all of you. The report is incredible. If anyone wants to go check it out, I highly suggest you do it. Reading through it is quite informative, so we would definitely do this again in the future when you guys do another one.

• 43:13Speaker 03

  Excellent. Yeah. Thank you very much, Anthony.