#837 Current State Of The Stablecoin Market 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. Dylan joins us every Tuesday on "The Best Business Show." To see the video with the corresponding charts that Dylan references throughout the interview, go to "The Best Business Show: LIVE" YouTube Channel ======================= Unstoppable Domains are the #1 provider of NFT domains and for 48 hours only they are doing a 2 for 1 sale. Now you can get the NFT domain you’ve always wanted and another one for your alter ego, pseudonym, that project you’ve been thinking about starting or for a FUD spreading friend of yours. The best part is with Unstoppable Domains, you will never pay renewal or gas fees so this could be the deal of a lifetime. Get 2 domains for as little as $5 and start using them to replace your impossible to read wallet addresses, a login for web3 websites and dapps or just as your name on the internet. Head to unstoppableweb.com/pomp-bogo before February 25th at 9am ET 2022 to find your forever name. Unstoppable Domains Your name Your Identity You. Own it. ======================= Mode, UK Fintech app, allows you to buy, earn and grow Bitcoin, all in one app. Not only is it a secure app to buy & hold Bitcoin, Mode allows you to pay & receive up to 10% Bitcoin Cashback from its growing list of online partner brands. Available on the App Store and Google Play. Download Mode at modeapp.com and set up your account to be in with the chance of winning ONE WHOLE Bitcoin. Offer ends Jan 31, 2022. Only available in the UK. ======================= Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish Hybrid Order Book pairs the high-performance of a traditional Central Limit Order Book with automated market making. Powered by deep Bullish Liquidity Pools, backed by the multi-billion dollar Bullish Treasury. So, you can trade with certainty and at scale across variable market conditions. Learn more at Bullish.com or follow @Bullish on Twitter. Because the future belongs to the bullish. *Not investment advice. Digital assets and cryptocurrencies are high risk products. Consult your professional advisor before dealing in them. Bullish’s services are available in select locations only and not to U. S persons. Visit https://bullish.com/legal for important information and risk warnings- =======================

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

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Dylan Leclerc is the Senior Market Analyst at UTXO Management. He also writes a newsletter with Bitcoin Magazine. In this conversation, we talk about Bitcoin, on-chain metrics, we talk about Bitcoin's price, the market structure, and what to expect in the coming weeks. I really enjoyed this conversation with Dylan, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. This episode is brought to you by Mode. Mode is a trusted UK app that allows you to buy, earn, and grow Bitcoin all in one app. You can pay with Mode and receive up to 10% Bitcoin

• 0:43Anthony Pompliano?

  cash back from its growing list of online partner brands, straight into your Mode wallet. I have to say personally, I think the company behind this app is pretty damn impressive. They're FCA registered, they're listed on the LSE in the UK, and they're also listed on the OTCQB in the United States. They choose to hold Bitcoin on their balance sheet as a publicly traded company, and they are piloting a Bitcoin payroll product to pay their UK employees in Bitcoin. To all my fellow UK friends, I recommend you go check out Mode right now. The app is available in the App Store and Google Play. You can download the app now to get started, and make sure to check out the Rewards tab on the app for the 30-plus brands you can earn Bitcoin cash back from. Go check them out at modeapp.com,

• 1:25Anthony Pompliano?

  or go into the Google Play Store or the App Store and download the Mode app today. This episode is brought to you by Bullish. Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish hybrid order book pairs the high performance of a traditional central limit order book with the automated market making, powered by deep Bullish liquidity pools backed by the multi-billion-dollar Bullish treasury. So you can trade with certainty and at scale across variable market conditions. You can learn more at bullish.com or follow Bullish on Twitter, because the future belongs to the Bullish. Now, this is not investment advice. Digital assets and cryptocurrencies are high-risk products. Consult your professional advisor before dealing in them. Bullish's services are available in select locations only

• 2:10Anthony Pompliano?

  Only and not to US persons. Visit bullish.com/ legal for important information and risk warnings. Go check them out at bullish.com or follow at bullish on Twitter. Today's episode is brought to you by Fundrise. You all know I believe that the best investors both understand and seek out extreme asymmetry. Fundrise is here to help you do just that. It's the largest direct to investor real estate investment platform out there, giving you the opportunity to achieve upside of an asset class previously reserved for institutions and high net worth individuals. That's right. Fundrise is making high end, private market, real estate investing accessible to everyone via an easy to use automated platform. Its 1 million users already know that the investment with Fundrise is capable of producing strong appreciation

• 2:51Anthony Pompliano?

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• 3:26Speaker 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.

• 3:49Anthony Pompliano?

  Let's get into some of the charts that you've got for us today. You've got the USDC and USDT circulating supplies. So this is circles, stablecoin, and then tether. The numbers just keep going up into the right, man. It's pretty impressive to see how fast this

• 4:04Speaker 02

  Love growing. Why is this important? Yeah, so the past couple of weeks, we talked about equity market correlations. We looked at on-chain stuff. We looked at derivative stuff. So today, I thought I'd just throw together some stuff about kind of the stablecoin market and how that's blossoming. Just to cover something a little bit different, but you know, an important part of this entire ecosystem. So, you know, Circle, Tether, the two leading stablecoin issuers, we see rumblings of CBDC talks, whether that's Congress or the, you know, Fed Governor saying, hey, we need a central bank digital currency. We're seeing what's happening in Canada with that, you know, aggressive overreach by government on people's bank accounts and financial services. So all of this stuff is going to be, you know, heavily debated over the coming years. And so,

• 4:49Speaker 02

  you know, do you want to hold something like a stablecoin that can be, you know, like choke point by some, some central issuer? I think a lot of people are going to come to realize that their money isn't actually their money. So stablecoins, they're actually serving a pretty big purpose in, in the world, in like, in this ecosystem. And no, it's not immutable decentralized money, like say Bitcoin is, that's censorship resistant, seizure resistant. But what it does do is it allows dollars to kind of flow freely on crypto rails. So this next chart, the circulating supply here is about 120 billion. Year over year, the growth is like 200%. It was about 40 billion dollars combined a year ago today.

• 5:28Speaker 02

  And so, over the last year, these two stablecoins have done like $2 trillion of transfer volume each, which is like, you know, like an order of magnitude, a couple of orders of magnitude more than their actual market cap. So they're actually like the circulation rate or how fast these things are changing hands is actually remarkable. When you're thinking about this versus say dollars in the banking system. And so, you know, for the longest time, the crypto market didn't even have any stablecoins. It's just like Bitcoin was your, was your kind of your safe haven. And when the, when these kind of local bubbles pop, you had nowhere to really run. And the on and off ramps are really, really tricky to use. So now people, and you can debate, you know, how safe something, stablecoins are, or if their reserves are backed or not.

• 6:13Speaker 02

  And that's an entirely different discussion. But a lot of these stablecoins, and I think, you know, increasingly so, will just hold treasury. And essentially, they're just like, you know, US dollars, treasuries that can be changed hands in crypto markets in, you know, a couple of seconds around the world. And so in terms of innovation, I don't know, I don't know how it's just, you know, another kind of database entry on a, on a, you know, centralized ledger, and that's fine. But it's a lot better than, you know, say, the, the legacy banking system and, and integration with the crypto markets today.

• 6:42Anthony Pompliano?

  So when you look at the stablecoin, like we looked at both the circulating supply and the annual transfer volume, is it your thought process that just more and more of the financial system is going to move over because these are superior rails to other dollar rails and people who want that stable value as long as they can get comfortable with any perceived or real risks of what's backing it, auditing it, et cetera. Once they get comfortable with that, just the entire financial system will flow over into stables?

• 7:09Speaker 02

  Yeah. So I mean, how I think about it is, and I focus on Bitcoin, you know, with almost all my time because I think it fixes or addresses one of the biggest problems in the world today. There's a 300, 400 trillion dollar problem. And we've talked about that. It's a broken cost of capital. Right? So if you have money in the bank account, you deposit with a bank, they actually lend your money out for you fractionally. They fractionally reserve your deposit and lend it out to other debtors. But you don't get any of that yield. You don't get any of that upside, even though they're lending it out on your behalf. So, so that 0% yield you get in a 7% inflationary environment, you know, you're not doing too well. But with, say, stablecoins are in this kind of emerging crypto Bitcoin ecosystem, what you can do is you actually lend peer to peer.

• 7:54Speaker 02

  So say on FTX, centralized, you know, because of exchange, you can lend your dollars to someone else that's using margin. Or, you know, let's say a DeFi protocol, right? You're putting, you're putting stablecoins into a liquidity pool. And right, there's, there's a debate about, you know, what's the custodial risk? What's the, the platform risk on a lot of these protocols is, you know, are they going to get hacked? Are there exploits? And that's something that people are finding out in real time. Like it's not risk free in the sense that, you know, nobody, there's not the FDIC going to back you if you get hacked, right? But what you can do is you can lend your stables out or you can borrow dollars at a, at a really a market rate, right? So sometimes that market rate in this ecosystem is 5%, sometimes it's 20%, but these markets are free and open.

• 8:41Speaker 02

  And these stablecoins allow basically, you know, creditors, debtors, people that want to Collateralize their assets and borrow or lend to someone else to do that at a rate that's decided by the market and not 12 guys sitting in a room saying the Fed's fund rate is going to be 0% again. And so I think that's the exciting thing about what's happening with, you know, kind of dollars on crypto rails.

• 9:01Anthony Pompliano?

  Yeah, it's wild that there's 12 people who make that decision, but that is the world that we live in today. You've got this chart on stablecoin supply ratio. Explain what uh what you're looking at here.

• 9:10Speaker 02

  Yeah, so this is just over the last couple of years as stablecoins have become a bigger and bigger part of the market. This is uh the stablecoin supply ratio is basically the Bitcoin market cap divided by the stablecoin market cap. So right now I just included USDT and USDC because they're the two biggest, but there's other uh stablecoins out there. There's some kind of um, you know, algorithmic stablecoins. So like they're collateralized with other assets and they're not actually backed by dollars in a bank account. There's all sorts of things, but basically this is the aggregate stablecoin market cap as a percentage of the Bitcoin market cap. And what you can see is with this ratio falling, uh, you know, the buying power of these of the of this dry powder in the market relative to the Bitcoin market continues to get larger and larger. And so um I have these kind of Bolinger bands on this on this supply ratio.

• 9:55Speaker 02

  And and when it gets to the upper band, it's basically that the Bitcoin market cap is is really big compared to the size of like the dry powder on the sidelines, stablecoins. And when it hits that kind of lower threshold, it's showing the opposite. It's saying that that dry powder is a pretty significant portion of this this Bitcoin market cap. And so we're on one of those lower bands. Uh, all that's showing and we're honestly at like near historic low in this supply ratio. So it's showing that the stablecoin dry powder on the sidelines, you know, 120 billion plus uh relative to the Bitcoin market cap uh is is pretty substantial. And so there's, you know, there's a lot of people on the sidelines uh waiting to buy the dip.

• 10:33Anthony Pompliano?

  Yeah, that's uh that's probably uh going to be a good decision if we look at the historical uh perspective, what usually plays out. Uh, you've got Bitcoin futures open interest. Uh, why is this important?

• 10:44Speaker 02

  Yeah, so this is uh the stablecoin margin uh open interest, right? So with Bitcoin futures, um you're basically you're entering a contract and that contract's mark to market every second. Uh, and you can enter that contract. With various sorts of collateral and traditionally when these derivative markets first are spun up, you were actually collateralized if you were long Bitcoin, you were collateralizing that contract with Bitcoin or with another crypto asset, but mainly Bitcoin. And you know, I guess sometimes you can do it with ETH, but traditionally it's Bitcoin as collateral in these markets. And so now increasingly so, what you're seeing is stable coins as basically collateral in these derivative markets are becoming more and more prevalent. And so that that actually is pretty good in terms of risk profile for bulls.

• 11:28Speaker 02

  Uh, cause when there's these downturns, these these big market crashes and you're long Bitcoin with Bitcoin as collateral, it gets pretty ugly and that that unwind is somewhat reflexive. Uh, your collateral is going down in value, your profit, your P and L is going down. And so it may basically forces people to sell. You know, it's these cascading liquidations that you see. And so stable coins as collateral and kind of entering these derivative markets really is advantageous for for the traders. And I think that's why you're seeing it become more and more prevalent uh, over the last couple of years.

• 12:02Anthony Pompliano?

  All right. And then when we look at Bitcoin percent futures, open interest crypto margin, this is kind of another variation of a similar thing.

• 12:08Speaker 02

  Yeah. So this is just uh, the percentage of that. So with this, with this chart declining over time, right now about 42% of the market is crypto margin. So if you can think of the inverse, 58% of this market is is the futures open interest in Bitcoin, uh, which is, you know, a $10 billion plus market uh, is and I, and I, on the futures open interest, I quoted it in Bitcoin terms. So it kind of, you know, like it uh, evens out that volatility, but 58% is stable coin margin. And compared to say 30% of the top of the market. So in the top in April, you had basically 70% of the derivatives market. They were taking their Bitcoin and they were longing Bitcoin with Bitcoin as collateral, right? So that's obviously not very sustainable and we're seeing, you know, that trend actually uh, reverse big time.

• 12:53Speaker 02

  And so much more healthy state of the derivative market. And uh, you know, I expect that trend to continue into the future.

• 13:00Anthony Pompliano?

  Got it. And then when you look at this three month annualized rolling basis of Bitcoin futures, what are you seeing there? Seems just kind of have just.

• 13:06Speaker 02

  Going down since about November. Yeah, so we talked about this, one of our episodes, podcast episodes we did where we talked about Bitcoin as a solution to the broken cost of capital. And we talked about, you know, how Bitcoin is a bearer asset, but the markets around Bitcoin kind of are entrenching themselves as this new form of, or like almost risk-free cost of capital. So this futures rolling basis, what you can do is you can sell futures and you can long the spot and oftentimes, or most all the time, the futures, the front one month or three month futures is trading ahead of that spot market price. And so right now with this metric at about 5%, you can capture about a 5% annualized yield by just selling the

• 13:46Speaker 02

  three-month forward futures, longing spot, and you're market neutral, but you're collecting that yield. And so during times where the markets, you know, very speculative, bulls are very speculative, say in November of 2021, it was, this was about at 20%. So you could capture a 20% annualized yield. At the top of the market in in about April, you could get about a 45% annualized return. And so this just kind of shows that speculative nature of the market. But increasingly, you see institutions coming in that really are market neutral. They're taking no upside or downside risk in Bitcoin, but they're collecting this, this, you know, this annualized return. And so this kind of basis, this risk-free yield, if you want to call it,

• 14:24Speaker 02

  it's, it's all throughout the crypto Bitcoin ecosystem, whether it's futures, whether it's perpetual futures, whether it's DeFi protocols or yields. Basically, this, there's kind of this new, you know, cost of capital that that's completely like contrary to the, the Wall Street, Walthard and legacy system where, you know, junk bonds are yielding you 5% before inflation, before default risk. You know, it's, it's, it's almost like there's this new parallel system where people are saying, nope, this is actually the real cost of capital and I'm not parting with my money for, for a negative.

• 14:58Anthony Pompliano?

  John, what questions you got?

• 14:59Speaker 01

  Dylan, how do you think about the different stablecoins and evaluating them? So if you want to put money into the stablecoin market and kind of collect those yields that a lot of companies offer, what do you choose between like USDC, USDT, Gemini, USD? Like, how do you think about that?

• 15:14Speaker 02

  Yeah, so I mean, I think, you know, a lot of, a lot of the Tether truthers have been not proven wrong, but there's definitely some questionable things in the past about whether they're fully backed and the things that Biffen X and Tether did. And there's a whole kind of rabbit hole you can go down with that about where they fully backed throughout time. But I think, you know, the recent audits looked good. But I think the biggest thing is, I would say probably USDC is, is the strongest in terms of like, you know, the regulatory environment and, and having a proof of reserves. But, uh, you know, if you are, say, a Tether truther and say that Tether is fraud, uh, if you really believe that, well, there's a simple thing you can do. You can simply go into the market, you can short, you can borrow Tether and you can, you can buy USDC. You can buy Bitcoin, you can buy any asset.

• 15:58Speaker 02

  And if, if Tether turns out to be fraud, well, congrats, you shorted it. So like, you know, I think a lot of it is more so talk, when in reality, if you have this strong thesis, if you really believe that, uh, you know, some of these stablecoins are fraudulent or not, well, you know, go out and short it because there's, you know, there's huge markets with billions of dollars to do this very thing.

• 16:15Anthony Pompliano?

  Dylan, when you start to look at a lot of what's going on in Canada, obviously the Russia, Ukraine stuff, I've seen the number of headlines that are like, oh, people are selling their Bitcoin because Russia is going to invade Ukraine. Or, oh, people are buying Bitcoin because of what's happening in Canada. One, like, how do you evaluate, uh, what of that is true and what is not? And also two is, do you think that the geopolitical movements globally have, uh, that much impact on Bitcoin buying and selling, market price, et cetera?

• 16:45Speaker 02

  Yeah, so I mean, I think the, the Canadian kind of, uh, thing is, uh, somewhat not unprecedented, but if you would have said a liberal democracy, first world country, you know, our, our friendly neighbors up north, uh, would kind of turn to authoritarianism rather quickly, uh, where, you know, anyone that is peacefully opposing, uh, the kind of

• 17:07Speaker 02

  Political party in power would have their bank accounts frozen, assets potentially seized, you know, credit cards turned off. Uh, you know, I don't think a lot of people expected that. So whereas Bitcoin was kind of this digital gold narrative speculative asset. Now it's, okay, wait, the, the theories about censorship resistance, uh, and you know, being your own bank, it's not more, it's not a theory anymore. It's like, you know, it's happening in practice and we need, we need money that can't be, that can't be arbitrarily taken from us. And so I think a lot of people are waking up and saying, I, my money's not safe in the bank. Uh, you know, and they just, you know, people, average people that donated their money to peaceful protesters. This is not like, you know, this isn't like they're radical extremists at all. I mean, have you seen the videos? They're just waving flags and jumping around in bouncy houses.

• 17:52Speaker 02

  It's like rather peaceful. And so I think a lot of people are waking up to what's happening up north. In terms of, you know, the geopolitical instability, uh, I put out kind of a joke tweet yesterday about, you know, my, a thread about my, uh, my observations on Ukraine and Russia. And then said like, I'm no expert. I have nothing to offer here. Um, I'll leave that to other people. But, uh, you know, a lot of people are trading this. And if you're looking at Bitcoin and equities trading tick for tick over the last couple of weeks, um, I think more so that's what's happening is that, uh, the, the implications of what's happening in terms of currency markets, bonds, equities, um, there's ripple effects into the Bitcoin markets. And so, you know, if people are buying or selling Bitcoin because of what Putin said in his speech or not, I think that's more short-term noise.

• 18:34Speaker 02

  And, you know, the bull case for, for Bitcoin and, and why we need it in the world today, uh, is never been stronger. And I think that's clear for anybody that's kind of paying attention to what's happening.

• 18:43Anthony Pompliano?

  Yeah, it makes a lot of sense. The other piece too, that seems to, uh, uh, be interesting development is we're seeing more and more politicians start to get into Bitcoins, stable coins, uh, crypto conversation in general. Now we've seen everything from politicians put forward, uh, legislative ideas around, uh, hey, you will not be able to create a, uh, central bank digital currency that doesn't meet these criteria that basically preserve the benefits of cash. There's people who have put forward at the state level, uh, legal tender, uh, legislation, uh, for Bitcoin. Like, how do you think about politicians and their participation in some of this stuff now? Uh, is it just a foregone conclusion that they're all gonna? Have to get on board or can some of them still fight it?

• 19:23Speaker 02

  Yeah, I mean, the overturn, the overturn window is shifting rapidly, right? Where, you know, it was kind of this niche thing to support Bitcoin crypto a couple of years back. And now it seems like it's totally shifting to where if you don't support this openly, you're not going to stand a chance. And so, you know, the midterms are going to be really exciting. We talked about it, I think, a month or two back about, you know, how this incentive has changed pretty rapidly. So I think that's going to be a kind of a trend this midterms and especially in the 2024, you know, presidential elections, a lot of stuff's going to be happening. It's pretty exciting and I think the incentive's aligned. And this isn't just a US thing. This isn't just a state level thing. This is a kind of a game theory that's playing out everywhere in the world, right?

• 20:06Speaker 02

  Where we see Bukele and El Salvador, they're just the first domino. And so we're going to see a lot of exciting things happen that I think you're going to catch a lot of people by surprise over the coming years.

• 20:15Anthony Pompliano?

  Got it. Before we let you go real quick, how are we looking on followers?

• 20:20Speaker 02

  Not, not too, not too much growth here. I think

• 20:23Anthony Pompliano?

  Not too much growth. What's going on? You've been doing threads or what? Yeah, is the Twitter machine broken? Oh, you're at 125. You're, you're, you've now hit like a nice round number there.

• 20:33Speaker 02

  Yeah, not too bad. I'll, I'll pick up the, pick up the tweeting this, this, this week. He was taking a little bit of a break.

• 20:39Anthony Pompliano?

  Yeah, just say, just, you know, there's a couple of strategies you can employ on Twitter. You can basically say smart things, you can say dumb things, or you can say hot takes. And sometimes you could wrap all three of them in the same thread and then you're viral and you know, you got 200,000 followers.

• 20:52Speaker 02

  John, I saw you were getting ragged on for your podcast take the other day.

• 20:55Anthony Pompliano?

  Yeah. What was your podcast? I said to replace music with podcasts. Oh, like, like not I think people took that out of context. I meant like on a road trip, like at the gym. What, did you say it? No. That's how Twitter works. It's how you get engagement. All right, that's fine. Speaking of music, Kanye still has not dropped his album today. People are pissed. They bought a $230 piece of hardware that looks like he put it together in his garage. I love Kanye, but people are pissed and I'll be, I'll be at the concert tonight. Yeah. Is it a concert? Launch party, viewership. Like, think about this, he's about to fill, he's about to fill Loan Depot Park. And people don't even know what they're going for.

• 21:38Anthony Pompliano?

  They're like, that's a 50 50 shot Kanye shows up 50 50 shot. We listen to new music 50 50 shot. We listen to him just yelling to a microphone about topics. That's what I said. But I'll be there. He may not even show up. Yeah. Didn't he not show up to one of them last time? I don't know. Hey, whatever. Watch the documentary. He can do whatever he wants. He's good in my book. All right, Dylan, thank you so much for joining us. We'll do this again next Tuesday. All right, guys. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry.

• 22:24Anthony Pompliano?

  It's a three week intensive training program with over 50 events packed into that three week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.