#677 Shocktober is Here! Bitcoin Prepares For Liftoff w/ Will Clemente

Will Clemente is the Lead Insights Analyst at Blockware. He has quickly become one of my favorite writers on all things bitcoin, including deep dives on various onchain analytics. In this conversation, we discuss the bitcoin fundamentals, on-chain metrics, what happened in the past week, and what the on-chain data is telling us to be prepared for moving forward. ======================= If you haven’t started building your crypto portfolio on Okcoin, there’s no better time. They’re one of the fastest growing global exchanges around and they have some promotions happening right now to help even more people be part of the future of finance. If you have an account already, you can split $100 in BTC with a friend when you invite them to sign up for Okcoin if they buy $100 of crypto in the first month. The more friends who sign up and buy, the more BTC you get. And I always recommend dollar-cost averaging as a way for investors to have more control over their average price when building their portfolio. Now you can automate dollar-cost averaging with completely fee-free daily, weekly, or monthly recurring buys on Okcoin until November 1. That’s no fees at all on your purchases until the holidays. Get started on the web or on their new super easy-to-use app at okcoin.com/pomp ======================= Gemini is a leading regulated cryptocurrency exchange, wallet, and custodian that makes it simple and secure to buy, sell, store, and earn bitcoin, ether, and over 40 other cryptocurrencies. Offering industry-leading security, insurance and uptime, Gemini is the go-to trusted platform for beginner and sophisticated investors alike. Open a free account in under 3 minutes at gemini.com/pomp and get $20 of bitcoin after you trade $100 or more within 30 days. ======================= AppSumo is the leading digital marketplace for entrepreneurs, and a great way to get your product in front of 1M+ entrepreneurs, founders, and small businesses. AppSumo is giving away their entire $1 million Black Friday marketing budget to creators. If you have an ebook, online course, template, or any other digital product — this is for you. List your product on AppSumo between September 15th - November 17th and the first 400 offers to go live will receive $1,000, the next 2,000 to list a product and go live get $250. And everyone who lists gets entered to be one of 10 lucky winners of $10k! Go to AppSumo.com/pomp to list your product today and cash in on this amazing deal.

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

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Will Clemente is the Lead Insights Analyst at Blockware. He's quickly become one of my favorite writers in all things Bitcoin, including deep dives on various on-chain analytics. In this conversation, we discuss the Bitcoin fundamentals, the on-chain metrics, what happened this past week, and what the on-chain data is telling us to be prepared for moving forward. I really hope that you enjoy this conversation with Will, as I always do. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is AppSumo. AppSumo is the leading digital marketplace for entrepreneurs and a great way to get your product in front of one-plus million entrepreneurs, founders, and small

• 0:47Anthony Pompliano?

  businesses. AppSumo is giving away their entire $1 million Black Friday marketing budget to creators. If you have an ebook, an online course, a template, or any other digital product, this is for you. You can list your product on AppSumo between September 15th and November 17th, and the first 400 offers to go live will receive $1,000. The next 2,000 to list a product and go live, get 250 bucks, and everyone who lists gets entered to be one of the 10 lucky winners of $10,000. Go to appsumo.com/pomp to list your product today and cash in on this amazing deal. Again, appsumo.com/pomp, or you can click on the link in the description as well, appsumo.com/pomp.

• 1:29Anthony Pompliano?

  Next up is Gemini. They're a regulated cryptocurrency exchange wallet and custodian. Some might say they're actually an industry-leading regulated cryptocurrency exchange wallet and custodian. That makes it simple and secure to buy, sell, store, and earn Bitcoin Ether and over 40 other cryptocurrencies. They offer an industry-leading security, insurance, and uptime. Gemini is the go-to trusted platform for beginner and sophisticated investors like. You can open a free account in under 3 minutes at gemini.com/pomp and get $20 of Bitcoin after you trade $100 or more within the first 30 days. Again, takes 3 minutes when you go to gemini.com/pomp and you'll get $20 US dollars of Bitcoin after you trade. $100 or more within 30 days.

• 2:13Anthony Pompliano?

  Gemini.com/pomp. What are you waiting for? Let's go. Last but not least is OKCOIN. If you haven't started to build your crypto portfolio on OKCOIN, there's no better time. They're one of the fastest growing global exchanges around, and they have some promotions happening right now to help even more people start being a part of the future of finance. If you have an account already, you can split $100 in Bitcoin with a friend when you invite them to sign up for OKCOIN. If they buy 100 bucks of crypto in the first month, you invite them, they buy $100 of crypto, you both split a free $100 from OKCOIN. The more friends who sign up and buy, the more Bitcoin you get. And I always recommend dollar-cost averaging as a way for investors to have more control over their average price when building their portfolio.

• 2:58Anthony Pompliano?

  Now you can automate dollar-cost averaging with completely fee-free daily, weekly, or monthly recurring buys on OKCOIN until November 1st. That's right, those automatic dollar-cost averaging purchases are completely free of fees, whether you're doing it daily, weekly, or monthly, until November 1st. That's no fees at all on your purchases until the holidays. Get started on the web or on their super easy-to-use app at OKCOIN.com/pomp. Again, OKCOIN.com/pomp. All right, let's get this episode with Will. I hope you guys enjoy this one.

• 3:32Speaker 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.

• 3:55Anthony Pompliano?

  All right, let's start first with what's going on in terms of Sopra. Sopra, me and Will hung out all summer. We had a Sopra summer. What's going on there?

• 4:06Speaker 02

  Yeah, so Sopra looks at the profit-taking, or I'm sorry, the state of profit that the market is holding on any given day. So you're taking a ratio of all the coins trading in profit, all the coins trading in loss, and you get Sopra. And then here we look at A Soper, which is adjusting for all All the outputs below an hour. And then we're also seven, doing a seven day moving average on this. So we're looking at essentially the weekly version of Sober. Um, and so as you can see recently that we've just bounced off one. You know, obviously that's a good sign so far, but we want to see, um, obviously an uptrend in the, in the ratio, but at least, you know, at the minimum, um, some stabilization above one.

• 4:43Speaker 02

  Um, you know, in, in bearish markets, you fade the, the retests of one and then in a, in a bullish trend, uh, you know, when a broader bullish trend, uh, you buy the dips along one. Um, and so if we are in a broader bullish trend, which I personally believe we are, but it's up to you for, to, to decide. Um, all these retests of one will become, you know, good up buy opportunities. Um, if, if you're correct about that assumption. So, uh, we just bounced off of it. You know, and once again, want to see some stabilization, uh, but preferably, you know, increase in the ratio.

• 5:16Anthony Pompliano?

  I definitely think we're in a bull market. I think you do as well. So it's great to see it bouncing off of, uh, off that one. Tell us what's going on with, uh, the whales. We've got this chart that filters out all of the kind of exchanges and known entities. Uh, but explain to us what's going on here with this whale chart.

• 5:31Speaker 02

  Yeah. So this is just looking at all the entity flows. Um, so the green line, we have whales. This is filter out for exchanges, uh, grayscale, QBTC, uh, the purpose ETF. Then we have a couple of different lines here. Um, we have the shrimps, the crabs, the fish, octopus. So it's just saying all these different size cohorts. And so what you see is, um, the high level, you know, takeaway is that every, uh, single cohort is accumulating right now. As of the last three weeks, when you started to see, uh, the hundred to, to thousand BTC guys start to buy as well. So right now you have every single cohort, uh, accumulating, which is, which is pretty remarkable. You know, when you go back and,

• 6:10Speaker 02

  uh, look at times where you see all cohorts accumulating in unison, uh, that's, that's historically, you know, been a, a pretty good time to, to average and sub eyes. I don't have a chart of that up here, but I have put that on my Twitter in the past. It's happened a couple of times before. And so you, you ask, you know, where are these coins coming from? Um, and the answer is exchanges, right? We, we keep talking about how. Coins are moving off exchanges. In the last week, you have 2,869 BTC moved off exchanges, um, which is about 134 million dollars. I think I used a 47K BTC price for that. Um, and they're also down 62,251 BTC in the last month, uh, which is about 3.2 billion dollars. And so this, this leads us to the next chart.

• 6:55Speaker 02

  Um, you know, you see that, that, uh, purple line is the exchange supply shock ratio. So comparing all the coins on exchanges to off, blue line, we talk about this a lot, the liquid supply ratio. You're comparing, um, the strong hands to the weak hands essentially. So the entities that statistically sell a lot, the entities that statistically rarely sell, right? Um, and so we have another bullish divergence when you, you know, look at both ratios in comparison to price. Price is kind of bleeding sideways bearish. Well, I put this out, I created this last night, so as of this morning, and then maybe that's starting to change.

• 7:29Speaker 02

  And then, you know, this was the same thing that happened in, in the summer we were tracking. So, um, that, those are the supply dynamics. The one thing I wanted to, I wanted to touch on was just, uh, um, the bids. I think this is like important for people to, to keep in mind. Um, it's the second chart. So what you're looking at here is all the, it's just a heat map of all the Biffin X orders. Uh, the, all the, the bids and asks on the order book. Uh, and so what you see is we have this huge floor below us. And so you, you can look at this two ways. Um, the bullish case is obviously like, okay, the, the, the Chinese bull whales have just set this concrete floor. And, you know, you, you have started to see, started to see some of those orders filling the other day.

• 8:13Speaker 02

  Uh, but the, the perhaps more nuanced view, and I'm not saying this, this is the case. I'm just saying, keep this in mind. Um, the bearish case would be that these walls sometimes are used to generate liquidity to, uh, either enter or exit position. So you could, you could set a huge wall of bids, right? And then whenever the, you know, the retail guys start to see price, you know, bleeding down into that wall or, or floor, I should say, um, they're going to try to front run that. Because they see hope. There's this huge wall like no one's going to sell into that. So I'm going to start selling or closing my shorts above that. On the other end,

• 8:50Speaker 02

  or I'm sorry, closing my longs above that. On the other end, you could have that entity that set the set the floor actually using that liquidity to exit the market. And then conversely, if they set a giant wall of asks, you know, it could be them actually trying to enter into the market. They're basically putting a cap on the price. Everyone is trying to front run that wall and sells into that or closes, you know, closes their longs or open shorts of like front running that wall. And on the other end of that are actually the same entities that or entity that created that wall or ceiling are actually in the market getting long. So you, you, you know, there's, there's nuance to it. But as I mentioned, like the other day, you have started to see some of these, these bids fill.

• 9:36Speaker 02

  Going back though, like Biffinex's activity, I could say, has, has been pretty influential on the price. Like you see them cap price a lot and set the floor oftentimes. It's just, you know, keep an eye on it because if you just see the floor get rugged, then you know, that's not a good sign.

• 9:52Anthony Pompliano?

  One of the things that I really like that you're doing right now is not only are you looking at metrics that David Puel, Willie Wu, and many other folks kind of before you have created and spent a bunch of time on, but you're also creating a bunch of new metrics as well. And one of them that you included in the newsletter this week was this idea of a delta valuation model and trying to determine like this floor idea. Explain exactly what you're trying to get at with the metric and then show us what it's kind of highlighting today.

• 10:21Speaker 02

  Last week, we looked at the liquid supply floor. And so that was looking at basically an estimate of the real time floor that long-term investors or strong hands have set. This is a bit more conservative in the, in the sense that the floor has never been broken, whereas the model last week, it's been broken briefly twice. This is looking at, um, where should I start? So delta cap is the difference between, and this was conceptualized by David Poel. Delta cap is the difference between the average cap, so the all time moving average cap. And realized cap and realized cap is basically an on chain D W O P. So it's, it's looking at the last time coins were last move and creating a capitalization based off of that.

• 11:02Speaker 02

  So for example, um, you know, let's say I'm Roger Vare, I bought Bitcoin at a dollar, bought a hundred thousand BTC at a dollar. Right. And I've never moved them, you know, in market cap, that, that chunk of coins, right, is worth four, uh, 4.7 billion dollars. I hope I just did that public math correctly. And then if he hasn't, if he hasn't moved those coins, it's only adding a hundred thousand dollars to realize cap. And so you, it's, it's basically giving you this average, uh, price or capitalization. You know, you just divide the cap by the circulating supply to get the, to get realized price. But you're looking at this average capitalization based off of where these investors have bought into the market. And so taking the difference of that is what delta cap is.

• 11:44Speaker 02

  And that's giving you, um, as you'll see by these little green circles, um, is giving you these, these good buy zones, especially just saying, you know, okay, we're getting close to the, to delta cap. That's probably a good time to average in some heavier buys. You can statistically take riskier buys, right? Because the asymmetry of, of the market at that time is heavily skewed to the upside because we're very close to what's historically been the floor. And so then you take a multiple of that and you get the delta cap top. And so that's that purple line. It's just multiplying it by a special number, uh, seven and a half, which is completely arbitrary. I just played around with it till it fit.

• 12:24Speaker 02

  And so you see that, that, that's caught, uh, some of the tops as well. And then you just take both of those, divide by two, which is taking the mean of it. And you get that little, uh, the, the middle, uh, blue line. And that's, that's been, you know, historically, uh, you know, a level that prices interacted pretty, pretty nicely with. Like you look at 2019, that's where it bounced off of in that little mini, uh, bull run. So yeah, that, that, that's the model. It's just no, nothing crazy. It's just, you know, you can use that in confluence with the liquid supply floor. And, you know, this is like a much more conservative floor that because, you know, once again, it's it's never been broken. You know, we also have shown before, I think the pricing model is using like Willie's top model, which is at like 190K.

• 13:08Speaker 02

  That's using an all time moving average of Bitcoin. I've also seen pricing, similar pricing models using thermocap, which is the security spend of miners. So there's different ways, right? You can, you can kind of create these valuation models, but it's interesting like, you know, this is all based off of the, the on, the on-chain activity. And, um, you know, we can kind of create these valuation methods for Bitcoin where we don't have like discount cash flows or anything like that.

• 13:34Anthony Pompliano?

  When we look at the Bitcoin number of active entities, uh, it feels like this has been really lockstep with Bitcoin price. But we're starting to see kind of an increase, uh, over the last couple of days and weeks.

• 13:47Speaker 02

  Right, yeah, like I think the, the one bearish case you could make from an on-chain perspective is just looking at some of the transactional activity. Excuse me, um, so you look at transaction count, um, you know, the mempool, overall volume, active entities. Also net entities growth, which is the difference between, um, you know, the new entities coming on chain and the ones leaving. And basically, you know, some of these things are showing that there's low demand to, to use the network. Although we have seen, as you mentioned, uh, you know, uptick recently, but, you know, from a broader standpoint, we still are historically, you know, lower than where we have, have been in, in, in, you know, bull market uptrends. But I think you can make an argument, a counter argument to this and say three things. First of all, that the speculative market participants are gone.

• 14:32Speaker 02

  So we're seeing like transaction volume is dominated by these larger guys. So we're looking at like volume of $10 million and up has seen a very large increase over the last few weeks. And it's just completely dominating all the volume on every given day. Also, another, another culprit could be batching done by exchanges. So I know a couple of guys who work with. Exchanges and I guess now over, you know, over the last couple of months, they've, they've started to utilize batching more to save them money and, and I guess it just saves them hassle as well. And then lastly, uh, and this is probably the more popular answer with Bitcoiners, but I think it's honestly the, the, uh, least effective of the three. Um, on the lack of, of transactional activity and that's, uh, transactions migrating to the Lightning Network.

• 15:16Anthony Pompliano?

  I was gonna ask, so when you think about that Lightning Network, uh, you've got a bunch of charts here. What's your, before we get into the graphics, what's your general thought process around the Lightning Network at the moment? Is this something that people should really be paying attention to, or is it still too early, uh, to get overly excited about it?

• 15:32Speaker 02

  I think, I think it's huge, right? Like you're seeing what Jack's doing. You had Jack on like the last week and, you know, this is completely changing, uh, you know, uh, how, how we do things like, you know, you look at countries where they're, they don't have access to banking. Uh, you know, you look at remittances and, and how that's changed things for countries, you know, like El Salvador, for example. Um, you know, I think, I think the Lightning Network is just crucial in general for transitioning Bitcoin from a, you know, predominantly a store of value. We talk about Bitcoin is, is the most efficient way to move value across, uh, space and time, right? This from Safedin's, uh, the Bitcoin standard. But the Lightning Network helps us, helps us transition to more of that medium, uh, medium of exchange, right?

• 16:13Speaker 02

  We talk about, you know, you go from like collectibles to store value, medium of exchange, the unit of account. And so the Lightning Network will, although still young, you know, eventually help us make that transition. And I think at some point you won't even know you're interacting with the Lightning Network. And, you know, it's, it's, uh, you know, from a, being a, being just a Bitcoiner, you know, it's, it's really cool to see like what's, what Jack did with Twitter and what's going on in El Salvador and seeing, you know, Lightning Network and like Starbucks and McDonald's. Uh, I think it's still early days, but you're seeing, you know, I think you're just starting to kind of hit that S curve in terms of Lightning adoption.

• 16:47Anthony Pompliano?

  When we look at these charts on Lightning itself, one piece, uh, that seems to just kind of jump out to me is the channel size, uh, the number of channels, even the number of nodes. These are only the public numbers, right? This is only the Channels and nodes that we know of. Is there an idea as to what the non-public size is? Is it 30% bigger, 50%? What's kind of your take on that?

• 17:13Speaker 02

  I think that's a great question. I just don't know.

• 17:15Anthony Pompliano?

  I don't know either.

• 17:17Speaker 02

  Yeah, maybe there's been like a study or someone's put out like a little research paper on it. But yeah, I haven't, I haven't heard anything about, you know, how we, how you would even go about estimating that. Maybe, maybe some of the guys at like Lightning Labs would know.

• 17:30Anthony Pompliano?

  Yeah, I, I don't know what the answer is. The number that I've heard, and again, this is like literally, I heard from somebody who heard from somebody, was somewhere between 25 to 30% of the network is not in public channels or publicly addressable nodes. But, you know, who knows what that number could be? My guess is it's not 1% and it's not double, right? It's probably somewhere in between there.

• 17:53Speaker 02

  Even if we are, we're, you know, we're looking at, you know, like 5, 6,000 BTC of capacity. So, you know, it's, it's, it's still very, very tiny.

• 18:02Anthony Pompliano?

  Agreed. Let's talk about miners. We were just talking about, Michael Saylor had these, a couple of comments about miners putting much more of what they're producing into storage rather than selling on the open market. Is the on-chain metric showing pretty much the same thing?

• 18:17Speaker 02

  The last chart, this is, you'll see in orange is, is the hash and then blue is difficulty. The difficulty adjustment was one of Satoshi's, you know, most innovative creations, in my opinion, because it's essentially, you know, pegging issuance to the energy securing the network. And so whenever, whenever you have hash come on the network, you have a positive difficulty adjustment. Whenever you see hash moving off the network, you have a negative difficulty adjustment. And so the last time we had five, you know, consecutive positive difficulty adjustments was early 2020 in like January, February timeframe. We had four earlier this year, but yeah, the last time we had five was, was early 2020. So this is just another way to look at, as you can see in the, with the orange line, hash is coming back on the network.

• 19:03Speaker 02

  We had that, you know, huge Chinese miner migration. We are now starting to see that hash get plugged in elsewhere around the world. So yeah, I'm bullish hash.

• 19:12Anthony Pompliano?

  It feels like we are back in business. Hash rate is coming back aggressively. Joe and John, what questions do you guys have in terms of what's going on right now? We've seen a lot of price action, especially in the equity markets and debt markets as well. Do you spend any time looking at that relative to the on-chain metrics? Or do you only focus on kind of what's happening in Bitcoin and think there's no kind of correlation?

• 19:34Speaker 02

  No, they're definitely correlated. It's just funny though, like sometimes we go through this spurious, like really heavily correlation, heavy correlations. And then obviously if you like a liquidity crunch, like all correlations, you know, are gonna come together. But I have been watching, you know, obviously the SPY and the DXY lately over the last, call it month or so. You have seen some strong correlation there, partially because you've had a lot of this, you know, macro uncertainty. So you've just seen in general, you know, like some risk off behavior. We saw that with the whole Evergrande thing. Aside from, aside from that, you know, I keep an eye on those things, you know, like I wake up in the morning, check the Dixie, see the S and P or the S and P futures. You know, check 10 year.

• 20:16Speaker 02

  And then, you know, in terms of, in terms of like technical indicators, I look at, you know, just basic oscillators like RSI. You know, I just look for basic divergences and stuff. I look at price structure, just, you know, very, very general levels. I don't draw like 20 million lines on the screen, but you know, I just draw some important levels that I think, you know, Bitcoins interacted with over the last couple of months. And then, like I mentioned earlier, I look at the, you know, the order books. So I use Tradinglight, which is a great platform, you know, it's just a heat map of all the bids and asks. And then lastly, and this is probably the most, the thing I check most often, is the derivatives data. So I look at, you know, the funding rate across all different exchanges.

• 21:00Speaker 02

  And then also the futures basis and then open interest as well. Because, you know, derivatives data affects the price in the short term is along with price structure. Whereas on-chain is more tracking the broader trends. So if you want to, you know, look at perhaps what's going to happen over the next couple of days, next few hours, you know, look at that derivatives data and also, you know, shorter term price structure. You can, you know, oscillators too, you know, like if RSI is way overbought or over So you have basic things like that.

• 21:28Speaker 01

  John, what questions you got, big dog? What's up, Will? Nice mic, nice headphones. Good setup you got there. Um, so I'm curious, going into Q4, what are the big movers gonna be here? Is it all gonna be just based off the supply and the exchanges? Like, how do you think about it? And then when and if this Bitcoin, this bull run ends, when, when do you see that happening?

• 21:50Speaker 02

  Yeah, I think like, you know, we've been, we've been tracking a lot of these supply dynamics for a while and we'll start to see them come into fruition where, you know, over the, over the next couple of months, we've been talking about since summer that we'll probably see them come into fruition later this year and to maybe January of, of next year. As far as like the, the ending of, of the bull market, I mean, I have no idea. You know, like going off of historical four-year cycles, then perhaps you're looking at December, January. Also, you know, you have like tax, you know, people selling Bitcoin for tax purposes at the end of the year.

• 22:24Speaker 02

  But it's, it's hard to say, like, you know, I'm just gonna follow the data and whenever the, the data starts flipping bearish, like I'll flip bearish. If you start to see, you know, a bunch of coins, um, you know, moving out to exchanges, see coins becoming liquid. So you see old guy, you know, older coins really just dumping, so you see whales dumping, um, you know, those kinds of things. But you know, for now, you know, I'm just following, following the trend, man. It's, it's, I, I, I don't really know. I, I would say end of year to, to the beginning of next year, just based off like these historical four-year cycles. But as we, as we, as we mentioned earlier, you know, I, I'm starting to kind of move away from the camp that we operate in these four-year cycles.

• 23:06Speaker 02

  I think over time, um, this is like a whole nother discussion we can have, but I think Bitcoin starts to become more free-floating. You know, not saying that we don't have any drawdowns, but I think, um, you know, we move away from that very pretty, you know, cup structure every four years and you look at Bitcoin on like a log or a

• 23:25Anthony Pompliano?

  Yeah, it's a good point about the taxes as well at the end of the year. Anything that you want to leave, leave the people with in terms of what you're thinking about kind of moving forward?

• 23:33Speaker 02

  I mean, I don't know. I just think it's going to be exciting next couple of months. You know, keep your eyes peeled. I think we've, we've seen some, you know, strong accumulation over the, you know, the last couple of months, especially since like, you know, July 20th, 27th, 28th. So like very end of July. Perhaps maybe we'll start to see some of those buyers stick their neck out and say who they are. I remember, you know, we had, we had Sailor announced and that was all on the on-chain data, guys. I forget the numbers, but you know, I, I remember I, I put out a tweet two weeks ago, maybe. It was just saying, you know, we've been tracking whales that bought X amount of coins, right? Like that was in the data that Sailor bought.

• 24:12Speaker 02

  And whatever he bought, I forget exactly how much, but you know, there's, he, he bought a fraction in terms of what we've seen whales buying and, you know, who those people are. Maybe, maybe we'll find out over the next couple of months. So there, there's a little hopium, hopium for the audience. But, uh, yeah, guys, I hope, I hope you have a great weekend and thanks for having me on as always.