#783 What's Keeping Bitcoin At $43k? 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. ======================= Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus has become one of the most popular and loved cryptocurrency apps. It’s supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset’s price history and your portfolio’s performance over time. And maybe the best part, Exodus is integrated with the Trezor hardware wallet - making advanced security easy for everyone. Visit exodus.com/pomp for your free download or search Exodus on the App Store or Playstore. =======================

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. In this conversation, we talk about Bitcoin, the market structure, on-chain analytics, and where we go from here. I really enjoyed this weekly conversation with Will, as always, and I hope you do as well. Before we get into this episode, I want to quickly talk about our sponsors. Today's episode is brought to you by Exodus, the world's leading desktop, mobile, and hardware crypto wallet. They offer beautiful, user-friendly blockchain products that sync across all of your devices, making it easier to send, receive, and exchange over 150 or more crypto assets in one place.

• 0:46Anthony Pompliano?

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• 1:21Speaker 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.

• 1:44Anthony Pompliano?

  All right, buddy. Let's get into this. We've got a whole bunch of stuff. Where do you want to start? Let's start with the price. We're just hanging out, low 40,000s. What are you thinking here?

• 1:54Speaker 02

  Yeah, so like the first chart you'll see are just some price levels I drew out. So last week, we talked about I'd started buying around 41K. And the reasoning is just because I saw 40K is just a really clear kind of macro support level. It was a prior high Higher low that we hadn't retested yet. And so, you know, at a minimum, you should be expecting a bounce off of the first retest of a macro higher low. So did start buying as I talked about last week, got a nice little reaction off of that. And now it appears that we were setting some kind of higher low. Posted this this morning or took the screenshot of the chart this morning at like forty two, five hundred. From there, from this area that I was looking at for a little bounce or, you know, a little micro kind of higher lower here.

• 2:40Speaker 02

  We have seen a little bounce up to, what are we at now, like forty three to two hundred. So I've seen like a nice little seven, eight hundred dollar bounce off that area. So does look like we're setting a little higher low here on kind of microstructure, which is a good sign, of course. You know, I'm still chilling in spot. I think the first area to look at is this prior range low. Call that around like forty six K to be specifically forty five, seven. And see kind of how derivatives look there. And then from there, you know, if let's say, you know, it looks like, you know, perps perhaps are fading the rally, then, you know, maybe we get a, you know, a little move up to prior range highs, but I'm just kind of playing it level to level.

• 3:19Speaker 02

  For now, but yeah, still chilling in in my spot buys that we talked about last week. But yeah, this is just what I'm looking at from, you know, purely just a Christ structure standpoint.

• 3:29Anthony Pompliano?

  All right. So that makes a lot of sense in terms of where we are right now. One of the things that you've been talking about for a while now that had maybe not concerned, but like is definitely worth paying attention to is this open interest. And in today's newsletter, you call out that it's still high. So explain why this is important for people to understand and what this potentially could mean in terms of volatility in the future.

• 3:51Speaker 02

  Yeah. So last week I felt like we, that might've been the longest that we've ever recorded. We went pretty in depth in terms of describing open interest and funding and some of these, you know, derivatives metrics. But, you know, for anyone maybe who wasn't listening last week, open interest at a high level is just I feel like a bit more nuanced explanation, you know, feel free to to look at last week's video. I just don't want to like reiterate it for people that were listening last week. Yeah, open interest is just looking at the amount of open Contracts. So there's always balanced out in terms of how many longs and shorts there are. Open interest just tells you how many of those contracts are open. And so we are still in this kind of area where, you know, previously, the last four or five

• 4:34Speaker 02

  times that we've been in this upper area, we have seen a flush after that. So it's basically showing you like this is an area where, you know, open interest is building up sufficiently that, you know, you get some kind of wipeout. And that's not necessarily a bullish or bearish thing. You know, as we've seen in May, you know, that was a sign that, you know, longs were really aggressive. We got the wipeout. The end of summer, though, you know, those aggressive shorts that built up. And so we had a short squeeze. So it's just telling you that the contracts are built up, but it doesn't tell you about the positioning. So we still do have a lot of leverage built up. As you can see, in the last like kind of 24 hours, we've actually started to wipe out a little bit of the open interest on this move up. And so perhaps that, you know, it's showing you that, you know, shorts are starting to close out on this move up. But yeah, I mean, we're still

• 5:18Speaker 02

  still very high. We've still wiped out a miniscule amount of OI compared to what we've built up over the last month. You know, call it like, maybe like a fifth of the OI we've built up over the last month. So yeah, still expecting some volatility in that sense. And some, you know, major kind of liquidation event that we've been talking about for a while. But, you know, still waiting on it. I keep, I keep posting like on my Twitter, like, when, when squeeze, that's, you know, that's what I'm referring to. I'm just waiting for this metric to wipe out of this kind of overheated area.

• 5:47Anthony Pompliano?

  So one of the things that you've included in here is this Bitcoin entity adjusted dormancy flow. And I've started to see more people talking about this. I know you've been talking about it, a few others. And then I recently saw one of the guys at Fidelity start posting about these dormancy flows as well. Help people understand in terms of why this is important. And I think the key piece is this is only what the fifth or sixth time that this is kind of flashed a signal throughout the lifetime of Bitcoin, which is, you know, it's very rare. So it's important to kind of pay attention and understand what's happening here.

• 6:17Speaker 02

  Yeah, shout out to the guys at Fidelity. I'm happy to, happy to teach them a thing or two.

• 6:25Anthony Pompliano?

  Alright, so what is this?

• 6:28Speaker 02

  I'm kidding. Respect to that guy you're in on Twitter. I like his stuff. But yeah, so this is looking at dormancy, which is based off destruction and destruction is kind of a cornerstone metric of on chain analytics. So like the example I always use to explain this is like, if you have one coin, you move it into your wallet, you hold it for 10 days, you've now that that coin while sitting in that wallet has now accumulated or created 10 coin days. Depending on when you move that coin out, that's telling you the amount of coin days that are being created. So you know, for simplicity purposes for this example, the coin is moved into the wallet, sits there for 10 days, 10 coin days are created. You now move the coin out of the wallet. Now those 10 coin days that have been created are now destroyed. And that's where the term destruction comes from.

• 7:13Speaker 02

  So if you think about this, by definition, destruction is or what we call coin days destroyed, you know, same thing. Is going to be high when there's high volume, right? Because you have a larger amount of coins that are being traded. So you're going to see more coins being spent or more destruction when there's high volume. And so the way to adjust for this is dormancy. Dormancy adjusts coin days destroyed for volume to just give you the raw value of destruction itself. And so we take the annualized dollar, like the dollar denomination of dormancy. So the annualized dollar denomination of dormancy and compare that to Bitcoin's market cap. And that's where we get this dormancy flow.

• 7:54Speaker 02

  And so essentially like from first principles, like just the like high level of what this is telling you. It's just that there's a slowing of smart money spending their coins. So in bull markets, as we talk about often with like the long-term, short-term holders, you see the, you know, the smarter money, which when I'm saying smarter money, I'm referring to, you know, more experienced market participants. They sell their coins or scale out into strength and they accumulate back into weakness. And so this is kind of a similar way of looking at that that dynamic. So you'll see dormancy peaks when we're, you know, in these, in these kind of bullish, you know, market, market structure periods. Or periods of market structure, I should say.

• 8:36Speaker 02

  Um, so that they're showing you that the older, the older, you know, more experienced market participants are spending their coins. And then heading into the bear market, you'll see this declines. Meaning that, you know, those older, those same older, you know, experienced market participants aren't spending their coins as much. Because this Bitcoin is at a discount. Um, and so, you know, and, and when we look at like long-term holder supply, we actually see that they're accumulating. This doesn't show that they're accumulating, it just shows a lack of spending. Uh, and so again, like this is from first person was just telling you, there's a decrease in spending from those, you know, older, more experienced market participants. Whenever that decreases a substantial amount, we push into this little buy zone that's highlighted at the bottom. Um, in this, in this green area. So yeah, we've, we've only reached this five times.

• 9:21Speaker 02

  Uh, this is the sixth time that we've entered this zone. Um, so you'll see, you know, at the bottom of, uh, I think this is late 2011 here on the left. Um, 2015 at the very bottom of the bear market as we wick down that final wick down, um, at the, you know, at the bottom of the 2015 bear market. Uh, at the 2018 bear market at the very low, as well as during the COVID crash. And then the most recent one was over summer, uh, at the very bottom at the end of July. We, we briefly wick into the buy zone and we are entering this now. Um, and so, you know, for, for like longer term investors, this can be used to say, okay, like, look, I'm just going to scale my buys in more heavily as we enter the zone.

• 10:02Speaker 02

  Right? Uh, because it, you know, once we enter the zone, you know, we, we may have like slight, you know, maybe 15, 20% more downside to go. Um, so theoretically, like if we reach the bottom of the buy zone, we'd be at like 30K. So, you know, this is telling you like, this is a good time to start scaling and, and start scaling and buys for longer term investors. For people who are like more momentum oriented, you can go to the next chart, which is looking at when, when dormancy comes out of the buy zone. So, you know, some people, I saw some comments which are completely, completely valid saying like, well, why wouldn't I just wait for this to come out of the buy zone? Right? Because then it's showing you that we're coming out of that capitulation area, we're coming out of the bottom. That's completely valid. It's just that you're approaching the market differently.

• 10:44Speaker 02

  Instead of averaging in your buys at the lows, you're waiting to see when the market is like coming off of the lows, starting to regain some momentum off those lows. And it does appear over the last day, you could see we're barely poking out of there, but it looks like we are beginning to start to begin to exit the buy zone here at the bottom. So it's something to keep an eye on. If that continues over the next couple of days, I think it sticks. I think it's a little premature to just call like the first day, it just starts poking out. But if we do start to see this move out over the next couple of days, I do think that's a valid signal to say we are coming out of this buy zone. But yeah, again, only has flash six times in Bitcoin's history.

• 11:24Speaker 02

  And it's just essentially telling you that the longer term, more experienced market participants are slowing down their spending and have decreased the spending of their coins. We can see this in other metrics too, like long-term holder supply. They started to distribute their coins a bit when it looked like we were about to re-break all-time highs, up to 69K. On this move back down over the last month or two, they have decreased their spending. You have started to see what we call long-term holder net position change, showing you basically the 30-day change of long-term holders' holdings. We have seen that flip green over the last week or so. And then as well, we've seen things like average spend output lifespan, looks at the average age of the coins being spent.

• 12:09Speaker 02

  All these different kinds of metrics are all basically telling you the same thing that this one is.

• 12:14Anthony Pompliano?

  So I want to skip ahead real quick to the graph that you have here of the supply held by retail. And I think that's a good place for us to kind of wrap up because what you're talking about here is with these dormancy flows is like, there's only happened so many times, right? This is the sixth time this has ever happened. But regardless of high prices, low prices, you know, whatever's happening in the macro environment, etc., this chart that we have around the supply held by retail, it's just straight up and to the right. And is it fair to say that looking at this visualization tells us that retail doesn't care about the price, they just continue to kind of dollar-cost average into this? Or do you read it some other way?

• 12:50Speaker 02

  Exactly. If I was, you know, looking to, you know, present Bitcoin as an asset class, that's like a ten, fifteen year long investment to some, you know, investment fund. Like, I would show this chart. This would be one of the charts that I would, I would present. And the reasoning is because it's showing you that over time, there's a cohort of people that are steadily DCAing into the asset, no matter if it's up, down, sideways, whatever. I mean, the chart literally goes up and to the right. Um, and so, you know, retail doesn't have a substantial impact on the price in the short term, but over the long term, they definitely do. Uh, and so what you'll see is obviously retail's holdings increase more so in the bull market because there's, you know, new market participants that come in.

• 13:29Speaker 02

  Uh, but there is this, you know, a fair amount of those, of, of those, uh, market participants leave in the bear, but you do see that, you know, there's some stickiness there. Where this continues to grind up in the bear market just at a, at a slower rate than, than during the bull. So if you look at, you know, twenty eleven, if you look at the two twenty thirteen double pumps, if you look at twenty seventeen, you'll see that the rate of increase of retail's holdings goes up. But even after, you know, the, the, you know, blow off top euphoria, um, the, you know, this does continue to slowly grind up. And so the way I kind of see this is like number go up technology, as we like to call it as Bitcoiners. You know, it's the kind of best form of marketing for Bitcoin, draws in new market participants.

• 14:11Speaker 02

  And some of those market, market participants that are just complete speculators and are coming in because the price is going up, they, they leave, you know, whenever the number go up fun stops. But we, you, you do see that during that period, a fair amount of those market participants do educate themselves about the asset class, understand the value proposition over the ten, you know, ten, fifteen year long period plus. Um, and they do continue to, you know, dollar cost average into the asset over time. So, um, this is just showing you that over time and, and, uh, and this is one of like the biggest criticisms of Bitcoin is like you'll hear people say like, you know, a large percent of supply is held by a small portion of people. This is really complete nonsense.

• 14:52Speaker 02

  So, A, because, you know, of this chart here, which is showing you that over time, retail's taking up a larger portion of supply. So the trend is in the right direction. B, you know, they always like to show you like the top ten Bitcoin addresses and then compare that to the overall circulating supply of Bitcoin and how much those addresses hold. That's a terrible way to look at it. And it's just like either intellectually dishonest or lazy, in my opinion. And, and the reasoning is because it's like analogous to saying like, You know, the the USD circulating supply distribution is is bad because a large portion of it is held by banks. It's like, yes, like it's it's held by banks, but banks are holding those dollars for millions and millions of people. And the same sense that, you know,

• 15:36Speaker 02

  you're seeing whales, which are actually custodians or exchanges, holding Bitcoin for hundreds of thousands, if not millions of individuals. So, you know, that's not even shown in this chart. This is just showing you people that are taking custody of their Bitcoin in cold storage. But, you know, again, even like, this isn't even taking into account the fact that a lot of a lot of retail tend to, you know, hold their hold their Bitcoin on custodians with custodians or or other exchanges. And so, you know, that that FUD around Bitcoin supply distribution just is is inaccurate. And, you know, it's just not taking into account any type of nuance whatsoever.

• 16:15Speaker 03

  You're killing it, man. What what two questions you guys got?

• 16:19Speaker 03

  Uh, Will, what about hash rate? I saw you tweet about it earlier that, you know, hash rate is hitting an all time high again, and the network's more secure than ever. But how do you think about that when it comes to price or like, kind of network adoption? Is that something where it's just, hey, healthy to check on every once in a while, make sure the network is getting more secure and stronger? Or do you think that it has some kind of adjacent connection to price over like, a shorter period of time also?

• 16:41Speaker 02

  Sure. So, you know, first of all, I think, before talking about price, I think it's really incredible just to think about the recovery of hash rate since the summer. I mean, think about it, you know, we had a one of the, you know, most important countries in the world, definitely in the top three that, you know, came out and said that they were banning Bitcoin mining. We saw all that hash come offline and come back online in a completely decentralized, uncoordinated way. You know, it wasn't like there's like a, you know, Bitcoin organization or Bitcoin company telling people to, you know, redistribute their hash here and here and plug it back online and helping them, you know, it's just completely the the network, just completely, you know, put itself back together through, you know, just this completely decentralized manner.

• 17:26Speaker 02

  In that sense, it's really incredible to see that. And it also eliminates one of the biggest, you know, fuds or criticisms around Bitcoin, which was always that like, the majority of hash rate was held by China and that could propose some existential threat to Bitcoin. It's, you know, it's funny, like, the same people that were making that argument were the same people that were like, oh, look, all of Bitcoin's hash rate came offline. It's like, you can't have both, man. Like, it's one or the other. And this is just shown to those people that, you know, that Bitcoin is extremely resilient. And yeah, again, like, showing that Bitcoin's, the security around Bitcoin is at an all-time high. So this also, you know, one could argue that Bitcoin is more valuable because, you know, the security is higher.

• 18:09Speaker 02

  In correlation to price, I think like, that's one argument that people will make. I do think it's kind of like a chicken or the egg, or the egg or the chicken, right? Like, it's, hash, hash, I think, follows price, in my opinion, just because the interest to mine Bitcoin follows the price appreciation of Bitcoin. Some will argue the other, right? But I think it's one of those arguments where it's like, you know, it's just the chicken, it's chicken before the egg, or the egg before the chicken.

• 18:33Speaker 03

  Gotcha.

• 18:33Speaker 04

  John? Well, so, when we think about that, those retail holders that you were talking about that consistently are growing based on the distribution of Bitcoin, how does that fit into the macro sense of adoption? So we've seen a few things come out recently, in Brazil this morning, but how does that all fit into, like, the whole view of Bitcoin?

• 18:51Speaker 02

  Yeah, again, I mean, I think this just shows you that there's, you know, the, the user growth of Bitcoin is just up and to the right over time, accelerates during periods where Bitcoin's price is appreciating, right? But even during the bear market, that continues to grind up. You see the same thing in just the raw number of users on the network, right? So if we look at something like, uh, net entity growth, so just looking at the, you know, amount of new entities coming on the blockchain versus the inactive ones that hold no Bitcoin and aren't, you know, active on the network at all, and looking at the difference between that, I mean, that metric as well trends up and to the right over time. And so, yeah, I, I completely agree. I think this is just another thing to throw in the bag of, with, with some of those other metrics in terms of showing that over time, you know, Bitcoin is being adopted.

• 19:35Speaker 02

  More so, more so, you know, we got like El Salvador over the last year. I think the Bitcoin bond might be an interesting catalyst in terms of if that thing gets oversubscribed, which I don't know about you guys, but I think there's a good chance that it does get oversubscribed too. I think you'll have other countries that are, you know, having a, having a close eye on that, I'll say. And yeah, I think, you know, that's, that's another potential catalyst for even more, more user growth. But yeah, I mean, I, I think like over time, you're just going to see this continue to, to trend where it's going. And that's just up and to the right as, as new people look to, you know, use Bitcoin to, you know, protect their wealth.

• 20:17Speaker 02

  And as, you know, the value proposition increases, as you're continuing, continuing to see currency debasement around the world. So especially in these, you know, you know, these, these countries that aren't as fortunate as like the US, right? Like a lot of people in the US see Bitcoin as like purely a speculative asset, right? And which a lot of money managers in the US do see that. And so, you know, they, they just see Bitcoin as just like a risk on speculative play. And you saw like a lot of just de-risking over the last two months as we saw risk off behavior in equities. Because of, you know, the Fed talking about monetary tightening, which we still haven't done anything. But they've been, you know, talking about tightening monetary policy. But, you know, over the, you know, overseas, if your currency is debasing at, you know, forty, fifty percent a month,

• 21:01Speaker 02

  you know, that, that's completely different. Like you need Bitcoin to, to, you know, preserve your wealth. It's just, you know, I think in the, in the US, we're very privileged. And, you know, some of the people that are baffled, like, how come we see user growth on Bitcoin when price is down so much? You know, I think you really need to try to put yourself into, you know, shoes of the less fortunate. And other countries where, you know, maybe they, you, you don't actually have the reserve currency as your native currency.

• 21:27Speaker 04

  Very true.

• 21:28Anthony Pompliano?

  Will, where we stand right now, when you think about how you're allocating your own personal capital, this is not financial advice for anybody else, but have you changed anything in terms of what you're personally doing?

• 21:41Speaker 02

  No, again, like, last week, we talked, I bought around 41K on the retest of that macro higher level, which is at 40K. I did snipe the bottom. Again, I bought around 41, but I'm still chilling in that and chilling in spot. I think we, you know, at least get a move up to, you know, the prior range lows, which is around 46K. We'll reevaluate there and we'll see what derivatives, you know, structure it looks like. And then either I think we probably set a kind of macro lower high there, or we can push up to the 53K area, maybe set a lower high. But I mean, the way, you know, the way I'm kind of evolved my thinking now is just,

• 22:23Speaker 02

  I'm just looking at things from level to level, right? And we'll see when we get to the next level and we'll reevaluate there. But yeah, for now, I'm chilling in my spot buys from last week, haven't touched them.

• 22:33Anthony Pompliano?

  All right, my friend, we will talk to you again next week. Keep up the great work. You have for months now, almost a full year, actually, kept, kept everyone informed. So keep up the good work. And every time we talk, I just, I appreciate the fact that I can tell that you're doing a lot of learning in between the conversations. So keep working hard and there's a lot of people who are counting on you. So you know, you got all the answers, but you got a couple, which we appreciate.

• 22:59Speaker 02

  Thanks, brother. Yeah. Thanks for having me on as always. And yeah, I mean, I'm just, you know, learning, making mistakes and trying to share what I, what I figure out along the way like everybody else. So appreciate, appreciate the time and, you know, I'll see you next week, man.

• 23:12Anthony Pompliano?

  All right. Sounds good, buddy. Later.

• 23:14Speaker 02

  All right. Take it easy, guys.