#1033 - Dylan LeClair On Why Crypto Companies Are Failing Right Now?

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 why miners are selling their Bitcoin, how the fed is destroying demand, and where the Bitcoin & Crypto industry currently stands after weeks of market crashes and failing Crypto companies. 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 ======================== BCB Group is the leading payment services partner for the digital assets industry. BCB Group provides payment services in 30+ currencies, FX, cryptocurrency liquidity, digital asset custody and BLINC, which is BCB’s free, instant settlements network for the BCB client ecosystem. Find out more by visiting bcbgroup.com/pomp ======================= Coinchange is an automated wealth management platform that earns daily compounded yield for you. Earn up to 10% APY on a risk-mitigated basis – your payout doesn’t depend on the volatility of the market and there are no lockups or minimums. Register now at coinchange.io/pomp and get a welcome bonus of 40 USDC when you fund your account.

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 FTX US. FTX.us is the safe, regulated way to buy and sell Bitcoin and other digital assets. You can trade crypto with up to 85% lower fees than

• 0:44Anthony Pompliano?

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• 1:27Anthony Pompliano?

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• 2:10Anthony Pompliano?

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• 2:52Speaker 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.

• 3:15Anthony Pompliano?

  All right, we've got Dylan joining us now. Dylan, what's going on, man?

• 3:19Speaker 02

  What's up, Pomp? How we doing?

• 3:21Anthony Pompliano?

  I'm doing fantastic. There's a lot to talk about. I feel like we could sit here and talk for maybe days at this point to understand what's going on in the market. Let's start with miners. I saw that miners are now starting to put out their June reports, and a couple of miners have reported that they've sold not just a little bit of the Bitcoin on their balance sheet, but quite a bit. Explain what's going on here and why exactly are they doing this?

• 3:46Speaker 02

  Yeah, so for regular listeners of the show, you know, people that have subscribed to some of my work, whether it's on Twitter or just what we cover at Bitcoin Magazine Pro, we've talked about the cyclicality of the Bitcoin mining industry and these kind of hash price bull and bear cycles. So you can think of hash price, it's miner revenue divided by hash rate. So when price, a good kind of basic gauge or kind of a mental framework to operate on is when price is increasing faster than hash rate. Miners, their valuations, their margins are all increasing.

• 4:20Speaker 02

  And when hash rate is is increasing faster than price, or price is just decreasing and hash rate steady. Or hash rate, you know, the pain trade is hash rate's increasing, price is decreasing. These miner margins really, really get squeezed and the ASIC values. And and it leads to some of this kind of forced selling. We see it every single cycle. And this cycle, I think, was even exacerbated by the fact that we have these new kind of public markets. And and the financing around around that. So these miners like Hudday, a lot of these publicly traded firms. We have a graphic up here. This is the the performance of all these publicly traded miners since the all time high of Bitcoin. And they have all underperformed Bitcoin itself. And there's a reason for that.

• 5:03Speaker 02

  Post-China miner ban, a bunch of hash rate got wiped out. A lot of these companies scooped up a ton of rigs. And they they did it with financing, did it with leverage. So now that the price of Bitcoin has gone down, hash rate has has subsequently recovered, meaning that the difficulty has adjusted upwards. For anyone that's kind of not familiar with the term difficulty. Bitcoin mining has this kind of, it's like this oscillator. And if more and more people are mining Bitcoin, if more and more operations are turning on. It gets harder and harder to mine a block of Bitcoin. So, you know, the other way is that if hash rate's going down, difficulty adjusts downwards to kind of ease up a little bit. And so since, you know, all that difficulty has had just continued to ratchet up. It's getting harder and harder to mine Bitcoin, more more costly rather, at the same time the price is falling.

• 5:47Speaker 02

  So you're seeing a lot of these operations start to puke up and and cover their their loans. And that's leading to just kind of cratering valuations and, you know, equity market performance.

• 5:57Anthony Pompliano?

  So when you see this happening, is this something that we'll understand when it's over? And like, we'll be like, okay, like, that's probably, they've sold everything that they're gonna sell. Is there like a percentage of their balance sheet? Is there some way to evaluate it in real time? And the thought process being with liquidations, we know of some because of on-chain analytics. Or we're able to understand, you know, from past, maybe company announcements. Hey, what is the general price point at which some of these liquidations will happen? And also, what is the size of it? Now, we don't understand all of them, but these are publicly traded companies. How do you evaluate like how much Bitcoin is there available for them to sell? And how do you know when they're kind of done selling? Or is it just all after the fact we'll be able to understand that?

• 6:39Speaker 02

  Yeah, so there is some some pretty good data out there about kind of approximate break even levels. A lot of these these publicly traded miners have they still have break even prices below 10,000. But those numbers actually ratchet up as hash rate continues to ratchet up and difficulty continues to increase. So my kind of base case is that we see a new all time low in hash price, right? So that that miner revenue divided by hash rate. And basically, the all time history or the, you know, the trend in Bitcoin is hash prices going lower forever, essentially. And what you see are during these bull markets or these kind of these gold rush periods where price dramatically outperforms hash rate.

• 7:18Speaker 02

  And it's just it's so hard to actually source and kind of engineer these new ASIC machines and get them out and get them plugged in. The infrastructure takes a lot of time. So there is a lag between kind of that bull market, that golden period of profitability. And, you know, where these miners really get squeezed. We've seen it cycle after cycle. I think what you're really, you know, what to look for is you can monitor the hash rate. You can monitor the the kind of the moving averages of the rate of change of that hash rate. When you see a lot of that's really starting to fall off. That basically means that a lot of these a lot of these miners, these operations are seeing kind of immense pressure. But the beauty of Bitcoin is these machines don't just turn off forever. They're sold, they're liquidated, the inefficient miners have to sell their holdings. And what happens? Someone else with a cheaper power source, cheaper energy and, you know, better, more well capitalized.

• 8:03Speaker 02

  They scoop up the miners, they plug them in and they continue to hash. And and they also get the the benefit of difficulty ratcheting down, right? So I think there is still, you know, a period ahead of us where these miners are really going to get squeezed. They're going to have to be selling a majority of their stack. There's no longer a period where miner margins, you know, their profit margins were 80, 90% in the bull market. And because of that, they had just absolutely tremendously outrageous valuations. That period is over and it's kind of really just every man for themselves at this point. Some publicly traded miners, I believe, probably won't make it to the other side or they'll be acquired. And some will continue to thrive, they'll continue to build and they'll, you know, they'll be tremendous performers during the next bull cycle.

• 8:48Speaker 02

  But I think, you know, that takes time.

• 8:50Anthony Pompliano?

  When you take a look at something like hash price, explain what hash price is to everyone, and then we can pull up this hash price percent from cycle low, and you can explain what this is showing us.

• 9:00Speaker 02

  Yeah, so hash price, it's minor revenue, daily minor revenue. So we can see, you know, around approximately 900 Bitcoin per day, our mind. And then we can just multiply that out by the current price, and then divided by just average hash rate. So using a daily hash rate isn't really useful because it's, there's so much variance. But just say, you know, take a seven day moving average hash rate. It's a pretty, it's a pretty reliable indicator of where the, you know, what that rate is. And because of that, we can come up with this hash price, this, this kind of calculation. And it's a rough estimate, and obviously every miner is different, but this is basically kind of showing you minor profitability. And this is in logarithmic scale. So if you want to zoom in on that

• 9:44Speaker 02

  chart a little bit, hash price is basically going down forever in a tremendous fashion. It's almost like the opposite or inverse of a Bitcoin chart. As hash race, as hash rate continues to just increase, and that block subsidy continues to get cut, right? First, there was 50 Bitcoin mined every block, then 25, then 12 and a half. In May of 2020, that went to 6.25. Somewhere in 2024, that'll go to 3.125. And obviously, there's, you know, variable amount of fees that are being paid to compensate miners as well. But we can see here that these bull markets, right, if we look at the hash price kind of increase from its all time low, during bull markets, this is kind of that, that gold rush visualized, right? So any miners, any capitalized miners that make it through the bear, they rough

• 10:29Speaker 02

  it out, they're barely profitable, they squeak by, but they're still, they're still hashing. During that next bull cycle, that's where they're kind of, you know, that's where you reap the rewards. And so now we're, we're kind of in one of those periods where hash price is, is just flirting with an all time low. It's all time low is around seven cents per terahash. Right now, it's about 8.6 cents per tera, per terahash. So we're going to see another low. It's going to get even kind of squeezier for these miners and their margins. And the strong will survive, but the weak, you know, probably get wiped.

• 11:00Anthony Pompliano?

  When you look at something like the US dollar, which obviously is a part of some of these price movements and equations, the US dollar continues to go higher and higher. It's at a 20-year high now. What is happening? Is it just that the dollar strengthened against other fiat currencies on a relative basis? Or is there something else driving a lot of this?

• 11:20Speaker 02

  Yeah, it's somewhat paradoxical, right? Because you're feeling all this inflation. You know, it's like the dollar, the purchasing power of the dollar is less and less. But how is the dollar at 20-year highs? And what's happening is it's kind of this Max Payne scenario of super-high consumer price inflation, kind of due to a shortage of commodities, obviously the Russia-Ukraine conflict, a bunch of different variables, and a lot of it has to do with energy, right? At the same time, the Fed is coming in and saying, hey, we need to tighten to stamp down this inflation. But they may not have the right tools because it's more of a supply shortage that's causing the inflation. But because of the dollar, because of the USD as the world reserve currency, and because there's so much dollar-denominated debt out there,

• 12:04Speaker 02

  what we're seeing is just this huge move higher in the dollar against other fiats. So the ECB, they're having to support the weaker countries in the European Union by stamping down spreads in the bond markets. The Bank of Japan is embarking on yield curve control. Like, these are, I believe, the second and third biggest currencies in the world, and they're still easing, and the dollar, the Fed is tightening. So you're seeing the DXY, the Dollar Currency Index, screaming to new highs. And on a shorter-term timeframe, you can see Bitcoin, the NASDAQ, risk assets, they trade almost, you know, tick for tick with dollar strength, and actually are inversely correlated. And so this is kind of a barometer of just how risk-off everything is.

• 12:47Speaker 02

  And, you know, that probably ends with the dollar a lot higher than it is before the Fed has to come in and really kind of bail out the world, which is kind of what's happened with every recession over the last two decades or so.

• 13:00Anthony Pompliano?

  When we zoom out a little bit more, the next chart we have here is the US Dollar Index, but it goes all the way back to early or late 90s. You can see that again, since the early 2000s, we haven't seen these levels. Is it something that we can take as a lesson from the late 90s to today with the dollar currency index?

• 13:20Speaker 02

  Yeah, I just wanted to kind of give a more zoomed out view. Obviously, you know, 21, 2021 to 2022, it's a rapid move up, but we're seeing on a, on a long-term timeframe, the same kind of thing happened. It's higher than it was during the great financial crisis and it's approaching kind of the top that it reached just before the, the dot com bubble and all of that pain as the dollar kind of soared higher as, as risk was also selling off. And so, you know, no like TA here, I think is really all that useful, but just understanding that the big picture and that the dollar is this kind of like Brent Johnson refers to it as this global wrecking ball for, for risk assets. And the higher this goes, the more that the global economy just gets kind of thrown into a recession and the more that risk assets crash in price.

• 14:04Speaker 02

  And ultimately it leads to kind of a credit contagion event. It's, it's essentially a short squeeze is occurring on the dollar and the short position that everyone has is dollar-denominated debt. So what do they do? They liquidate their assets to pay the debts and that's why risk assets fall in tandem with the dollar going higher. And so this is kind of big, big picture, but, but really it's, you know, the end game is somewhat binary in the sense that all this debt can't be serviced without perpetual monetary easing. It sounds, it sounds very oversimplistic, but that's kind of the game we're in. And so Fed tighten, Fed loosen, they, they really don't have a choice over the long-term. The entire monetary system around the globe is, is basically necessitant on, on perpetual credit expansion.

• 14:48Speaker 02

  But we're just kind of in one of those deflationary periods of credit contraction where, where, you know, everybody's kind of scrambling for a chair.

• 14:55Anthony Pompliano?

  And so this leads us to kind of these triple B credit spreads, obviously are increasing, which I know you've been spending a bunch of time taking a look at. What, what do you expect to happen next? Like what turns this over? Is it just going to continue to increase higher and higher over time? Until there's something that breaks, until the Fed pivots, like what pulls this back down?

• 15:15Speaker 02

  Yeah. So I mean, I'm not a, I'm not a corporate bond expert by any means and, and not really diving. Into the specifics of of what companies need to refinance, but really, uh, you know, US equities have been the best performing uh equity market since the great financial crisis and it hasn't really been close. Uh, and it's been a lot, a lot of it has had to do with the cheap capital that was available and and these corporations levering up and buying back their stock. Uh, and you know, that was a huge, huge driver, right? So you're seeing uh triple B credit spreads. There's a, you know, trillions of dollars of of triple B uh debt, corporate debt out there. Uh, this is the, the corporate credit spread is essentially uh the, the yield on top of the treasury market. It's kind of like a, a risk barometer, a risk gauge.

• 15:58Speaker 02

  And so when these, when credit spreads blow out, it means that, you know, there's, there's some trouble in the bond market. And so I think honestly, the Fed is, is purposefully embarking on this. They're, they're, they want risk to sell off. They want inflation to come down and they're doing that by, by destroying demand. And they're doing that by, by crashing asset prices. It's somewhat crazy that we're, we're living through this, but, but ultimately I think this goes a lot higher. Uh, and we're seeing, you know, whether it's, I don't think it's the banks or subprime this cycle. I don't really think anyone knows what the, you know, kind of canary in the coal mine might be. It might even be somewhere, you know, in the crypto contagion that kind of breaks this, this wealth effect. It's certainly, you know, a three trillion dollars to, or under a trillion dollars today is, is, is meaningful.

• 16:40Speaker 02

  Uh, but I think ultimately we're going to see credit spreads uh continue to soar higher volatility in the bond market and equity markets. Uh, and until that demand destruction really comes in, and I think the Fed is, is going to have to respond in a powerful way because there's, there's really no way this, this train crashes in a soft landing type of way.

• 16:58Anthony Pompliano?

  When you see uh the euro dollar futures, the Fed funds rate implied for December twenty twenty two uh starting to come down. Um, and you've got the difference between December twenty twenty two and December twenty twenty three also dropping. What, what is this telling us?

• 17:16Speaker 02

  Yeah. So euro dollar futures, um, it's, it's not, uh, has nothing to do with the euro. It's, it's more so, uh, euro dollars originated because it was, uh, time deposits offshore. So not US banks, not domestic uh US banks, but actually euro. European banks that had dollar deposits. So this euro dollar futures market essentially arose as as kind of a Fed funds rate futures market. So this is a CME product, it's it's onshore. But it's really just a Fed funds futures market. That's that's what euro dollars stand for. And so we can see, you know, there's live traded and there's there's real big time liquidity here. You know, some of the biggest funds and risk managers in the world are hedging their their interest rate bets, hedging on the euro dollar futures market.

• 17:58Speaker 02

  Uh, we can kind of get an implied Fed funds rate for for future dates. So the December twenty twenty two is at three hundred sixty bips, three point six percent. That's down from the high of around four point one four percent. Uh, so it's it's come down almost forty five bips. But the real key, and I think the most interesting thing about this is if you monitor the difference between the December twenty twenty three and the December twenty twenty two Fed funds rate, that implied rate. Uh, and for all of twenty twenty one, for all of twenty twenty two, up until, uh, you know, I think the middle of June, we saw it was a positive spread. So the market's expectations, again, like the one of the bigger markets in the world for hedging interest rate bets

• 18:38Speaker 02

  or just speculating in general, uh, expected that that Fed funds rate would be much higher in twenty twenty three than it was in twenty twenty two at the end of year. Now, that's fallen dramatically and is now seventy four bips lower and in the at the end of twenty twenty three. So this is, you know, everybody's saying when Fed pivot, when Fed pivot, uh, not calling it and certainly this could reverse. But this is the market, the lower that the equity markets go, the higher that the dollar goes, the more that you see kind of trouble in in emerging markets around the globe and the more that you see, you know, kind of currencies crashing against the dollar. I think there's going to be more and more pressure on the Fed to ease up a little bit. And hey, you know, tightening tightening to four hundred bips in the Fed funds rate is going to cause a whole lot of trouble. I think the market's just starting to realize that.

• 19:22Speaker 02

  Uh, and I, you know, this will be one of the things that I monitor in the future.

• 19:25Anthony Pompliano?

  When you start to think about how this affects kind of the Bitcoin and crypto market, there's obviously a macro impact for sure, but there's also some things around the nuances of the industry itself. We've seen contagion throughout the market. We've seen asset prices crashing. We've seen a ton of kind of chain reactions. What's your general feel for where we are right now? Should we still be worried about some of this contagion? Should we be worried about future failures of businesses or of assets? Is there a little bit of a lull and relief and everyone can kind of take a deep breath, which may be in contrast to what happened over the last three or four weeks? Like, how are you feeling about it? And what are you thinking at the moment?

• 20:10Speaker 02

  Yeah, so I mean, certainly, we've seen a lot of pain. It's there's been almost no relief for the longest time, just consolidation straight down. And actually, one of the more kind of worrying things from just analyzing trends is that, you know, NASDAQ, S, S and P 500 Bitcoin correlations have been very positive for all of 2022 to the downside and upside. And in recent weeks, we've seen that correlation, that beta really intensify on downside moves and an upside moves Bitcoin is just just kind of, you know, laid flat. It hasn't really responded too well. I think because of all of the kind of contagion, because of all of the risk off, because of all the off balance sheet debt that no one really knew existed, you're seeing a lot of risk managers from the legacy world that, you

• 20:54Speaker 02

  know, even if they think, hey, this is this is really, really cheap. Bitcoin is here to stay. You know, they're getting a tap on their shoulder from their risk managers, from their senior guys at the funds they work at. They're saying, hey, we can't touch this right now. The market's very, very illiquid. It's moving up five or, you know, 5% or down 5% just on, you know, a $500 million in the futures market. It's too illiquid for us to take a take a sizable position here, and we need to cut risk in general. So I think that's one. The second is that, you know, miners are going to continue to face some pressure. There will be kind of a full style capitulation and transfer of coins and ASICs from from weak to strong hands. That's in the process of occurring. It's obviously, it's obviously started today with, say,

• 21:36Speaker 02

  Core Scientific selling eighty-six percent of their Bitcoin holdings over the course of June. And I think the next is that, you know, there's a big lesson here in the crypto world broadly. And one, not your keys, not your coins. That's been repeated ad nauseam. And I think a bunch of people understand that. But two is I think some of the marketing from these lending and yield desks and companies around the space in terms of like advertising it as a savings account. When really, you know, they were taking deposits, rehypothecating and chasing yield through kind of various ARP strategies, various funds, you know, giving their funds to hedge funds and et cetera. I think that in terms of having a lasting and effective business strategy.

• 22:21Speaker 02

  I think that needs to change. And obviously, you know, yield and financial services aren't going anywhere. But it needs to be advertised more clearly to consumers other than just fine print. Because a lot of people thought they were just saving their Bitcoin and getting an interest rate like they do at a bank. But ultimately, the risk-free rate of Bitcoin is zero percent. And then any other yield on top of that requires some risk premium and then ultimately there's risk being taken. So I guess that's my like my three main takeaways here. I expect Bitcoin to kind of chop around and kind of an accumulation phase for a while. And if we do see kind of a everything correlation to one event, which I suspect is still to come in the legacy market, Bitcoin will see some downside pressure.

• 23:02Speaker 02

  But really, all the historical indicators that I see from capitulation or from miners to macro conditions to just, you know, price action and trends previous to all-time highs. Bitcoin's a deep value here, but that doesn't mean it's going to send it to all-time highs tomorrow. So patience is the name of the game, you know, learn best practices, self custody. And just understand that, you know, in the end, there is no kind of escaping the perpetual credit expansion of the fiat system.

• 23:29Anthony Pompliano?

  So when you start to look at maybe what the fallout is or how the industry will mature over time. I'm going to throw out two or three ideas. You tell me whether you agree or disagree with each one of them. The first is around disclosures. Do you think that we will see more requirements around disclosures? Or it will continue the way that it has been over the next, you know, five years or so from a regulatory standpoint?

• 23:52Speaker 02

  I think regulation is definitely coming. I mean, I'm not a, I'm not a huge fan of everything the SEC does. I'm not one that calls for, you know, regulation or, you know, people to be. You know, like the SEC to get involved in in every such, you know, little little project or thing. I'm I'm more of a kind of a libertarian by uh or or like, you know, kind of an anarcho-capitalist. But I think there were a lot of people that got hurt and didn't understand risks they were taking this cycle in crypto broadly. Um. So regulation is definitely coming. Uh Gary Gensler is is wants to get in and and kind of regulate all these crypto exchanges before a spot ETF is launched. That's very clear. That's also kind of the market overhang here

• 24:34Speaker 02

  is that great GBTC has uh 650,000 Bitcoin approximately uh and those GBTC shares are trading at a 30% discount uh on the kind of the OTC market. So that's a very big overhang for the spot Bitcoin market. Uh and it's one of those kind of things that probably needs to be cleared before before next cycle. Um. So regulation is coming. I think disclosures are are good, um especially in kind of the the altcoin world. It's it's very clear to me and and very clear to regulators that Bitcoin is a commodity. Um. It's, you know, I don't know about all these other uh altcoins or projects, uh and I'm not really here to say. Uh but I think, you know, Bitcoin is is far and away. It's separated itself from

• 25:15Speaker 02

  the field there. And I think, you know, that that clarification and that regulatory uh kind of clarity is is something that's that's ultimately a good thing over the, you know, over the course of the next five years.

• 25:26Anthony Pompliano?

  Next uh topic, Bitcoin mining will hit a death spiral. Agree or disagree?

• 25:33Speaker 02

  Uh, I completely disagree there. Um. Anybody that's studied the protocol in depth understands uh the cyclical nature of this market, understands that, understands the the difficulty adjustment and understands basic economic incentives. Um. There's a bunch of people in the world that hold Bitcoin and have a vested interest uh in in in acquiring more as well as, you know, sending it around because uh there is a fee market, there will be a fee market. Uh. It's not completely robust now, but um because Bitcoin as an asset is in demand, there will be people that want to pay to transfer it around and there will be an economic incentive to mine it. Uh, you know, what's hash rate in 10 years? No one has any idea. But there will be somewhere in the world that has wasted energy with probably a marginal

• 26:18Speaker 02

  cost of zero or negative, right? You can, sometimes you can get paid to take it off people's hands. And so those ASICs will, will transfer to wherever jurisdiction or location, they can find the cheapest energy, the wasted energy and mine Bitcoin profitably. Because some inefficient miners have to unplug and have to sell their holdings, changes absolutely nothing about the fundamentals of the protocol or how it operates. Or the, you know, the genius economic incentive kind of feedback loop that Satoshi engineered. So, uh, yeah, Bitcoin is, is, mining is not going to be in a death spiral. And, and people that champion that idea are, are a little bit confused, I believe.

• 26:53Anthony Pompliano?

  Grayscale will win their lawsuit against the SEC and GBTC will be converted to an ETF before the end of the year. Agree or disagree?

• 27:05Speaker 02

  No, no law experience whatsoever here, but I disagree. I think we have a little bit of time ahead of us. You know, wish, wish Barry the best of luck. You know, wish GBTC holders the best of luck, but it seems like there's, especially with everything that's transpired over the last, you know, uh, two months or so, I think there's, there's definitely some more regulatory, uh, more, more regulation coming. Uh, and because of that, uh, any, any GBTC ETF conversion will be halted. For, you know, whether, whether I think that's a right move or not is another kind of question or story, but, uh, yeah, I'm not too optimistic about a ETF in 2023, or I'm sorry, 2022.

• 27:45Anthony Pompliano?

  At the moment, uh, at the moment, Grayscale's GBTC is trading at a 30 plus percent discount to NAV. Is it a better idea if you want Bitcoin exposure? Do you buy Bitcoin or do you buy GBTC? And not so much from a financial recommendation standpoint, but in terms of how you think through the pros and cons of direct Bitcoin exposure versus maybe a 30, 35% discount, uh, in the GBTC structure?

• 28:14Speaker 02

  Yeah, I think for anyone that has, has funds, um, in a kind of a brokerage account, uh, or, you know, not, not something like, everybody should have a cold storage Bitcoin. In my, in my opinion, uh, it's, you know, there's an ultimate sovereignty to having Bitcoin in your control uh, that no one else can touch, uh, that's secured by, by cryptography. But, um, I do think that there's some pretty tremendous opportunities, uh, that are present with GBDC and it could potentially get even, even better. Right. One thing to understand, and this is kind of just some, some basic math. Uh, I don't have the exact numbers off the top of my head, but with a 30% discount to net asset value. If that returns a net asset value, and I guess you could subtract a, a 2% annual fee. So,

• 28:55Speaker 02

  you know, if it takes a year or two years or three years, worst case scenario, uh, you know, you're going to have that fee, uh, that you'll pay. Your, your kind of the, your Bitcoin that you, that you own in the trust will diminish ever so slightly. But at a 30% discount, uh, if it returns to net asset value, it's like 70 cents going to a hundred, um, or to a dollar. You get around like, say, uh, you know, ballpark 40% increase, uh, to, um, against Bitcoin itself. At around a 40% discount, it would be, I think, around a 54% uh, increase, right? And so at a 50% discount, it gets, it gets really crazy where, you know, you're buying 50 cents and it goes to a dollar. It's like, almost like you're, you're getting a huge, huge increase relative to, to Bitcoin itself.

• 29:36Speaker 02

  And so I think it's an interesting opportunity. I certainly wouldn't go all in on GBDC because I, again, like that. From a, from a non-financial perspective, I like, I like owning Bitcoin in cold storage, but, you know, at a 30% discount with Bitcoin trading at, at $20,000, you're buying Bitcoin at 14,000, right? Imagine if Bitcoin goes even lower, you could buy Bitcoin for 10,000 or below. And so for any hedge funds or anyone that's looking to get Bitcoin exposure, it's certainly a, a huge value move. And I think it's probably one of the best buys this bear market.

• 30:05Anthony Pompliano?

  When you look forward through the rest of this year, is there anything that people aren't talking about that you're going to be watching for the next six months? We're kind of right at the half year, uh, point. What, what else are you paying attention to?

• 30:15Speaker 02

  Yeah, I think, you know, I'm still sitting on some cash, waiting for kind of an ultimate capitulation move at $20,000 or, you know, I think 17.5 is the ultimate macro bottom. Fantastic. But really, from what I'm looking at, from an analysis perspective, is whenever the brunt of the spot selling has taken place, and we can't really know that with certainty, but you're going to see kind of whether it's funds redeeming, or more miners selling, or, you know, whether we see Celsius have to, you know, file for bankruptcy and liquidate their WBTC, or whatever it may be. I think ultimately, at the bottom of the market, just like we've seen in every single bear market,

• 30:55Speaker 02

  whether it's a, you know, huge last leg down, or we steadily grind to, say, 15,000, or 12,000, or whatever it may be, you're going to see the derivative markets, which is pretty significant in size. You know, the collateral, the open interest of Bitcoin futures is like, I think off the top of my head, 300,000 or 400,000 Bitcoin. You're going to see that market get extremely bearish. And the bears who have been, who have been right, the bears, you know, in this derivative market have been right since November of 2021. Some of them are going to continue to try to drive BTC into the dirt, and you're going to see that reflected in funding rates, and you're going to see that reflected in kind of the,

• 31:36Speaker 02

  the futures premium or discount. So say spots at 15,000, and the futures market is trading at 14.8, right? That's just an example. But that's what you see at the Bitcoin bottoms, is that that contango that exists in the bull market turns into a backwardation, and you see futures traders and speculators really try to drag the price of Bitcoin into the dirt. And so that's, that's for me a clear signal that the spot, the brunt of all the spot selling is done, and now you have a bunch of futures traders that are short BTC and need to cover, and that's when you see kind of Bitcoin hit a, hit an all-time bottom, a cycle bottom. And so, we're not there yet today, in my opinion. But that's one of the things that I'll probably be looking for from a, from a, you know, investor and a, you know, somewhat of a trader's perspective.

• 32:20Anthony Pompliano?

  I love it, man. Where can we send people to find you on the internet, or sign up for the newsletter that you guys put out?

• 32:25Speaker 02

  Yeah, you can find me at Dylan Leclerc underscore on Twitter. We kind of, we mapped out a lot of the craziness that's happened over the last couple of months in our contagion report for Bitcoin Magazine Pro. So you can find that at Bitcoin Magazine Pro dot com. It's a PDF. We put a bunch of work into it. It's pretty beautiful in our opinion. So check that out and appreciate you guys giving me the platform as always to come here and chat.

• 32:49Anthony Pompliano?

  Listen, you can come whenever you want. If you keep teaching us things, you're welcome whenever. We should be thanking you, not you thanking us. So, all right, man, you have a great rest of your week and we'll see you again next Tuesday.

• 33:00Speaker 02

  Cheers, guys.

• 33:00Anthony Pompliano?

  All right, later. 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. 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.