#769 Bitcoin Market Outlook 2022

Today we're looking ahead to 2022. Normally, we have Will Clemente every Saturday to break down the Bitcoin On-Chain metrics from the past week. Will was unable to join us this week, so instead, I'll be breaking Blockware's report analyzing the market outlook for Bitcoin in 2022. At the end of this episode, I go through the themes that I am looking forward to in 2022 such as regulation and brain drain, I hope you enjoy this episode! ======================= Nasdaq-listed BTCS was the first US-public company to secure today’s top layer one protocols. Recently, BTCS launched the beta version of its digital asset analytics dashboard! From across multiple exchanges, the BTCS Data Analytics Dashboard lets you evaluate your entire portfolio’s performance with plans to add year-end reports and yield earning on your crypto through linking to staking pools. Test out the BTCS Data Analytics Dashboard today at BTCS.com. ======================= 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. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp

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. Hey guys, today I've got a really special episode for you. Normally on Saturdays, we release a conversation with Will Clemente, talking about Bitcoin, on-chain metrics, and market structure. Today, Will couldn't join me, so I went ahead and I looked at one of the Blockway reports. And what I did is I went through a number of the different charts and analysis they'd included. But I highly suggest you go look at the entire report. They've been tweeting it out on their various Twitter accounts, so go check that out. Also, at the end of this short episode, I go through a number of the themes that I'm looking for in 2022 as well. Things like regulation, brain drain, and many others. So make sure that you stay paying attention all the way to the end. I hope you enjoy

• 0:46Anthony Pompliano?

  this new episode, but before we get into it, let's first talk about our sponsors. Today's episode is sponsored by NASDAQ-listed BTCs. They're the first US public company to secure many of the top Layer 1 protocols. This quarter, BTCs just launched the beta version of a new digital asset analytics dashboard. From across multiple exchanges, the BTCs Data Analytics Dashboard lets you evaluate your entire portfolio's performance with plans to enable year-end reports and yield earning on your crypto by linking to BTCs staking pools. This groundbreaking dashboard is currently in beta mode. You can test out the BTCs Data Analytics Dashboard now by visiting BTCs.com. Again, head over

• 1:26Anthony Pompliano?

  to BTCs.com today to check out that brand-new data analytics dashboard. I think you'll like what you get there. BTCs.com. Next up are my friends over at Fundrise. You all know I believe that the best investors both understand and seek out extreme asymmetry. And Fundrise has a goal of helping you do just that. It's the largest direct-to-investor real estate investment platform out there, giving you the opportunity to achieve upside of an asset class previously reserved for institutions and high-net worth individuals. That's right, Fundrise is making high-end private market real estate investing accessible to everyone via an easy-to-use automated platform. They have over 1 million

• 2:10Anthony Pompliano?

  Users already that know that an investment with Fundrise is capable of producing strong appreciation returns and income generation while helping to stabilize a diversified portfolio, which is now more important than ever in our inflationary environment. So you can go see for yourself how over 190,000 investors have built a better portfolio with private real estate. Takes just a few minutes to get started with as little as $10. Go to fundrise.com/pomp today, fundrise.com/pomp today. And for a limited time, get $10 when you place your first investment. That's fundrise.com/pomp. Last but not least, are you looking for a job in the crypto industry? Are you trying to figure out how do you leave legacy technology or finance?

• 2:54Anthony Pompliano?

  But you don't feel like you understand crypto well enough? Well, boy, do I have a solution for you. I have created a brand new training program. We've been running it all year. We've done almost 10 cohorts. We've helped a lot of people get a job. It's a three-week intensive program. You come in and we do 50-plus events over that three-week period. There's everything from study groups, discussions, breakouts, deep dives, technical education, and also curriculum that I teach personally. If you want to get educated on Bitcoin and cryptocurrencies and the crypto industry, I highly suggest you go to pompscryptocourse.com. Pompscryptocourse.com. You go there, we created the curriculum in hand with many of the leading companies,

• 3:36Anthony Pompliano?

  HR teams within the industry, and we have helped people get jobs at everyone from BlockFi, Coinbase, Gemini, Kraken, Strike, Bitcoin, Inc., and many, many others. Head over to pompscryptocourse.com, sign up today, and I'll see you in the next cohort starting in January.

• 3:54Speaker 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.

• 4:17Anthony Pompliano?

  Hey guys, what's up? Every Saturday I sit down Will Clemente from Blockware, but unfortunately he couldn't join us this week. So I thought what would be really interesting was to go through the recent Blockware 2021 update that they put out. It's a great, great, great piece of information and I highly suggest you go and you read it. They went through everything from Q1 to Q2 to Q3 to Q4 and then also included a 2022 market outlook. So I'm going to go through the charts that they included in that 2022 market outlook and then I suggest that you go back and you read the rest of what they included in this report. So first, let's start with the actual price of Bitcoin. What we saw obviously throughout the year was that Bitcoin's price rose and then it fell in the

• 4:57Anthony Pompliano?

  summer and then it came flying back and now we're sitting somewhere in the mid 40,000s. And so of course, there's a confirmation of the immediate term trend and it's likely to play out early into the first quarter of 2022, according to Will and the team. And this is signified by Bitcoin either breaking out above 53,000 or below $42,000. And so ultimately, I think that is what we're watching for from a price standpoint is are we going to see over 53 or under 42. But price is obviously not the only thing worth paying attention to in this market going into the new year. There's lots of other things, you can call them fundamentals, if you will, that you should be paying attention to. First, we've got a chart that looks at the Lightning Network itself. This is the Layer 2 built on top of Bitcoin. And what you can see

• 5:41Anthony Pompliano?

  is that the network capacity, according to the seven day moving average, has been absolutely exploding throughout 2021. And so the expectation from Blockware is that they expect to see continued growth of the Lightning Network and expand the monetary properties of Bitcoin from being solely a store of value to being an effective medium of exchange as well. The Lightning Network is a big, big piece of that. So I tend to agree with them that that is what we should expect to happen. We're obviously right now are sitting right around an all time high of the Lightning Network network capacity. And so ultimately, there's no reason in my opinion why that trend won't simply continue into the new year. If we then go ahead and we look, we've now have the balance on exchanges, this across all exchanges on the crypto industry.

• 6:22Anthony Pompliano?

  What we see here is that Bitcoin was coming on to exchanges all the way through 2017, 2018.

• 6:30Anthony Pompliano?

  2019 and into 2020, but we got a peak in 2020 of the Bitcoin that was actually sitting on these centralized exchanges. And since about mid 2020, that balance has been going down over time. And so ultimately, according to what Blockware and we'll see there, they're expecting to see continued depletion of centralized Bitcoin exchange reserves as institutional market participants seek to take custody of their digital assets and increase growth of Bitcoin collateralized loans. So ultimately, their thought process is that the number of Bitcoins sitting on these exchanges is going to go down over time. Some of that's because people want to take custody of their assets. Some of it's also because they want to take it off the exchange and use it for loans. And some of it frankly may just be that people don't want to sell.

• 7:14Anthony Pompliano?

  And so leaving it on this exchange just has higher risk and they simply want to just hold on to it themselves. Whatever the reason, I tend to agree that yes, the number of Bitcoin on the exchange is likely to go down over long periods of time, over six, 12, 18, 24 months. So keep an eye on this because ultimately people can't sell Bitcoin if it's not sitting on exchanges. If we then go and look, it's not just about spot Bitcoin though. Obviously, the interest in the derivatives market is really important. So we've got the options open interest here. And what we can see is that that seven day moving average throughout 2020 into the earliest parts of 2021, there was massive increase in the options open interest across all the exchanges. And throughout 2021, we've seen ups and downs of that open interest.

• 8:00Anthony Pompliano?

  And we've pretty much ended about right where we started, which is pretty interesting to see. According to the team over at Blockware, what they've said is that with the institutionalization of the Bitcoin market, they expect to see substantial growth in the options market as active managers seek to hedge, harvest volatility and perform other more exotic option strategies that take advantage of the inefficiencies in the Bitcoin market. It's pretty damn cool to see that now Bitcoin is not just some asset for individuals on the internet or random strangers who are buying it. They're simply holding it. There is a true financial market around this. There's all kinds of different financial assets. There's all sorts of different opportunities that people can go ahead and leverage. And options is a huge piece of that. So it will likely become more and more popular over time. One of that's just a function of more people joining the market.

• 8:45Anthony Pompliano?

  Another is that there's actually more types of options available. And then lastly is that some of the people who were into Bitcoin previously, but knew nothing about options, are also going to become more educated on this type of investing as well. If we then go and we look at the actual Bitcoin issuance, it's the next thing in this report, they can see that however, there is one thing for sure, regardless of what you think is going to happen in the Lightning Network, regardless of what you think is going to happen in terms of options, interest or spot market, the supply issuance won't change and Bitcoin will keep pumping out blocks regularly every 10 minutes. And so ultimately, what this chart here is showing us is that that issuance in orange goes down and is very, very predictable. We know exactly 900 Bitcoin are going to come into the market every single

• 9:28Anthony Pompliano?

  day, day after day after day throughout 2022. And so what you can see is the relationship here to the price is something that you would continue to expect. Bitcoin's issuance goes down, price goes up. It's a finite asset as demand increases for an asset that becomes scarcer and scarcer, the US dollar price has to move to accommodate everyone. That's what we've seen over the historical movements of both issuance and price, and that is what we should expect to continue to see going into 2022. And then ultimately hash rate, hash rate was one of the big stories, I believe of 2021. Obviously, in May of 2021, we saw China go ahead and ban mining in the country. They had about 60% of all Bitcoin mining within their borders at the time. And so hash rate dropped. In some cases, it looks like

• 10:12Anthony Pompliano?

  it dropped almost 50% or so, and then ultimately came roaring back to close out the year, hitting another all time high. And so the team over at Blockware, Will and Friends, wrote Bitcoin's hash rate will continue to grow throughout 2022 as more and more miners join the network. The top public miners alone are expected to bring on 56.5 EHS by the end of the year. Many large ASIC orders have already been purchased from Bitmain and the new generation machines will continue to be delivered throughout 2022. As long as the price of Bitcoin doesn't have a sharp crash, these new machines will likely be pulling in revenue significantly higher than their operating expenses. So I tend to agree as well that there will be more and more Bitcoin miners joining the network. Hash rate will continue, and I think that we will see multiple new all time highs in hash rate throughout

• 10:56Anthony Pompliano?

  2022. What's very interesting to me, and this is my personal opinion, not included in the report that they provided, is that the big story that we are watching, or some of the big stories is one, is the bull market going to be Longer than usual. Historically, bull markets in the Bitcoin ecosystem have been about 18 months after the last halving. But now what we've seen is we've now been about 18 months since last halving. And there's a lot of people who still think that the bull market is going to continue. If that occurs going into Q1 or Q2 of 2022, I think a lot of people will start to buy into the idea that the bull market is actually going to get longer and longer as we get more and more adoption. That would make sense. On top of that, there's another storyline around Bitcoin and the 10-year Treasury yield.

• 11:36Anthony Pompliano?

  Obviously, people think that that Treasury yield is inversely related to all sorts of risk assets. So you would expect as the interest rates or Treasury yields go up, then all of a sudden, tech stocks and other risk-on assets would sell off. Inverse relationship. But there are a number of weeks in the month of December where the Bitcoin price has been tracking almost lockstep with the 10-year Treasury yield. And so if that was to continue into 2022, and we actually saw interest rates get moved up and the yields go up, could Bitcoin's price go up as well? That, in my opinion, would be a narrative violation. Many people expect that Bitcoin would sell off if interest rates rise. But in some crazy way, maybe that's not the case. And so that's something to watch. I don't know what the answer is, but that's something that I'm watching going into the new year. A third theme that I'm thinking about going into the new year

• 12:20Anthony Pompliano?

  is that there is a brain drain on legacy Wall Street and Silicon Valley. There are tons and tons of talented people, both young and older, that are leaving their legacy jobs at corporations or startups and saying, I want to go to the frontier. I want to go where the innovation is happening. I want to go where the experimentation is occurring. And they are leaving in droves to go into the Bitcoin and crypto market. And so that brain drain of both legacy tech and finance, I think, is only going to accelerate. Some of those legacy corporations will get into the crypto industry, and they'll start adopting some of these technologies, and they will try to keep their talent that way. But others are simply going to throw up their hands and say, we can't pay these people enough. We can't keep them here, so we're just going to have to lose them. But the brain drain will only accelerate going into the new year.

• 13:04Anthony Pompliano?

  And then lastly, the other thing that I'm paying attention to and I'm making sure that I'm working on in terms of understanding what's happening is regulation. Obviously, something like Bitcoin has gotten the seal of approval from the SEC, the CFTC, and other regulatory bodies around the world. It's not a security and it's being treated that way by both the market and also corporations that support it in various ways. But there's a lot of questions about other types of assets, about other types of smart contract platforms, or other types of technology that's been built in the industry. What are regulators going to say about that? Are they legal? Are they not legal? Are they legal within certain variations to the existing rules? Do only the existing rules apply with no variations? How do you enforce the rules when it comes to things that have decentralization? You can't actually put a smart contract in jail, you can't find it.

• 13:49Anthony Pompliano?

  In some cases, you can't even shut it down. What do you do to actually enforce the rules once you've decided on the rules? These are all big questions going into 2022 that I don't have the answers to, the regulators don't have the answers to, the multiple market participants don't have the answers to, and neither do the lawyers. Everyone is trying to figure it out in real time. That's part of the excitement, but it's also part of the sober view of making sure that you're paying attention to what regulation is happening in the industry. So ultimately, 2021 was a great year. Bitcoin's up 65% or so for the year, and I think there's a lot of people who previously knew nothing about Bitcoin or cryptocurrencies or other various assets in the industry. Now they're participating. Now they're buying and selling the assets, they're holding them, they're building technology, they're building companies and projects.

• 14:33Anthony Pompliano?

  And I think that the more smart people, the more capital we can get into the industry, the better. And so if 2021 was a great year, I expect 2022 to be an even better one, because now we have the tailwinds. There's intellectual capital, there's financial capital, and ultimately, at the frontier, that's where people dream. It's where people dream of building a better world, that's where people dream of actually changing the world. And I think that's exactly what's happening in this industry. So it's exciting, it's fun, I think 2022 is going to be the best one yet. So I'll see you guys in the new year. I hope that you guys enjoyed this little preview, both of what I think's going to happen, but also Will Clemente, the Blockware team, and their report. I highly suggest you go and you go grab that, read through what they saw happening in Q1, Q2, Q3, and Q4 of 2021. 2022 is going to be a fun one, and I can't wait to see you there.