#890 Bitcoin Is Breaking Out w/ Dylan LeClair

Dylan LeClair is the Senior Market Analyst at UTXO Management, a digital asset fund investing in the analog to digital transformation of money and the emergent financial system. In this conversation, we discuss bitcoin, on-chain metrics, market structure, and what to expect from the rest of the bitcoin bull market. Dylan joins us every Tuesday on "The Best Business Show." To see the video with the corresponding charts that Dylan references throughout the interview, go to "The Best Business Show: LIVE" YouTube Channel ======================= Bitcoin 2022 is the LARGEST Bitcoin event in the world that takes place April 6th - 9th in Miami Beach, Florida. All four days will be jammed-packed with exclusive content, exciting announcements and an incredible lineup of bitcoin speakers, artists and leaders. Day 1 is INDUSTRY DAY for enterprising bitcoiners who are looking to build a business or career within the ecosystem. Days 2 and 3 are general conference days featuring speakers like El Salvador President Nayib Bukele, CEOs like Michael Saylor, Elizabeth Stark, Jack Mallers, Adam Back and hundreds more. The conference caps off on the fourth day with the world's first and largest Bitcoin Music Festival - Sound Money Fest headlined by rapper and fellow bitcoiner Logic, featuring artists K. Flay, MØ, Royal & the Serpent, Apashe, Asadi and more. Stay tuned for the upcoming lineup announcement! Last year’s conference SOLD OUT and this year’s is on pace to be 3x larger so make sure you grab your tickets before it's too late. Visit http://b.tc/conference to learn more. Ticket prices increase on JAN 14th, use promo code POMP for 10% off and I will see you in Miami!ire ecosystem bringing utility to #NFTs. ======================= Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. No extension required. Store, manage, and grow your portfolio, get NFT & multi-chain support, and more. Download the Brave privacy browser at brave.com/Pomp, and click the wallet icon to get started. =======================

• 0:02Speaker 00

  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

• 0:44Speaker 00

  top competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees either. FTX.us is also the only leading exchange that supports both Ethereum and Solana NFTs. Download the FTX app today and use referral code POMP to earn these free crypto on every trade over $10. The more you trade, the more you earn. Go download the FTX app today and use referral code POMP. Today's episode is brought to you by Brave. Brave Wallet is the first secure crypto wallet built natively in a Web3 crypto browser. What's Web3? Web3 is freedom from big tech and Wall Street. More control and better privacy. But there's a weak point in Web3,

• 1:26Speaker 00

  your crypto wallet. Most wallets are browser extensions, a Web2 technology. That means the same old risks, app spoofing, phishing scams, and theft. Brave Wallet is different. Brave Wallet is the first secure wallet built natively in a Web3 crypto browser. No extension required. With Brave Wallet, you can buy, store, send, and swap assets, manage NFTs, even connect other wallets and dApps, all from the security of the best privacy browser on the market. Whether you're new to crypto or a seasoned pro, it's time to ditch those risky extensions. It's time to switch to Brave Wallet. Download Brave at brave.com/pomp and click the wallet icon to get started. Again, go download Brave at brave.com/pomp and click the wallet icon to get started.

• 2:10Speaker 00

  Is sponsored by the Bitcoin 2022 conference. Bitcoin 2022 is the largest Bitcoin event in the world that takes place April 6th through the 9th in Miami Beach, Florida. All four days will be jam packed with exclusive content, exciting announcements, and an incredible lineup of Bitcoin speakers, artists, and leaders. Day one is Industry Day for enterprising Bitcoiners who are looking to build a business or career within the ecosystem. Days two and three are General Conference Days, featuring speakers like El Salvador President Nayib Bukele, CEOs like Michael Saylor, Elizabeth Stark, Jack Mahlers, Adam Back, and hundreds more. The conference caps off on the fourth day with the world's first and largest Bitcoin music festival, Sound Money Fest, headlined by rapper and fellow Bitcoiner Logic, featuring

• 2:52Speaker 00

  artists K-Fle, Mo, Royal, and The Serpent, Apache, Asadi, and more. Stay tuned for the upcoming lineup announcement. Last year's conference sold out, and this year's is on pace to be three times larger, so make sure you grab your tickets before it's too late. Visit b.tc/conference to learn more. Again, that's b.tc/conference to learn more. Ticket prices increase on January 14th. Use promo code POMP for 10% off, and I will see you in Miami. All right, let's get into this episode. I hope you guys enjoy this one.

• 3:23Speaker 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.

• 3:46Speaker 00

  Let's get into first chart, Bitcoin price weighted by perps funding rate. What were we watching here? All right, TLDR. We're not seeing a sort of over-leveraged, like speculative sort of longs that we saw for much of 2021. If you think about the two local tops, it's really not, they're not the leverage and the kind of sentiment and just in terms of if you're just like quantifying these funding rates, just how much basically the longs are paying, the kind of like the financing rate for going long Bitcoin is not there. So it's showing that this is really an organic bid and anecdotally, you know, Luna is buying what? LFG is buying a hundred, two hundred million dollars Bitcoin a day. Michael Saylor is coming in as well. So it's, you know, kind of not this time is different per se.

• 4:29Speaker 00

  And I still, still like, there's some macro certainty out there despite kind of a bounce in all risk assets over the last couple of weeks. But in terms of being at forty seven K, we haven't seen this low level of kind of speculative bid and been at this price level before. So it's pretty promising. All right. Next, is the purpose funding rate twenty four hour average annualized? This is pretty much saying the exact same thing? Same thing, just another way to visualize it. So instead of just the, the funding rate that you get every eight hours, this is the annualized rate. And so you can really kind of see we've been persistently negative, meaning that longs have actually for, for some of, or most of twenty twenty two have been on and off, been getting paid actually to go margin long Bitcoin. So we kind of see this level of, of bearishness and Bitcoin derivatives.

• 5:13Speaker 00

  Oftentimes, I mean, you could definitely go lower, but what it's really saying is derivative traders, speculators are actually not overly long and they're getting really, really defensive. So we've seen kind of bottoms characterized throughout Bitcoin's history with this level of, of defensiveness from derivative traders. And it's gone lower before this kind of this funding rate. It's gone deeply negative in the past and we haven't seen that. But just in terms of, you know, not being very overly long that we have in the past, this is a really good sign. Okay. And then if we take a look at the Bitcoin percent futures O I crypto margin, this is just falling off a cliff basically since May of last year. What's this telling us? Yeah. So kind of a mouthful of a title. What it means is that the kind of,

• 5:55Speaker 00

  the, the character of the Bitcoin derivative market, the collateralization of the Bitcoin derivative market. If you overlay the funding charts we showed with this, what, what's kind of the story of twenty twenty one? Bitcoin goes parabolic, number go up forever. A bunch of people take their Bitcoin and pay a whole lot of, of basically funding or you pay a huge financing rate to go margin long Bitcoin on their Bitcoin. They all get wrecked and at one point, open interest as like total Bitcoin derivative open interest was seventy percent collateralized with Bitcoin itself. So if you think about what Michael Saylor is doing, no one knows what his TVL is like. His kind of how much he's borrowing versus how much he's putting down. But, you know, say he's putting a couple hundred million down and he's getting 200 million in return.

• 6:38Speaker 00

  And Bitcoin can probably go down, you know, 50, 70%. But the character of what he's actually doing is he's taking Bitcoin and collateralizing it to buy more Bitcoin. And that's essentially what the derivative market did in mass in 2021. Now, what we're seeing is stable coin margin, uh, which doesn't have that convex relationship to the downside. If you think about your collateral value going down as well as your position value going down, uh, that leads to forced liquidations. And so with stable coin margin, uh, there's not that really bad relationship for, for those that are looking to long. And so in terms of just overall derivative market health, what these first slide, these first three slides should tell you is that we're in a much more, you know, stable, uh, for lack of a better word, position than we were in the past. And it's a lot healthier. Got it.

• 7:21Speaker 00

  And then if we take a look, this is the money chart to me. This is the most important chart at the moment. We're at $48,000 price point. Uh, there's a persistent bid in the market and you tweeted yesterday that the percent of the supply last active more than one year ago. So what, second highest, highest it's ever been? Yep. Uh, so we're about, I think in terms of percentage, uh, percentage terms, it's about, uh, 0.3% from its all time high of coins that haven't moved in a year. In aggregate terms, it's at an all time high, um, back of the napkin math, somewhere around 11 million or so, uh, 11 and a half million coins haven't moved in a year. And so this is what you have, this is the reality. And this is why we, I pay attention, uh, to on-chain analytics.

• 8:05Speaker 00

  And this is why Bitcoin, uh, that, that number go up technology is you have a relentless cohort of stackers and hodlers all over the world that are buyers of any price. And because of the absolute scarcity, because of the supply and elasticity, Bitcoin will find a bid because of these relentless marginal buyers as marginal sellers get exhausted. That's just the reality of it. And something like this where you see, uh, Bitcoin's never been more kind of scarce or or more tightly held over a one year timeframe, uh, just kind of validates that thesis. We can kind of feel it anecdotally when you're talking to Bitcoin hodlers, uh, but this is really just a way of showing. Like the supply shock, the reason Bitcoin goes parabolic is because marginal sellers get exhausted and new money that comes in has to bid up the price.

• 8:47Speaker 00

  And so not saying that we're there yet or we're gonna go parabolic over the next four months. It's no guarantee, but what is showing is that supply held for over years has never been this tight. And I expect this trend to continue to go up. It's quite exciting. I wrote this morning all about this idea that in September of 2020, as you pointed out, we were at a all time high in the supply illiquidity. And we had two persistent buyers. We had MicroStrategy in the market. We had GBT with the arbitrage trade just pouring billions of dollars in. We went from 10,000 to 64,000 between basically end of September 2020 until March of 2021. So kind of that four to seven month time period. Now, when we think about that, again, the illiquidity matches, we see that for sure in the on-chain metrics like you're pointing out here.

• 9:32Speaker 00

  We do know of one persistent buyer buying $125 million or so a day at the moment. That's about 300% of the daily incoming supply. Will we get other persistent buyers in what size? That's all up for question. But I think what you're outlining here is when this much illiquidity is in the market and you have any amount of persistent buy pressure, it has to move the price in order to accommodate everyone. Is that kind of a fair categorization? Yeah, 100%. And I think, you know, more so just that the trend is, and I see a lot of, you know, Bitcoin maximalists that will, that love what that what Luna is doing or that hate it, you know, there's some, you know, for some reason, there's not really a middle ground. But I think the reality is what Do Kwon is doing is completely rational.

• 10:14Speaker 00

  He realized that, and he just, you know, if you listen to his talks, it was, you know, we basically, or Do Kwon, rather, we were looking for the best sort of collateral and we wanted something that was neutral and mutable and not, not political in any sort of way. And it had a credible monetary policy. And if you're looking for that, the only answer you have in the world today is Bitcoin. It's not ETH, not Solana, not any other digital asset, not Luna itself, it's Bitcoin. And so if we're just thinking about all protocols or stable algorithmic stable coins, right? If you go a level up, and I tweeted this at, and you know, we were bantering yesterday about this pump. Is the next logical step if someone's watching what Luna is doing and what essentially Luna is doing is they're using seniorage.

• 10:56Speaker 00

  From the appreciation of the token, LFG is is minting the Luna into U S T, selling the U S T for tether and buying Bitcoin. Okay, long form, they're using Luna seniorage to purchase Bitcoin. What's the rational action for every single entity that can use seniorage, AKA? Legacy banks, nation states. It's to acquire the hardest money collateral the world's ever seen to back your currency. And I think it's a no brainer and something that not a lot of people have have understood yet. Uh, but that's, that's what really drives Bitcoin into outrageous figures that no one can think possible is. Backing your weak, unbacked fiat currency with absolutely scarce digital money. And I think that's, that's the trend over the long term.

• 11:41Speaker 00

  Facts. You have the treasury bond futures denominated in Bitcoin and NASDAQ denominated in Bitcoin. Uh, newsflash, they're going down. Uh, what, what is this? Is this just the, the continuation of the trend? Yeah, I mean, I just like to, it's just a fun thought experiment to denominate assets in each other, you know, we can look at U S D, but I think. Really, if you look at, you know, kind of relative performance of these asset classes, it's quite clear. If I didn't. Label the chart and just showed you bullish or bearish on this asset, what would you say? You'd say bearish, right? Denominating anything in Bitcoin really over a long-term timeframe. Uh, the chart looks terrible and there's a reason for that. It's because Bitcoins are performing everything. Um, so treasury bonds are trending to zero in Bitcoin. Big tech is trending to zero in sound money.

• 12:24Speaker 00

  And really, most everything else. Um, and what we can say is, you know, we've preached this and we preach this, you know, while Bitcoin's down fifty, sixty percent. If you denominate your standard of living in this, the soundest money, over the long term, you'll do great. Um, and so it's tough to hold through volatility. It's tough to see your purchases down forty, fifty, thirty percent, whatever it is. But long-term, if your unit of account is, is superior to others, you'll relatively outperform. And I think that's what we're seeing today and that's going to be the trend for the next decade plus. Joe, John, what questions you guys got? Dylan, I just want to ask you about how you think about cycles in general. Obviously Bitcoin has acted slightly different this cycle than than the previous ones.

• 13:08Speaker 00

  Do you think that this is kind of what we're going to see going forward? And just how do you think about cycles in general? Yeah, I've kind of had a had a little bit of a thesis that the, you know, three-year 80% drawdowns and bull bear cycles are somewhat concluded. That Bitcoin's matured enough to where it's still very volatile. And because of these derivatives and legacy system volatility, right? Much of Bitcoin's recent drawdown from, say, November was because of legacy risk off and that and that USD denominator and BDC. But I think for the time or like, you know, for the future, what we're going to see is shorter term, kind of maybe parabolic runs and then 50% drawdowns. I think really that kind of prolonged cycle where Bitcoin was

• 13:50Speaker 00

  under the surface and didn't really get much, much attention around the world than just kind of being cypherpunk niche internet money. I think those days are slowly coming to an end, even though we still are definitely in a in a big echo chamber on Twitter and just, you know, being kind of the Bitcoiners in general. But more and more increasingly, I think it's it's relevance at a nation state level, a geopolitical level is stronger than ever. And for that reason, I think, you know, the days of Bitcoin dying for years on end and, you know, just everyone forgetting about it relatively is somewhat over. John, what do you got?

• 14:24Speaker 01

  Dylan, my question is just around like, is this a make or break moment for Bitcoin? We see terror buying a bunch of Bitcoin. We see everything around the world basically acting as a perfect storm. Is this year going to be a make or break for Bitcoin?

• 14:35Speaker 00

  Yeah, I mean, it's a make, definitely, definitely a break. And I don't know if it, I don't know if, you know, Bitcoin goes and appreciated by an order of magnitude this year. I'm certainly extremely bullish and palm funny enough where I was getting, I was getting some heat yesterday saying, weren't you bearish? And I was like, I go every single day and every single week and said, I own more Bitcoin than ever. How the heck can you think I'm bearish? Yeah, like cautiously optimistic about the global economy because it doesn't look great.

• 15:05Speaker 00

  But I think in terms of make or break, you see things like Exxon, right? They're saying, hey, we're We're actually reducing methane layer through Bitcoin mining. All these things that were kind of like niche narrative talking points are actually coming to fruition. You know, legal tender happened last year. I think we're going to get some fun announcements in about two weeks in Miami at the conference. You're going to see other kind of huge developments like Russia saying, and not that we're a supporter of Russia, but they can use an apolitical neutral currency if they wish for global trade. Things like this, we're really kind of speeding up the event horizon faster than I think a lot of people thought. And for that reason, you know, exponential technology, exponential adoption. I wouldn't be surprised to see Bitcoin continue to rip. And some of these macro catalysts that we're talking about can definitely expedite even further.

• 15:50Speaker 00

  When you start to think about sentiment right now, it feels like the energy is building. You can, you can see it on Twitter. Bitcoin searches are up 20, 25% globally. You can feel that the Terra announcement, if they're going to buy 3 billion. I saw there was an article, it was in the, it was the Block or Wall Street Journal, somewhere. I read a bunch of OTC desk, or maybe it was, actually I think it was Frank Shapara was tweeting. OTC desks are saying that no one's trying to sell Bitcoin right now because they know there's a persistent bid in the market. Like, it just feels like it's building. Is that what you're seeing as well? Yeah, I mean, just price action alone, but yeah, I saw that tweet as well. And I think that's directionally head on. You know, who wants to sell when you know there's a huge buyer in the room?

• 16:34Speaker 00

  And I think on a micro scale, that's the story of Bitcoin. Is that there's a relentless amount of buyers and, and bears, although they've had a, you know, pretty good few months here. Long-term, if you're a bear in Bitcoin, you lose all your money. That's just kind of the harsh reality or of the situation is that absolute scarcity and a growing group of buyers of last resort leads to number go up. And it's, it's quite that simple. I mean, people, people like hate on the Bitcoiners for being dogmatic and all that other stuff. But once you come to that realization of, of there's buyers of last resort, it's absolutely scarce. We know where this is going. Then you can just kind of cut back the noise and, and enjoy the ride. I mean, the sentiment was, was pretty bad a couple of weeks ago.

• 17:19Speaker 00

  At 30K, but you know, a lot of people got really good buys. And so maybe, maybe we rocket to new highs here. I'm still cautiously optimistic about, about credit markets and, and all of those other things that we've talked about. It seems like still the macro environment is kind of deteriorating, um, getting a yield curve inversion probably in the coming months, uh, which has predated a recession since the sixties. Um, so those are the things that I'm watching for, but Bitcoin's relative outperformance is, is extremely strong. What, what's your biggest concern right now? Or what's the one thing that would, uh, make you change your mind? Uh, I mean, long-term for, for Bitcoin, it's, it's truly, I mean, there's only really one thing. It's that if we saw hash rate basically fall off a cliff, which is not happening whatsoever.

• 18:01Speaker 00

  Um, and I don't know what would spur that development. That's my long-term thing is I expect hash rate for better or worse to go up forever. Um, and that sounds kind of crazy, but maybe forever is a little bit of a, of an exaggeration. But over the short term, it's really just, uh, you see the dollar strengthening against a bunch of other fiats. You see the credit system, although it's bouncing, it's, it's, it's still somewhat, uh, deteriorating and unwinding with, with, uh, rather quickly. And so those are the things that just, that I'm just watching for in terms of, um, have nothing to really do with Bitcoin. It's just that USD strength, BTC USD is a trading pair. That's all I'm saying. And that's how people I guess are perceiving that on bearish. Uh, but really if you're, if you're in it for anything more than, than that next few months or the next maybe quarter or two,

• 18:43Speaker 00

  really you should, you should, I mean, you should be sacking every day anyway, every day, every week, automate it and, and you're going to be a winner over the long run. Last question I have for you is, uh, MicroStrategy obviously taking the, uh, the collateralized loan here, uh, doing so from Silvergate, which is an FDIC insured bank, uh, as you pointed out, what's the importance of that in the market? Yeah. I mean, I don't think people understand the silver, Silvergate's a Fed number bank, right? So they're, they're collateralizing, they're taking Bitcoin collateral. It's a no loss business for Silvergate. Collateralized Bitcoin lending is a no loss business if it's done correctly. Um, and so I don't know the details. I don't know the rate. I don't know the LTV, uh, but it's a no brainer for lenders. And really, um, at a, you know, at a certain market position as well as, you know, kind of an LTV, it's a no brainer.

• 19:29Speaker 00

  For corporations, right? If you can get cheap debt because it's over collateralized, then why not? And Saylor's obviously got a whole bunch of financing and kind of debt instruments already. But I mean, it's really interesting that I expect more and more corporations and entities to do it themselves, as well as other banks, right? Like, why aren't we in this business? It's no loss because it's over collateralized. And so I think it's just a start. And I think that those wide-scale speculative attacks are what sends Bitcoin to six figures and beyond. It's a pretty incredible time to watch this occur. It was just announced while we've been on here that a $600 million hack occurred with one of the bridges, the Ronin network.

• 20:10Speaker 00

  And obviously Bitcoin security, pretty damn important as more and more people start to trust their economic value in a network. So. Not your keys, not your coins. That is true. That is true. All right. Where can we send people to follow you on Twitter or subscribe to the newsletter? Yeah, you can just find me on Twitter at Dylan McClair underscore newsletters in the bio. We write about some of the stuff we're covering today. Appreciate you guys bearing with me today. Sorry about the audio visual troubles tuning in from my phone, but hopefully that won't happen again. And everything goes smoothly next time. I think you're doing a great job. Who cares? If you've got good ideas, you could be literally yelling through a megaphone. Who cares? Smoke signals will take anything you've got as long

• 20:52Speaker 00

  as we get the information. So I appreciate you coming on. And next Tuesday, hopefully we'll be doing this in person for the Bitcoin conference. Wow. In Miami, so happy to see you guys. Come on down. Let's go. All right, buddy. Sounds good. See you later. Peace. 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.