James Check delves into the Bitcoin market, focusing on the impact of futures markets, the success of Bitcoin ETFs, and the nuances of the cash and carry trade.
In this episode of TFTC with James Check, we explore a variety of topics surrounding Bitcoin, particularly focusing on the impact of futures markets, the unprecedented success of Bitcoin ETFs, and the nuances of the cash and carry trade. Check provides a detailed analysis of the Bitcoin market dynamics, comparing it to other assets and markets to highlight its growth and potential.
The discussion highlights the ETFs' role in Bitcoin's market presence and how significant capital inflows from various institutional entities, such as pension funds, have begun to influence the Bitcoin market. With over a million Bitcoin held collectively by ETFs, the success is undeniable, and the potential for future growth is evident as regulatory green lights for RIAs are awaited, which could unleash substantial capital into the space.
Check also addresses the topic of market manipulation concerns brought up by figures in traditional finance, arguing that while manipulation occurs in markets like gold, the current sideways movement of Bitcoin is a product of market consolidation and not necessarily manipulation. He explains the mechanics of the cash and carry trade, its history in the Bitcoin market, and its role in providing liquidity and reducing volatility.
Furthermore, Check sheds light on the significance of on-chain analysis, emphasizing how Bitcoin's on-chain activity reflects the market psychology of participants. He identifies key on-chain metrics like MVRV and SOPR that offer insights into market sentiment and behavior. Check also shares his thoughts on the future trajectory of Bitcoin's price, discussing the influence of the halving, potential market cycles, and the broader macroeconomic environment.
The episode featuring James Check is a treasure trove of information for anyone interested in understanding the intricate dynamics of the Bitcoin market. Check's pragmatic approach and clear explanations demystify the often-complex financial strategies at play in Bitcoin's ecosystem. His confidence in Bitcoin's future, backed by a deep understanding of market mechanics and on-chain analysis, offers a grounded yet optimistic perspective.
The overarching message is that Bitcoin, while having grown tremendously, still has enormous potential for growth. The market's behavior, influenced by both institutional and retail participants, is gradually maturing, and on-chain data provides a lens through which to observe and analyze these changes.
0:00 - Intro
0:14 - Exposition
8:08 - Aussie ETF and in-kind withdrawal
11:28 - River & Unchained
12:43 - What Jim Bianco is missing
20:42 - Who is making the trade
25:26 - Gradually, Then Suddenly & Zaprite
27:03 - Coinbase
29:59 - Realized capital
38:42 - Don’t whale watch
41:22 - Engineering and on-chain analysis
48:33 - Checkonchain analysis framework
54:35 - Wall Street using the data
56:33 - What would disprove the model?
59:49 - Profit/loss ratio
1:04:03 - Time off, Will the cycles continue?
1:11:22 - Price prediction
1:15:03 - Managing generational wealth
1:19:27 - Bitcoin in bad economic times
1:27:39 - Bitcoin improving politics and energy
1:34:36 - Wrapping with plugs
00:00:02:12 - 00:00:05:24
Marty
James. Shaq, welcome to the show. Long time coming.
00:00:05:27 - 00:00:08:04
James
Good morning. It's great to be here, mate.
00:00:08:06 - 00:00:32:02
Marty
It's great to have you. kind of talk about a lot. I feel like we can dive into a lot of topics here. I've reached out to you, though, because I'm an idiot when it comes to this cash and carry trade and how the futures markets may or may not be affecting price, particularly with the launch of the Bitcoin ETFs, which have launched with a lot of success.
00:00:32:08 - 00:00:35:14
Marty
I think they now collectively hold over a million Bitcoin.
00:00:35:17 - 00:00:46:04
James
Over a million yet. Yeah. And I mean undisputedly the most successful ETFs in history. And I just can't think of any asset that could could beat it. So I think it's going to hold that record for a long time.
00:00:46:06 - 00:01:08:12
Marty
And I think it's just a beginning to, especially when you factor in the fact that all Rias, haven't gotten the green light yet. There's a bunch of capital still waiting on the sidelines, and there could be some mechanical levers that are just unleashed for. It's all right now. We need 1% of all of our clients portfolios in Bitcoin that could just flow into the ETFs.
00:01:08:14 - 00:01:27:11
James
And we saw that. I actually wrote a piece on this the other day because I think people get stuck not realizing how big bitcoin is. It's simultaneously enormous and insignificant. You know, and when you look at the I think it was Wisconsin, there's like a pension fund to allocate 180 mil. And, you know, $180 million for us is I mean, that's life changing money, right?
00:01:27:11 - 00:01:33:09
James
You'd never have to work again, but 180 million, they talk about it as a 2.1% of their portfolio.
00:01:33:11 - 00:01:34:13
Marty
They have points.
00:01:34:15 - 00:01:57:27
James
It's nothing. Right. And they have every expectation to move up to one and 2%. So you're talking about $180 million. That's 0.1% of these guys portfolio. And then you realize that Bitcoin and this is just a wild stat. Since the Ft bottom Bitcoin's added $1.1 trillion, which is 1.1 thousand thousand million dollars like it's these numbers are just so large.
00:01:57:29 - 00:02:16:06
James
And I think we forget that it takes a lot of money to move the asset. But then you look at the bond market and the gold market and, you know, we're we're a fraction of that. So like they have very big numbers, but we're we're a small fish in a very big pond now. But relative to where we've come from, where the biggest fish you've ever been.
00:02:16:08 - 00:02:40:07
Marty
Yeah. And the fish is eating tail. It's going to get bigger in this big pond. Oh, yeah. They take up a large portion of the pond at some point. And this is why I reach out to you, because going all the way back to 2017, December 2017, when the CME futures launched, many people, particularly in trad fi in more particularly in gold markets, said futures are launched.
00:02:40:07 - 00:03:10:25
Marty
They're going to be manipulating the prices. Fast forward to 2024, the ETFs launch. And now that you have the ETF product, that is another liquid product that traders can leverage. And if more people like Jim Bianco specifically, I think coming out and saying that this is going to be used in conjunction with the futures price to sort of pigeonhole the Bitcoin price, and a lot of these commentators are saying Wall Street is now controlling the price.
00:03:10:25 - 00:03:34:03
Marty
I've seen you've been doing analysis on this zero hedge similarly hasn't been doing like deep technical analysis analysis. But, they've been tweeting every day. Looks like Jane Street's slamming the Bitcoin futures to keep the price list. The ETFs can buy cheap. At the end of the day when markets close. What is going on here. You mentioned the liquidity that has come to markets in 2022.
00:03:34:06 - 00:03:46:28
Marty
How is that affecting it. What does it take to move the Bitcoin price and how does the dynamic between the ETFs and the CME futures affect price, if at all?
00:03:47:01 - 00:04:09:14
James
Yeah, no it's a really dynamic topic. So there's a few things I'll start with. Kind of big picture. The first thing is that every asset that reaches a scale that's appreciable will develop a futures market. And derivatives markets. Further to that, once you have futures markets, the cash and carry trade exists and it exists for all asset. So first and foremost, this is a very normal thing.
00:04:09:17 - 00:04:28:26
James
Now the other one that's quite interesting is that a lot of people I mean from my perspective, when I look at the market so far, and again, with no kind of prediction of what comes next, it's been a very stable, quiet and trending uptrend. It's beautiful. Right? We've had less than a 20.4% correction since FTX blew up, and that's astounding.
00:04:28:26 - 00:04:51:10
James
And we've added $1.1 trillion since then. And, you know, even just this year, $550 billion, something like that. So it's an extraordinary rally, 18 months of up only to be chopping around sideways like this right now makes all the sense in the world. All right. Markets need to take a breather. Now, what's very interesting is that we, you know, we're trading sideways.
00:04:51:12 - 00:05:08:19
James
we're consolidating after 18 months of up. Only when you have 18 months of up only you can expect very, very reasonably the consolidation to be on the order of several months. So none of this is like to me, none of it is surprising. Now, it's interesting that people come out and say, oh, look, it's market manipulation. Now.
00:05:08:19 - 00:05:32:19
James
First things first, market manipulation. And like in the sense of gold absolutely happens, right? Let's not kid ourselves. It absolutely happens. But just because the price is going sideways doesn't mean the market's being manipulated the way the gold is. Right? What it usually means if you go, Occam's razor, what's the most obvious reason for this? It's because your expectation is that we should be at 100,000, and the market doesn't care about your expectations.
00:05:32:19 - 00:05:48:06
James
The market does what the market does. Right? This is this is something that I find as an analyst, I always hold I've been listening to you, Marty. You've got your white pill, right? Which is really important to have. It's easy to have the black pill and the white pill, having both at the same time and say like, well, this could be a top.
00:05:48:06 - 00:06:07:02
James
It could also be a consolidation, right? And always holding both of those two things and trying to assess it in a live fire exercise as the market develops and we get this cash and carry trade, and we can talk about the mechanics of how that actually works. This has always been there since we've had futures, and they really came about in 2018.
00:06:07:05 - 00:06:30:27
James
These what you call volatility capture strategies. Now that's the cash and carry trade in futures. It's also options. People will buy and sell options to capture volatility premiums. This is how I call it maturation of markets right. There's there's options on everything. Very soon we're going to have options on the ETFs. That will happen as well. What we're basically doing is when the market goes through a range expansion.
00:06:30:27 - 00:06:51:29
James
So it rallies or it goes somewhere. It could also sell off right. It's it's trading from one range to another. It is always followed by a period of range contraction. So you get like an expansion of the price range. Price goes somewhere else. It has to rest. It has to kind of consolidate the gains, consolidate the losses, work out what equilibrium is and then it will move again.
00:06:52:01 - 00:07:15:28
James
And during that period of time, if you just have a spot market, you'll have traders buying and selling the top of the range. That's kind of how they're capturing the volatility as futures start to come in. There's different instruments. Some are pricing the Bitcoin out. And you know six months a year whatever the timeframe is. If they're trading at some kind of delta this cash and carry comes in where you can kind of capture that premium between these two instruments.
00:07:16:00 - 00:07:42:00
James
And with options, you've then got people who can buy and sell volatility. And what this creates is like a think about like a collar that goes top and bottom and just sucks all the volatility juice out until the market is ready to move again. So I'll pause there. But really to me, the thing that we haven't seen, I think there's two things people are expecting that we should be at a different level and the market isn't adhering to their expectations, which quite frankly means your expectations are wrong.
00:07:42:02 - 00:07:53:21
James
and the other one is that this volatility is like there's like a juice to be squeeze. Once it's done, the market will move again. And usually that there's a second wave of demand to really kick things into the next game.
00:07:53:23 - 00:07:57:11
Marty
Yeah, the.
00:07:57:13 - 00:08:16:04
Marty
The rangebound price trading over the last couple of months makes a lot of sense to me. I mean, we were up at all time. I'd be for the having for the first time ever. Obviously the ETFs were big catalyst and drove a lot of flows at the beginning of this year. But we're up, what, 150% over the last 18 months, maybe more than that.
00:08:16:04 - 00:08:30:25
Marty
And it just makes sense that we take a break. Everybody here in the US is on their summer break. You have the summer doldrums setting in, people not really going to work allocating as heavily as they do in the fall. In, the winter.
00:08:30:29 - 00:08:36:02
James
You leaving it to us? to the poor Aussies down here in winter trying to hold everything up.
00:08:36:04 - 00:08:38:28
Marty
But you guys just had an ETF on sale, so you're trying your best.
00:08:38:28 - 00:08:53:25
James
Yeah. We did. it's funny actually. There's a couple of people talk about the other day too. I think it's got like 46 Bitcoin in there. Right. So we're not talking about the the similar scale. But at the same time Australia is a smaller market. we're also we tend to move much slower. So really where's the bulk of our strategy.
00:08:53:25 - 00:09:12:26
James
Enough Australia treats the property market like you guys treat the stock market as your savings vehicle. I know obviously Americans used to use, housing as well, but Australians, it's like a religion. So the housing is our thing. and really the biggest pools of capital is our 401 K equivalent. So by law you should put 1,012% in.
00:09:12:28 - 00:09:28:29
James
and that's kind of where most of the money goes into the stock market. And until they're allowed into all these retirement platforms, really it's just hodlers basically buying Bitcoin with whatever cash they got spare. But most of it can buy a spot. So it's always going to be smaller until those, rails get turned on.
00:09:29:02 - 00:09:30:12
Marty
Yeah, that's good to know.
00:09:30:14 - 00:09:38:24
James
Did you hear the cool thing about the Aussie one though? The monochrome is you can actually withdraw your. So if you've got coins in the ETF you can actually withdraw, which is pretty cool.
00:09:38:26 - 00:10:04:09
Marty
Which is good to see, a good precedent to see is I know some of the ETF issuers here in the United States, I think they wanted it. Initially the SEC came comments had no cash, cash and cash out. But I do know what they anybody particularly. But I do know some of the ETF operators here are making it a point over the next couple of years to try to get those in-kind redemptions because that's the way it should be.
00:10:04:09 - 00:10:30:04
Marty
It's tax advantaged. it is also a mechanism to force these ETF issuers and Coinbase to make sure they actually have the the Bitcoin sitting and under the ETF. And so I think it makes sense. And I actually think there's a good argument to be made. If the fiscal and monetary mishandling here in the United States persists and inflation gets out of hand will actually be demanded.
00:10:30:08 - 00:10:34:00
Marty
Where the people say, I don't want the cash or the Bitcoin.
00:10:34:03 - 00:10:55:00
James
Well, we've seen many instances over the last, let's say, two years, many, many cases where the market has demanded something and whether it be politicians, regulators, whatever it is, the degree of bending the knee of late has been quite fascinating. It's important, obviously, not to become complacent because, you know, this whole concept of the gold ification, it's a real risk, right.
00:10:55:02 - 00:11:12:09
James
And we'll probably come back to the cash and carry side. But it's a real risk. But at the same time it's you know we have seen a lot of concessions get made. Bitcoin has forced that kind of bending of the knee in many ways. And I think that's that's just another example. Right. Over time the market will demand the in kind.
00:11:12:09 - 00:11:16:08
James
And you know it feels like a matter of time in the ETF issue is no it.
00:11:16:10 - 00:11:40:22
Marty
Yeah. On that point back to the cash and carry trade. What do people like Jim Bianco who believe that the cash and carry trade is being used to suppress the Bitcoin price? In your mind, what are they missing or how are they? miss like assessing the situation wrong. Essentially.
00:11:40:22 - 00:11:57:10
James
Yeah. So so I'm not even sure that Jim's got down to that level of nuance. I've been pretty disappointed with Jim's commentary, to be honest, because usually he's pretty sharp and he's a numbers guy, right? So I respect his views a lot. But on the ETFs, it's just been it's like being his Kryptonite. He just hasn't had good takes on it in my opinion.
00:11:57:12 - 00:12:18:17
James
so I think the the main chart people are probably seen floating around is I think they're a hedge, right? As they would do, just share this enormous short position that's been building in, in semi futures now, I've actually been tracking the CME because they're, they're, they're now bigger than Binance. So Binance was the market leader in terms of futures open interest for a very long time.
00:12:18:19 - 00:12:39:09
James
And through 2023, probably about halfway through, CMA actually flipped finance. So there's two things that happened in 2023 that are quite meaningful. in the derivatives world, the first one is that same became bigger than Binance. and then we also saw options. So Deribit remains the biggest platform for options. Options know open interest also reached the same level of futures.
00:12:39:09 - 00:13:08:18
James
And they used to be like 10%. So options are a much more sophisticated instrument. It allows a lot more hedging and risk management and things like that. So both of these two things, CME and options growing really speaks to an institutional ization. We have a different set of actors in the market today. Now the other thing that I've had floating around, which I'll just kind of put out there, before we jump into the technicals of the cash and carry, is we haven't had a 20% correction.
00:13:08:25 - 00:13:31:19
James
And when you look at the sell side volume and like the the maker taker behavior inside spot markets disproportionately sell side. So what does that tell you. We've got a sophisticated set of actors. We've seen CMA growing. Options are growing. And the market has seen mostly net sell side on this in spot markets. And yet we haven't had a more than 20% correction.
00:13:31:22 - 00:13:50:12
James
That feels to me like patient buyers who let the market come to them. Right. The average pleb most in probably hit smash buy right. We just go market by and just take off the books. Most of the guys who've been acquiring like when we're talking about these kind of these, these metrics, they're just sitting there allowing the market to come to them.
00:13:50:12 - 00:14:12:19
James
They're patient. They're just allowing the market to do its thing, and they're not forcing in either direction. So this this feels like more institutional adoption. Right. So that's kind of the the big picture backdrop now in terms of the the short position. So there's a few things to look at. no question. In the first like three months after the ETFs launched, the HF inflows were massive.
00:14:12:25 - 00:14:30:01
James
And by and large true demand inflows. Right. Lots of people buying looks like retail. Jim. Bianca had the point that, oh it's retail. They're going to pay the head as soon as we have some kind of sell off. Well, we had the sell off, and I put out a video just a couple of weeks before that.
00:14:30:03 - 00:14:47:16
James
so in the world of, of Bitcoin and particularly the on chain world, shrimp are actually the smart money. And, you can see there's a chart that I've shared a few times, but it looks at the amount that the shrimps balance, how many coins the shrimp have. And when they bought heavily they bought heavily into the 2017 top.
00:14:47:16 - 00:15:07:22
James
That was me I like literally bought the absolute top. You couldn't have bought higher than me. And then the explosion in Bitcoin education from 2017 through to 2020, like by the time we get to 2022 and FTX is blowing up, the shrimp actually know what they own. They're serious. Serious hodlers, right? How many podcasts are these people listening to?
00:15:07:22 - 00:15:24:15
James
Like, I know myself, right? I put myself in the bucket. I'm shrimping scale, but I probably understand Bitcoin better than most people in Wall Street. Right? So you've got this this very, very interesting dynamic with a shrimp. We're actually not the dumb money. So Jim has this perspective that they're going to paper handed and they're going to sell on the dip.
00:15:24:22 - 00:15:43:19
James
We'll take these guys actually bought on the like at the bottom when the narrative is that Bitcoin is dead. For a decade these guys stepped in and bought in size bigger than 2017. And then they actually sold into the ETF RIP. And then we saw this kind of correction and consolidation like retail may not be as dumb as you think Jim.
00:15:43:21 - 00:16:00:06
James
Like and when I think about who's going to be the early adopters of Bitcoin ETFs, it's going to be hodlers who have already got a bunch of spot. And they're like, well, I've got this for one k. Now I can put that into as well. Like these are people who aren't buying because they know what they own. Over time we will get a much a a dispersion.
00:16:00:06 - 00:16:21:08
James
But it to me it just feels like hodlers are still in play. Now when we get this record short position right in the CMA. in the early days of the ETF, the first three months, I ran a study that looks at how much the CMA open interest changed. So think about this. Like people opening positions. And let's just assume just real back of the envelope math.
00:16:21:10 - 00:16:37:23
James
Let's just assume everything is a short position, right. Every open interest. If some guys shorting it as people are climbing now naturally there's someone who has to be buying that as well. But you know, people kind of forget that neutral side of the equation. Let's imagine every uptick in CME open interest is some guy smashing the short sell.
00:16:37:25 - 00:16:56:21
James
So I compared CMA open interest. So the ETFs the inflows. And what I basically found is that in the early days the ETFs were massive like 3 or 4 times larger than CME open interest changes. So as a result that's just net inflow. People are just buying the spot ETFs cash is going in number go up as we go through the correction.
00:16:56:27 - 00:17:20:24
James
And particularly over the last say that month and a half, the ETF inflows that we saw like a $2 billion week the other day. You see these ETF inflows are pretty much at the exact same scale as CME open interest changes. So in other words, every dollar that's going into the ETFs is being matched by an increase. You know, very simple model of a short seller in the same.
00:17:20:26 - 00:17:42:27
James
So you're like okay that looks like these two things are correlated. You've got someone buying ETF and shorting futures. Now this has been happening in the Bitcoin market for years. With the funding rates. Funding rates are just a literally a perpetual it's a future that never expires. There's a premium where you can buy spot bitcoin today and sell it technically in the future.
00:17:42:27 - 00:18:00:00
James
That's what futures are. You can buy it today and sell it in the future. If you buy Bitcoin at 60 K and you sell it in the future at 70 K, all you have to do is wait until that future date. Right? What is the date of that expiration? You've already bought the spot and now you're selling at 70 K.
00:18:00:08 - 00:18:19:00
James
Over the course of that time, the two prices will converge. You collect the premium. So what I looked at is what is the futures prices. And what we see is that there's about a 10% premium. So what that after December. So that means I can buy if I'm Wall Street I can buy it an ETF which is spot Bitcoin.
00:18:19:00 - 00:18:47:13
James
I buy a dollar worth of bitcoin and I sell $1.10 worth of bitcoin for delivery in December. And as long as I hold those two positions open until December, I will lock in a ten cent profit at 10%. That is essentially what the cash and carry trade is. And the reason why this premium exists is because people are betting with leverage on the long side in futures, people are literally saying, I believe that the price of Bitcoin is going to be 10% higher by December.
00:18:47:20 - 00:19:06:20
James
People, there is a net long bias and generally speaking, when people are net long, right, you've got this kind of it's going to go up forever. It's usually the sentiment where it's probably not going to go up forever. So like that's why this consolidation happens when nobody believes it's going to go up. That's when there's not going to be enough premium for this strategy to work.
00:19:06:26 - 00:19:16:11
James
Right. And all these positions will slowly unwind. And then they'll be that there won't be that kind of equal and opposite OB strategy. And then the market's free to move again.
00:19:16:14 - 00:19:40:20
Marty
And so with this particular cash and carry people are looking at. So I'm trying to hone in on here too. And obviously Zero Hedge has been pointing at Jane Street specifically. But retail investors institutions getting Bitcoin exposure via the ETF. You see the daily flows at the ETFs. Then somebody external of these ETF issuers looking at those flows and making this trade.
00:19:40:23 - 00:19:53:13
Marty
Or is it somebody within Blackrock, within fidelity who's trying to increase their revenue by deploying this strategy based off of the inflows from their clients?
00:19:53:15 - 00:20:17:05
James
No, I think it's even simple that you're a hedge fund. You don't own Nvidia, so you're getting killed. You're getting killed in the market right now. You're underperforming. What do you do? Well I could trade bitcoin right? I could own that. But now it's not going up. So there's not those kind of easy wins. There was no question there would have been some hedge funds who just like jumped in on on the Bitcoin ETF launches and rode that extra wave higher.
00:20:17:07 - 00:20:40:08
James
But if you think about it right, the risk free rate, the risk free rate right now is 5% from treasuries. If you can get 10% by literally buying spot and simultaneously like literally the same day by spot, sell future and you can just sit and wait and get 10%, you're doubling the risk free rate. And this is effectively a no risk trade, right.
00:20:40:10 - 00:21:00:29
James
The only risks in this trade is essentially that like the ETF issue, it blows up the futures exchange blows you stuff up your margin. Like really if we take away all the counterparty risk, which I doesn't care about because that's all they ever have, take away the counterparty risk because that's a that's a default. If you remove that this is basically risk free.
00:21:00:29 - 00:21:20:07
James
And this isn't like a real pal, basically risk free. This is like a risk free. You're buying an asset today. You've already sold it in December for the future. In the future you deliver it in December. So as long as you hold the Bitcoin or the ETF until December and then what they do is they roll it. So let's say this premium still exists.
00:21:20:10 - 00:21:39:13
James
And by the way eventually they'll be ETFs that do this that literally they buy a spot and they'll sell the future and they'll close it in and then they'll roll it. They'll close out the position, buy the ETF, roll it out to the next contract. Right. So they just keep rolling the future out. Now. And they collect this five 1015 five whatever the premium is over time.
00:21:39:16 - 00:21:59:16
James
And this is literally what funding rates do. And he is probably an important element to all of this. in in perpetual markets, the funding rate is basically exactly the same mechanism, except instead of being like a fixed, I buy and sell it and that's my premium. It's going to be fixed as long as I hold it. The funding rate actually moves with the market.
00:21:59:16 - 00:22:21:14
James
So every eight hours it's essentially reassessing what your new interest rate is. This brings liquidity because these guys can essentially come in and provide sell side or buy side. They keep the market kind of structured and in place. They deepen liquidity. So it's generally speaking it's a neutral strategy in terms of like impact on the market. It's because you've got to buy in a sell.
00:22:21:19 - 00:22:36:25
James
And if you didn't have a buying a sell, you probably got a sell in a buy. So like these things kind of balance themselves out. But what they do do is they bring deeper liquidity, right? They bring more and more people so that if you do have to put on a position in size, you've actually got the books to deal with it, right?
00:22:36:25 - 00:23:02:02
James
There's enough liquidity there. And these market makers are being incentivized by a delta neutral strategy to bring volume, open interest, trade volume like that, just overall liquidity to the market. So it's part of the maturation process. some people will say it's manipulation, but by and large it's like, okay, I was thinking about this just before the call.
00:23:02:04 - 00:23:26:07
James
the problem with paper gold isn't the open interest, not the futures market, because futures markets will always exist. They just they're just a part of a maturing market. The problem with gold is unallocated gold, right. Because you've got these gold bars that you can't actually verify there. You can't really have unallocated Bitcoin because it's either in the wallet or it's not that there's there's there's not really like a oh is it tungsten I don't know.
00:23:26:12 - 00:23:44:15
James
Is it like actually like got a serial number. None of this shit that is for Bitcoin you can't really has unallocated bitcoin. You can have people betting on the side like a bucket shop style cash cash settled futures. That's fine. That's separate. That's just like the people who are buying a cash settled future probably aren't buying spot anyway, right.
00:23:44:18 - 00:24:00:27
James
That's a that's a gamble. That's a bit it's different. Different style of market. Whereas in the unallocated gold space they're selling physical gold but there's no actual physical gold there. Right. For Bitcoin your nodes telling you the bitcoins there, it's not.
00:24:00:29 - 00:24:04:19
Marty
So you don't think there's any very high participation going on.
00:24:04:22 - 00:24:25:27
James
look, I've seen a lot of people saying that Coinbase is very hypothecated. I say a lot of people saying that the ETFs are very Hypothecated look, as it stands, I mean, having looked at the balances, right. Data scientists are tracking this kind of stuff. The balances for the ETFs of there there are coins there. Coinbase is a multi-billion dollar company.
00:24:25:27 - 00:24:47:05
James
And this is the same reason that like I'm very skeptical when people are like, oh, this, this multi-billion dollar business that's making a absolute gargantuan shit ton of money is going to blow up their business by breaking the law. I just I just don't see it. Right. These guys are so regulated and again, you know, we can go down the rabbit hole and say, well, you know, governments can get in, get their grubby mitts and stuff in there.
00:24:47:05 - 00:25:00:16
James
But like as it stands, it just feels like an extremely low probability. What is a much higher probability is that people are assigning an expectation to the market. That's unrealistic. That that to me is a much more probable outcome than people worry about. Right?
00:25:00:16 - 00:25:16:11
Marty
Hypothecated yeah, I would agree. I find it hard to believe that Coinbase would be re hypothecated, and I'm not the biggest fan of Coinbase and have not been for some time, but to think that they would kill the golden goose by doing something that's due, it just doesn't.
00:25:16:14 - 00:25:29:14
James
They print more money by not doing that. That's the hilarious thing. Like they actually make like think about incentives. They're making so much money. They're making so much money. They don't need to do these hypothecated strategies to to make more like that. They're already printing.
00:25:29:16 - 00:25:49:28
Marty
Yeah, I do think I mean, maybe we can touch on this later, but I do think I don't think the re hypothecated, but I do think all this custody concentration risk within the hands of Coinbase getting upwards of a million coins in all the ETFs. Luckily Fidelity's the second most popular ETF, so their custody in their own coins.
00:25:49:28 - 00:26:10:14
Marty
But hundreds of thousands of coins flowing to Coinbase. I'm more worried about the cruise missile risk of the government coming in and saying, all right, here's what you're going to do with these. I don't think it's full stop. It'll still put a low probability on that, but that is a big risk. And I think custody for the ETF should be multi-institutional.
00:26:10:16 - 00:26:24:27
Marty
Multi-sig. but I think it's just too early for all these people to get comfortable with it. And obviously Coinbase doesn't have an incentive to play ball with that, considering the fact that they've accumulated a a large part of the ETF market already.
00:26:24:29 - 00:26:42:21
James
Yeah, and I agree. You know back to our previous point. I think the market will demand this over time. Right. And a lot of it's being challenged by this, you know, nuanced SOB 121 shit that the SEC he's got running, right? I mean, that prevents the banks from canceling these coins as well. And like, that's what Wall Street would prefer.
00:26:42:22 - 00:26:55:18
James
They want these big institutions that they trust to go into the custody business. And I think that, you know, over time that will sort itself out. And I suspect that we will get a natural dispersion just just by market forces. It feels to me like a likely outcome.
00:26:55:20 - 00:27:20:20
Marty
Yeah. bringing it back to the cash and carry trade again, one thing I'm really interested to get your perspective on is with the emergence of these larger pools of liquidity, deeper markets. I have to imagine the biggest effect it has is reduced slippage. And like you mentioned, the ability for people to get in with size. Have you run the numbers at all to quantify that?
00:27:20:20 - 00:27:28:18
Marty
Like how big of a buy could an institution make without drastically changing the price at any given point in time?
00:27:28:21 - 00:27:45:14
James
not specifically on that, but I have run a, a it's back of the envelope, but with a bit more rigor than an envelope, study, because a lot of people bandied around 118 x multiplier, right, that I did, and I just kept hearing this number and I was like, okay, I have to put this thing to bed.
00:27:45:14 - 00:28:07:02
James
So and this is the beauty of unchained data, right? So, for those who aren't familiar, there's, a metric called the realized cap, which really is we should be replacing the market cap with a realized cap. The realized cap is the the Go-To metric. it is just so important. Basically, rather than valuing every coin at the spot price, we value it based on the price when it last moved.
00:28:07:06 - 00:28:35:19
James
So satoshis coins are worth zero early. Mine is worth next to zero. However, if Satoshi sold his coins by any chance, right, they're going to get revalued from 0 to 68,000 66,000, whatever the prices. Now, if you think about that, Satoshi acquired those coins for effectively zero. If he was to sell one of them at 66,000, someone's going to come in and buy that coin, because every seller is matched with the buyer has got to come in and buy that coin with $66,000.
00:28:35:19 - 00:28:54:24
James
So that represents a capital inflow into the market. Now some other poor bugger is going to buy that coin at 66 mark. It's going to sell down to 30 or 15. And he's going to bail out at a loss. So he's destroyed capital. But someone's still going to come in with $15,000 to buy that coin off it. So think about what that's describing here.
00:28:54:24 - 00:29:11:19
James
If we look at in an on chain world, I don't particularly care about some algorithm that's buying and selling on the one minute chart. It's neutral. At the end of the day, they're trying to scalp a couple of dollars off here and there, and some other guy lost a couple of dollars here and there. So is that really a capital inflow outflow?
00:29:11:21 - 00:29:37:01
James
not really. Right. It's going to affect the market cap, but because it doesn't transact on chain, the who cares? I'm just going to exclude. That's not really important. So the realized cap is $580 billion today. Now that means that if you bought your coin at ten K withdrew it, and you still hold it from back in 2018 or 19, you have still saved you saved $10,000 and it's still saved at that price of $10,000.
00:29:37:04 - 00:30:01:26
James
as the market moves around, coins are revalued. It's telling us that Bitcoin has absorbed $580 billion since it was its genesis. Right. And that includes all the people who lost money. It includes all the people who made money. All of that combined 580 billion. So that's the like the backbone. So I decided to run this study because I'm like 118 next multiply sounds absolutely ridiculous, but let's go and have a look and just check it out.
00:30:01:28 - 00:30:22:10
James
So the question is what does demand look like. And we know what the output is, right? If you think about this like a like a function or a equation, how much capital had to go in to produce the change in the market cap. And I said before that the market cap, since FTX is at 1.1 trillion, the market cap year to date is at 550 billion.
00:30:22:10 - 00:30:41:13
James
Something like that. So in order to get a 550 billion year to date change, how much money had to flow in. So I went down the rabbit hole. Okay, let's let's start at the smallest number. Let's imagine that the ETFs are the only thing that drives price. Now they're not they're something between 20 and 30% of the market.
00:30:41:15 - 00:31:07:13
James
Right. And that's on two fronts by the way Gbtc is about 2,030% of long term hold the sell side. So actually people who are existing holders. So you know 3 or 4 times more than Gbtc. And on the buy side, the ETFs, the inflows into the 80s is about 29 billion, 30 billion in total. And the amount that the the realized cap, the unchained world has changed is something like 5 or 6 times larger than that.
00:31:07:13 - 00:31:28:16
James
So ballpark the ETFs are something like 20 or 30% of the market even if the HF. So the only thing that drives the market right. They've seen 30 billion of inflows. We've got 550 billion of market cap change for memory that that multiplies like 30 x or 15 x or something depending on if you look at Gbtc or not.
00:31:28:18 - 00:31:53:13
James
So even if you just imagine the ETFs are the only thing moving the books, you're still at 30 x generously, how the hell did Bank of America get 118 x? I just can't work it out. So anyway, by my best estimate, looking at realized cat, looking at profit and loss, looking at all these different components, I came up with a multiplier that is somewhere between 4 and 6 x during a bull market when coins are tight.
00:31:53:15 - 00:32:10:15
James
Now think about what this multiplier actually means. If you have a high multiplier, it actually means that coins are very scarce. And strangely enough, that's what bull markets are, because the hodlers have taken all the coins off the market, they stack them away. In cold storage. The bull market gets going because there's just not enough coins at the different prices.
00:32:10:15 - 00:32:28:09
James
People keep coming in. Market goes higher. You need like $0.20 to get a $1 change in the market cap. And this works in both directions by the way. So the more people are buying and selling this thing right. You get these periods of like a like a supply shortage and you get a very high multiplier in a bear market.
00:32:28:09 - 00:32:50:09
James
We actually see the exact opposite in a bear market. Basically there's a coin over supply and you need like $5 $6, $7 to move the market cap by $1. Right. So you kind of get this multiplier effect. But what I did come to is that Bank of America is 118 x. There's a bunch of commentators out there like oh 100 x 200 x 50 x.
00:32:50:12 - 00:33:09:04
James
You're all off by an order of magnitude. It's 5 or 6 x at best. And when you are like, it's hilarious that people can believe 100 x multiplier and then simultaneously blame the market for shorting and like keeping us compressed within a range. Like you got to pick one of these, one of these dynamics folks.
00:33:09:07 - 00:33:14:06
Marty
So right now we're sitting at 3.87 I believe I'm sitting on this.
00:33:14:06 - 00:33:35:21
James
Yep yep. Yeah. This is exactly right. So this is an oscillator I've got upper and lower bound here. because obviously everything's had a bit of a range. But as you can see on the right hand axis. Right. The highest that we've ever got, two ever fleetingly, very briefly is eight x. Right. So that basically means every dollar that goes in, you get an $8 change in the market in both directions.
00:33:35:21 - 00:33:55:22
James
You can say it happened in FTX. That's like a illiquidity to the downside. But then you've also had an illiquidity to the upside. Most of the time it's illiquidity to the upside. And this is another fun kind of narrative. People like our Bitcoin's too volatile. It's like, well, first of all, it's volatility is in line with most of the stocks in the S&P 500 at the moment.
00:33:55:24 - 00:34:04:00
James
But second of all it's volatile during bull markets. Right. So volatility is actually good because it's heading higher. by and large.
00:34:04:03 - 00:34:10:10
Marty
Yeah. It's when you see the bands furthest away from each other just the correct.
00:34:10:13 - 00:34:11:09
James
Correct.
00:34:11:12 - 00:34:12:03
Marty
Yeah. The bank is like yeah.
00:34:12:03 - 00:34:13:01
James
Look it.
00:34:13:04 - 00:34:13:22
Marty
The way back.
00:34:13:23 - 00:34:15:21
James
To the.
00:34:15:24 - 00:34:24:27
Marty
Way I understand the Bank of America analysis is they didn't really factor in historical data and they were just using like the most recent data and really hot 180.
00:34:24:27 - 00:34:50:16
James
Six. And the other thing is that, when you look at the paper, they, it was like the absolute top in like March or April 2021. So like they're producing this report and to be fair, to be fair to them, I can't tell whether they actually did a lot of work to it. They basically said that a $93 million inflow, which is a very specific number to to use as your baseline, a $93 million inflow would create a 1% change in the market cap.
00:34:50:16 - 00:35:10:26
James
And when you back out what that 1% change is, it was, you know, billions of dollars, and that was where they got 118 next. So to me, they probably looked at the Coinbase order book and I who knows how they actually measured it. But when you put even a little bit of rigor to it, which on chain data is fantastic at doing, you just get to a number that's like, okay, let's let's just kind of constrain ourselves, folks.
00:35:10:26 - 00:35:15:22
James
We're probably between 3 and 5 x. And if you use that number, you're much more realistic.
00:35:15:25 - 00:35:19:08
Marty
It's not a bad number either. I mean, it's obviously not over 100 likes.
00:35:19:10 - 00:35:35:29
James
It makes sense. Like gut feel it. It feels like it's, you know, within the ballpark. And the fact that that multiplier was consistent through history. you know, that's just basing it off the changes in the realized cat. How much profit need, how much does some guy need to inject into the market relative to the market cap change?
00:35:36:01 - 00:35:37:24
James
That, to me feels pretty real.
00:35:37:26 - 00:35:45:04
Marty
Yeah. The higher multiplier effect numbers are they're great engagement farming tools.
00:35:45:07 - 00:36:02:23
James
and this is the battle that we analysts face all the time. Is that the engagement? Same as whales, right. If I can leave audience with a couple of things. First things first, don't. And anyone who's doing that 100 x multiplier ignore them because they just, and I've, I've shared this report far and wide. If they're not reading it and listening to it, then can't help them.
00:36:02:25 - 00:36:24:03
James
The other one stop whale watching every time someone posts some chart being like, look, whales sold 50,000 Bitcoin. If whale saw 50,000 Bitcoin, we would not be at $66,000. First thing first it. The problem with whale metrics is if you're looking at a are you looking at a whale or are you looking at a Coinbase or a Binance cold wallet?
00:36:24:05 - 00:36:49:06
James
Because if you're looking at a, a whale, they sold 50,000 Bitcoin. But if you're looking at an exchange they moved to 50,000 bitcoin. But where do they move it. They probably moved it into custody or a cold wallet. And like buying by a whale is actually selling by others. Like it's literally 180 degrees. Reverse whale watching in the world of Bitcoin is a sport people love to do.
00:36:49:08 - 00:37:06:25
James
The alpha in is zero. And I've spent a long time trying to work out with this alpha and it. There is not. So folks who are doing whale watching, I would strongly recommend, not doing it because unless you are actually in the Bitcoin node and you are doing the data science yourself, you're probably looking at an anomaly.
00:37:06:29 - 00:37:25:17
James
You're probably looking at a hot wallet becoming a cold wallet. You're probably looking at a, you know, whoever your data provider is, they're algorithm hasn't caught up to that particular event. It's just so noisy that it's not worth. Even if you think you're right, you're probably wrong. So therefore, the probability that it's not worth using is is high.
00:37:25:19 - 00:37:33:17
Marty
It's a combination of that where it is in early bitcoin or moving bitcoin. But most of it is going to a change address that they they control.
00:37:33:19 - 00:37:52:13
James
Exactly. It's a consolidation. It's a custody account. There's all sorts of things now. Now to be fair there are some things like when you see same with exchange outflows. Right. People love to look at exchange outflows. Most of the exchange outflows that we've seen of light and everyone's like look balances are all time low. It's like yes, Coinbase is moving it from their exchange wallet to their custody wallet.
00:37:52:13 - 00:38:07:09
James
Now true. That is demand by someone could be ETFs could be an institution is all sorts of people. But it's still inside Coinbase. It's like it's still part of the Coinbase entity. Yeah there's some guys who are withdrawing. But for the most part you're looking at internal wallet shuffling.
00:38:07:12 - 00:38:15:03
Marty
Yeah it's going from Coinbase trading to there's Apple Coinbase custody.
00:38:15:06 - 00:38:17:22
James
Exactly. It's exactly.
00:38:17:24 - 00:38:27:28
Marty
And you've been in the on chain analysis game for quite a while now. in Bitcoin terms many years okay. While it's been around for.
00:38:27:28 - 00:38:30:17
James
Six years and I've been in it for about six years.
00:38:30:19 - 00:39:09:16
Marty
And so what? Let's dive into this. This subject is infinitely fascinating because you have obviously the order books on the exchanges, the prices on many exchanges across the world. And then you can couple it with this on chain data, which is specific to Bitcoin. And in terms of, treasure trove of data for analysts like yourself, the fact that the ledger is public is an innovation not only for the peer to peer digital cash cash system in using as a currency, but also analyzing the system.
00:39:09:22 - 00:39:32:24
Marty
So in your mind, becoming as prolific as of an on chain analyst as you have over the years. What does the Unchained data do for somebody in your position, like how does it change the game in terms of, yeah, following these assets and doing reports and trying to educate the market about what's actually happening.
00:39:32:26 - 00:39:50:01
James
Absolutely. So so my background is civil engineering, right. So as an engineer I like to understand how things work. It's about the mechanics of the system. And back when I was at university, I think it was like my very first lecture. Hey, guys. All right. You know, you're all in a civil engineering degree. About 30% of you are going to end up in finance.
00:39:50:03 - 00:40:05:16
James
And I was like a joke. And here I am, right? One of the 30% who ended up in finance. Now, granted, Bitcoin is a special type of finance. But the reason the more I've pondered why he said this and why this was a it was a case, it's because engineers come in with it. We don't get taught economics.
00:40:05:16 - 00:40:21:13
James
We don't get taught how the business system works. What we get taught is to think about like what matters, what's the governing factor in a problem? We show up, we get taught problem solving, and we look at the economy, or I certainly do. I look at it a lot more like a machine I'm looking for. What are the big causes?
00:40:21:13 - 00:40:41:03
James
What are the big effects? How do we link them together? And I don't get too bogged down in the details because generally speaking, the data like back of the envelope will get you between plus or -1,020% of the answer. If that answer is close enough, then press on, right? And particularly for me, my background was in called geotechnical engineering, which is dealing with the ground.
00:40:41:05 - 00:41:02:22
James
And the ground is a I mean, unlike structures where you get to put steel and concrete wherever you want, the ground gives you whatever the fuck Mother Nature gives you. That's it. You just get whatever the ground is. There. And it's a very different game. Right? If you got to excavate a, a basement for a building or a train station or something, you may get 0.0001% of the material that you've got to make a decision on.
00:41:02:22 - 00:41:27:21
James
So lots of incomplete information, lots of risk, lots of probability and your design or your market thesis has to be very flexible. You can't have a single piece of information come out and it completely blows out your thesis because otherwise your building's going to fall down. You need to be very, very flexible to this stuff. So that's how my like how I became attached to markets because that probability side was was fascinating.
00:41:27:24 - 00:41:47:29
James
Now unchain data, as you mentioned is basically like Bitcoin is a big database at the end of the day and append only, you know, you can't, reverse the history big spreadsheet of who owned what and when, but also which is a really important element. Bitcoin is very grassroots, right. It came from the hodlers. And the hodlers are just retail guys.
00:41:48:00 - 00:42:09:21
James
Right. But just just people out in the world, they're not Wall Street. We're only just getting into the Wall Street world today. We're talking about a very grassroots and also a very emotional asset. There is no asset in history that more people love, hate, fear and Revere than Bitcoin. I don't know why it is, but it brings out the best in the worst in everybody and it's a very emotional thing.
00:42:09:24 - 00:42:40:24
James
Now, what's beautiful about this, and the same reason that price charts in the 1920s look exactly the same as price charts today is because our brain, our brain hardware, the eight that we still are, has not changed in, you know, hundreds of thousands of years. We had the same ancient hardware dealing with new, new problems. So what Bitcoin's like very emotional grassroots kind of behavior pattern is, is that it's baked our psychology and you can go and read like reminiscences of a stock operator.
00:42:40:24 - 00:42:58:24
James
You can go and re trading in the zone any of these books that talk about like how you as a market participant think human beings are trained to lose in markets because we're taught to avoid risk and markets are all about risk. So what happens is people make the exact wrong decision at the exact wrong time. You've probably experienced it yourself.
00:42:58:24 - 00:43:18:21
James
Where you literally buy it sells off. Like literally immediately you think, oh shit, it's keeps going down that eventually you go, okay, that's it, that's going lower, and you sell. And then of course, it rallies right back to your cost basis. You go, oh man, that sucks. You buy again that it sells off again. This is this is what human beings are like by default, designed to do now.
00:43:18:21 - 00:43:50:19
James
As a result, this database that is Bitcoin is full of the most emotive, core fundamental human psychology you can imagine. And if you think about what you're looking for, right. If I'm in a bull market, when do I not want to buy? When? Like if I want to just do a DCA strategy I don't particularly want to buy when all the guys who bought two and a half years ago at the bottom are selling and taking fat profits, because that's probably going to oversaturate the market at some point in time.
00:43:50:21 - 00:44:09:24
James
I want to wait when the guys that they sell to the slightly less experienced, slightly dumber money I want to see when they buy those coins, and I'm going to wait until they capitulate and sell. They buy high and they sell low. I want to buy when they sold low because now I'm getting bitcoin. I want to buy Bitcoin as cheap as I can, but knowing that it's going up forever.
00:44:09:24 - 00:44:35:10
James
Laura. So essentially I want to improve my cost basis. I don't want to pay too much of a premium, but I'll pay a bit of a premium. But I want to see when the guys who paid a big premium sell low. So and this this works at all different levels. But ultimately Bitcoin is such an emotive database. It is full of us operating on our ancient hardware at scale.
00:44:35:12 - 00:44:53:27
James
We behave as a herd and you can see the herd moving. You can also see when the smart money take profits into that herd. And you know, it's not just the world of on chain because you've got on chain taking over. It's like basically the description of the spot market. And by the way, I am 100% positive that if gold had a blockchain, you'd see this.
00:44:53:28 - 00:45:13:24
James
If bonds had a blockchain, you would see this. You would be able to see all of these transactions. You'd also see all the manipulation and shit going on as well. But Bitcoin, because of this, the way it is, you can it's like a perfect lens into human market psychology. And we combine that with futures, ETFs, spot order books, whatever it is.
00:45:13:26 - 00:45:29:20
James
Because the Bitcoin market is obviously dynamic. But the on chain is like this big piece of glue that connects them all together. So the connective tissue of data that goes between the ETFs goes between the exchanges between the futures markets. So to me it's just endlessly fascinating.
00:45:29:22 - 00:45:37:24
Marty
And in your view what are some of the most high signal unchain data points that you use on a day to day basis?
00:45:37:26 - 00:46:02:27
James
Yep. So, basically if I was going to point people to two metrics, it's going to be more of and sober and they stay in the RV. Is the market value to realize value? Probably a lot of people have seen it. The best way to think about these two metrics, they're actually siblings. When I look at Unchained Out and actually on my website, check on chain, you'll see there's a button called the on chain, what I call it Unchained Framework.
00:46:03:00 - 00:46:25:24
James
basically that one there, I've got, I've split up the market and how you'd like, describe data into different axes. one side is, are the coins moving? Are they unspent? Are they coins that people still hold? And MV RV describes how much profit or loss people are in. Right. This is it. This is it here. So basically imagine that big cube is the Bitcoin supply.
00:46:26:01 - 00:46:47:08
James
And what I'm going to do is split it up into three different axes. The x axis is are the coins moving or not. And on any particular day 1% of the supply kind of transacts a lot of that's like the same coin transacting more than once, but the Vol Unchained volumes, about 1% of the total supply. So you then got are those coins in profit or in loss?
00:46:47:15 - 00:47:06:13
James
Right. You've got people who are holding coins. Are they up. Are they down? Are they at break even people who are spending coins, are they taking a profit or are they taking a set L? Are they at break even? MVR, V and Sopa describe those two buckets. Show me whether people are in profit or loss based on the coins they hold.
00:47:06:13 - 00:47:34:17
James
And think about this right? Every hodler and I don't care how diamond handed you are if you keep ratcheting your unrealized profit, the amount of like portfolio grain you up from 100% to 200%, 400 to 500 to 1000 to 10,000 at some point. Maybe not you, but some other guy is going to sell I don't like. At some point some other guy is going to sell, and eventually that sell side overwhelms the in flowing demand.
00:47:34:19 - 00:48:01:06
James
So Miyavi is telling you how in profit or in loss is the market at bull market peaks, you generally get to like involves a 3 or 3.5. This means everyone's up 100 and 250%. Someone's going to sell at bear market bottoms, you've got massive unrealized losses. Who can actually carry those unrealized losses? Only the hodlers, right? Only the hardcore hodlers can actually carry those losses.
00:48:01:06 - 00:48:21:15
James
You have wiped out all the speculators. They have gone so far is the system metric. So I can see that everyone's in profit from a high MVR value, but are they actually taking it because the taking of those profits is actually what puts a top in. Because unless not unless people are selling, we just keep gapping higher until we find a liquidity pool.
00:48:21:18 - 00:48:39:07
James
So is telling you you just hit that liquidity pool. People are now selling, they're taking chips off the table. And when people are worried about why the market's not rallying like right now, it's because long term holders are still locking in this like base level of profit. They're still taking chips off the table, granted much less than they were.
00:48:39:09 - 00:49:08:10
James
But Soper is telling you when people are actually taking profits and you'll see it. So people will have these enormous negative, broad, prints below one at bottoms. You can see like that's a bear market. That's a bear market. That is a capitulation. When it goes, it goes. And, we actually released a report, back in, I think it was we live living by weeks that week, 46, 2022, which is when FTX blew up and we saw this just enormous red candle on Sopa.
00:49:08:12 - 00:49:20:00
James
And basically the my, my colleague, basically wrote that in every instance where we've ever seen this, it was the ultimate point of capitulation. And of course, that was the exact bottom.
00:49:20:03 - 00:49:47:06
Marty
Yeah. And, I thought I put the sober chart in there. Here it is, Logan. So we pull that up to see it. It's fascinating. It's I am one of the monkey brained bitcoin holders. I typically just accumulate and smash by every market bottom, every market top. And I always at some point in the cycle, I'm like, all right, maybe I should look at on chain metrics but fail to do so.
00:49:47:08 - 00:50:01:16
Marty
But the data that you've accumulated present on your site check on chain.com. Get a charts dot check on chain.com to check out all these charts. it's something I got to utilize more basically.
00:50:01:16 - 00:50:24:16
James
So if you look at Sopa and in particular we look at short term holders, short term holder. So for an RV it's very simple. If you're a hodler buy as low as you possibly can short term in the short term sober because the lower they are, the more likely we're at a dip. Or if we're in a bear market, you're buying at the point of absolute capitulation, right?
00:50:24:16 - 00:50:43:07
James
So just using short term sober and short term memory to to buy as low as you can, don't don't buy when it's high because that's telling you that people are in and about to or are taking profit. And you probably don't want to buy when some other guys who's been around for a lot longer is selling into that rally.
00:50:43:09 - 00:50:52:10
Marty
Yeah. And so I'm looking at the sober chart right now. It looks like the 22 FCX capitulation was the lowest since 2015. So that was.
00:50:52:12 - 00:50:53:02
James
That's everyone's.
00:50:53:02 - 00:50:53:16
Marty
Opportunity.
00:50:53:16 - 00:51:11:28
James
That's what we call the, the single cycle hodlers. They buy at the top in 2021. They Hodl, they Hodl, they hodl, they get to the absolute bottom. Then they go, I'm done, I'm out. I can't deal with this anymore. And they sell everything we see it every single cycle. That's those poor guys who bought the highest selling the lowest.
00:51:11:28 - 00:51:29:07
James
That's the bottom tick. and it's funny because you look at, you know, you may get phone calls or, you know, you, you've got kind of like the social proof. Jay. It feels pretty bearish out here. And then you look at on chain metrics you know like and it looks pretty bearish here. I got to be a contrarian I got to step in.
00:51:29:10 - 00:51:48:02
Marty
Yeah. What do you think this data is going to do for Wall Street analysts. Are you privy to treasure trove. Are you privy to any institutional investors who are on top of this and and get it, or do you think it's still a bit foreign to them?
00:51:48:04 - 00:52:09:19
James
so it's both. So first things first. the some of the names who have come into this space, you know, they're doing this thing over there saying this thing over here, but they've been doing this thing over here and actually getting deep into the data. there's also a lot of commentary where people like, oh, you know, I don't it's public data.
00:52:09:19 - 00:52:27:12
James
So therefore the copy, any alpha in it. And I kind of begin to tell you how much work I've tried to put into convincing firms like guys that this is why I write the reports and make the videos. I'm like, I know the alphas there. And first things first, no one understands it. This is so untapped. It's unbelievable.
00:52:27:15 - 00:52:50:24
James
and the funny thing is, like, you know, some people use it for trading, some people use what I do, which is a bit more macro scale, like understand the mechanics. I just want to understand why. I want to know why things happen, but why it's so consistent. And it's been like, I've, I came into the 2021 cycle and I hold this view today at some point in time, these metrics will break, and I'm constantly looking for when those metrics break.
00:52:50:26 - 00:53:12:14
James
And suffice to say that the times when I've assumed they were broken and acted accordingly have actually been the times where I've been the most wrong. So in a very strange way, I'm always looking out for why these things will break and change. They just don't seem to break until they break. I'm going to keep trusting them as they work, with one eye keeping an eye out for when they start to fail.
00:53:12:14 - 00:53:30:08
James
But so far they just they just seem to work. And so I think Wall Street will they will get there. They're a long way off it at the moment. But there's some early movers and some of those early movers are pretty, pretty serious characters. but, yeah, some distance away from broad scale adoption.
00:53:30:10 - 00:53:34:18
Marty
What would convince you that these models are broken?
00:53:34:21 - 00:53:55:09
James
So it's a great question. one is, I was starting to look at these ETFs. Right. So obviously you've got these ETFs. And then it's like you've got trade volume off book. And it's like okay well that's going to be a factor. So I started really thinking about this. And we've actually seen the I came to this conclusion which is a bit kind of leftfield, but we've actually seen these ETFs happen at least twice before.
00:53:55:09 - 00:54:14:24
James
In the past I would argue potentially three times. What are ETFs? They are a big pool of capital where coins go off chain. Essentially the held in some big custodial wallet. And then there's a whole lot of trading activity that happens beyond that. Right. So so my base assumption is that thus far on chain metrics just continue to work.
00:54:14:26 - 00:54:37:24
James
They just they just do. At least from my perspective they continue to work. So that's my core assumption. when have we seen a big pool of capital that takes bitcoins offline? And then there's a bunch of trading that goes off of book that probably has some kind of an impact in market? Well, 2017 with the launch of exchanges and Binance and shit coin trading, that was kind of that, wasn't it?
00:54:38:02 - 00:55:00:03
James
There's a big pool of capital that pull coins off book and there's a bunch of trading going on. Then we saw it again in 2019 where we went from like 4k to 14 K, and that was because plus token Ponzi, which absorb like 2% of all the bitcoin in like three months in China. That also is a big pool of like spot driven demand that's sucking coins off chain, putting it into some single wallet.
00:55:00:03 - 00:55:20:24
James
So we kind of saw ETF number one back in 2019. It just happened to be a Ponzi scheme. We then saw Gbtc in 2021 which was a big pool of capital that pulled coins off chain. A bunch of people were trading like Gbtc was ETF v2. We saw the ETFs happen in 2021. And here we are with the spot ETFs.
00:55:20:24 - 00:55:40:19
James
And granted they're the most they're not a Ponzi scheme. That's like they're not a Ponzi scheme. They they're not a closed end fund that you know it was rewarding their customers. Here we are with, you know, a free market, you know, as best as it can be in Wall Street, a free ish market of choose your ETF and we're going to buy and sell coins and they'll flow in and out.
00:55:40:22 - 00:56:02:16
James
We've seen the second or the third. How are we going to measure it. Fourth pool of capital that pulls coins off chain. And they keep moving around right. And trade volume. So that was a thing I was trying to pay attention to and look for it really the way that bitcoin, the on chain data stops working for Bitcoin is we end up in a world where everything happens off chain.
00:56:02:19 - 00:56:22:19
James
And as an analyst, that just means I have to expand and say, well, okay, well, if it's all happening on lightning, which is a very, very low probability, if it all happened on lightning, then we've got to stop mapping what the Lightning Network's doing and combining it with like settlement in and out. And, you know, it's the same way that the economy, if you want to analyze the economy, you use relatively broad brush metrics, right?
00:56:22:19 - 00:56:43:15
James
You know, measuring every individual business. You're getting a broad brush view. There's error bars around stuff. But by and large, directionally you can generally get pretty close. So as long as people are still transacting on chain, in my opinion, we'll still be able to use this stuff for for many, many years to come. And of course it will evolve and analysts just have to evolve alongside it, which is, you know, that's part of the fun for me.
00:56:43:15 - 00:56:45:27
James
It keeps it dynamic.
00:56:45:29 - 00:56:58:02
Marty
in what area of on chain data do you think's most underutilized store that you're really interested in exploring more and digging into and trying to maybe create new metrics, new multiples?
00:56:58:05 - 00:57:16:25
James
Oh yeah. So my favorite area by far is, you saw on that previous chart the axis profit loss. Because at the end of the day, what drives us to make decisions profit and loss, it's just the nature of the beast. Investors respond to their PNL. You may not as a hodler, but some other guy does. And if you're not selling, someone else will.
00:57:16:27 - 00:57:40:28
James
So looking at people's unrealized profit, here's here's if we look like people say, what's your price target for the top? When's the top going to happen? And my answer is always the same. First of all, I got no idea. And I don't know. But show me the mechanics and I'll tell you what's the top. So what does a top really look like at the most fundamental level to many people buying too many coins, too high of a price.
00:57:41:01 - 00:58:04:26
James
That's that's what actually puts a top in. Usually the characteristics of those people is they're less experienced. They heard about Bitcoin on the news. It bought bitcoin for the first time. And the sellers have been around for six years seven years, eight years. They know what's up. They bought low. They're selling high. So what happens if people are realizing and locking in profit the whole way up.
00:58:04:28 - 00:58:22:20
James
People are then buying and buying and they cost bases going higher and higher. What does a top look like? It's when price sells off just a little bit below their cost basis, and you get this cascade of fee and panic. And then one guy sell becomes another guy's stop loss. And then you get this like that's what precipitates a bear.
00:58:22:20 - 00:58:41:28
James
So what I'm looking at and an area that I'm doing a lot of exploration into trying to understand where this top falls. I want to look at the acceleration of everyone's having a great time to now. Everyone's having a shit time, right? I want to see when it goes from everyone's in profit to no one's in profit. And that that drop is.
00:58:41:28 - 00:59:03:20
James
And you can see in this chart here, actually the tops are clear as day. You can see that there's just this precipitous decline in people's unrealized profit. Loss falls off a cliff. That is usually where the market has now flipped over. And you had you do have to put at least one bear market goggle on and say, well, now I'm looking for, you know, signs at the the chain is starting to die.
00:59:03:20 - 00:59:25:06
James
I'm not getting as much activity and blah, blah, blah. There's a whole lot of mechanics here. But essentially you're looking for that like not much loss to some loss. And it's like interest rates going from 0.1% to 0.1%. In absolute terms, it's very small, but in relative terms that's a ten x increase, right. You're looking for those. There's not much loss now.
00:59:25:06 - 00:59:30:14
James
There's a bit of loss. That's usually an exponential change. It happens near the top.
00:59:30:17 - 00:59:38:19
Marty
Yeah. And so just by eyeballing that chart seems like we have a bit more consolidation to go maybe a bit. Yeah. You have haven't.
00:59:38:22 - 00:59:59:03
James
I mean right now I characterize the market in the Bulls quiet and trending which is where we rally. We go sideways, we rally, we go sideways. Very stable, very, very stable, very mature. Price action 2021 was not there. If you go back and look at 2021, we just went straight up. There was no support built and we filled in that circle on the way back down.
00:59:59:04 - 01:00:25:19
James
Right. So 2021 built absolutely no support and we paid the price for that. Right now we are building support at 30 K, at 40 K, then at 50 K, then at 60. We're like with literally stair stepping higher. Once we really get going, we move into the volatile oil and trending. And this is very commodity like most like the stock market, there's no volatility when it heads higher because there's like a manipulated straight line.
01:00:25:22 - 01:00:41:06
James
But with Bitcoin it gets volatile in the way higher. So once we move into that volatile phase that's when you're in the euphoric period. And in my opinion that's when there's a timeout. Right now I don't think there's a timer on this bull. If we just kept doing that, we could keep doing this forever. It just could keep going higher.
01:00:41:08 - 01:00:58:26
James
But at some point it's going to get euphoric. And once things get euphoric and people's cost bases are swinging around like crazy, you've probably been there. It's exhausting. You get tired. I was like 6 to 12ft like, all right, I can't do it anymore. That's why markets get tired. People just can't do it anymore.
01:00:58:28 - 01:01:28:05
Marty
And on that note, like, how do you think the next 18 months play out? Obviously we just had a having a maybe that's a good first question. Do you believe in the having being a catalyst for upwards price pressure? And if so, considering the market structure now with the emergence of ETFs and options coming to market, and there'll be more options coming to market, more options, ETFs, are we in a new era?
01:01:28:06 - 01:01:50:29
Marty
Do you do you believe the four year cycles of diminishing returns will continue? Do you think this cycles an anomaly compared to last? Are we going straight to a million up forever? Laura. or is it in your mind going to be very similar to cycles of cycles past.
01:01:51:01 - 01:02:10:17
James
Yeah, I mean all great question. So the on the halving side, no question. It has an impact. Is it big? No. Right. I did a study a little while back where I looked at how big the halving actually is. and again, trade volume is not the perfect thing to compare it to, which a lot of people do, and I did as well.
01:02:10:19 - 01:02:27:04
James
a lot of people to compare it to trade volume. But technically trade volume is both directions. Halving is only sell side, but even so, even so, when I was talking that before, as an engineer, I try to focus on the things that drive like the not. I don't care about the 10%, give me the 90%. That 90% factor is more important.
01:02:27:07 - 01:02:50:00
James
ETF trait. Sorry, the, the halving is 100 times smaller than the the impact of the halving, the actual 450 coins that we booted out, that's 100 times smaller than the ETF trade volume. It's like 250 times smaller than spot trade volume, and it's 1800 times more than futures volume. It's a footnote. It's like yes, it's only sell side.
01:02:50:03 - 01:03:07:22
James
But even if you whack it 50% discount on all the other stuff, it's just it's just not big enough to care about. So it matters. But it's not it's not major. It's still millions of dollars coming off the market as sell side. So it's going to have an impact. it's not going to be it's all going to be negative, let's put it that way.
01:03:07:25 - 01:03:25:15
James
in terms of where I kind of see the market going, I've been enjoying, Jeff Ross's talk about the bull crap. I think people should get used to the bull crap. It'll go a lot more sideways now, but we're not seeing the same drawdowns. I mean, again, 20%, we normally get 25, 30, 40% corrections all the time.
01:03:25:17 - 01:03:40:29
James
We've only just had a 20.4. That's the deepest we've been. So we are seeing a less volatile market. I think people are going to have to get used to a bit of boredom because we're prob I mean, so far the market looks extremely healthy to me. There's a lot of people calling for, you know, topping patterns. I'm not seeing it yet.
01:03:41:02 - 01:03:59:28
James
obviously always got an eye out for it, but, it just doesn't it doesn't feel like a top here. It could be, but it doesn't feel like it yet. I've not really seen many of those things kind of cascade to the, to the downside. So I'm still relatively constructive. I do think that over time there's gonna be more Wisconsin pension funds who allocating 0.1%, which is more money than God.
01:04:00:01 - 01:04:22:10
James
So I think you're going to start seeing this happen more and more. So the way I would describe what I think's coming, it's going to be like just a slow unfolding of the passive bit. This passive bid will start to come in the fact that it's less volatile actually makes institutions more comfortable. The bigger it gets, makes them more comfortable, the more vapors they see buying into this thing.
01:04:22:15 - 01:04:37:29
James
People get more comfortable. So I think that that broad scale is going to be very constructive over the over the long term. you know, people get caught up on the one hour candle. The amount of times you see people on Twitter being like, oh, look, you know, it's dumping, look at the price. I'm like, what do you mean?
01:04:37:29 - 01:04:55:19
James
What do you mean? It's dumping? It's like, you know, it's it's within the same trade range. So people get overexcited over and they overindex on the small scale. so for the most part, I think it looks the market looks really healthy. I struggle to find, you know, too many bear cases at this point, aside from people drawing lines on charts.
01:04:55:22 - 01:05:13:12
James
and in terms of the, diminishing returns. So I put basically zero weight in the concept of all we, we all time high before the halving or we can't dip below the previous cycle peak. None of this stuff really matters. Again, show me the mechanics and I'll show you the results. Kind of the way I look at things.
01:05:13:15 - 01:05:32:18
James
we could absolutely. I mean, diminishing returns. There is no law of nature that says that we have to have diminishing returns. And if I was to place a bet, it would absolutely ban. We're probably going to blow out that that narrative, the four year cycle is a more interesting one, actually, because it was the one narrative that everyone thought would die last cycle, and it was the only one that survived.
01:05:32:21 - 01:05:56:21
James
So again, until it breaks, I kind of like the four year cycle because I think duration is a real metric. Right? The time since. Right. How long does it take a bear market to recover? Ultimately that's a human psychological thing. How long does it take us to like get over the things that that happened? There's also a capital component, but a lot of the duration, I think duration has a bit of a bit more semblance.
01:05:56:21 - 01:06:11:02
James
So in that instance, you know, it it it may well be it may well be that the four year cycle remains. But again, it's like on chain. I will keep believing it's there until it fails. And I'm always half and I am watching in case it fails.
01:06:11:04 - 01:06:27:28
Marty
Yeah. Now it does feel like this steady bull crap is materializing and I don't mind it at all. And, great focus to to accumulate. You're not worried, you know, you're not getting FOMO.
01:06:28:00 - 01:06:37:07
James
and once we get euphoric, the clock starts ticking. So in a way, the if you want bitcoin to go higher, bull crabs are exactly the way you get there.
01:06:37:09 - 01:06:42:01
Marty
and how long does that clock tick historically once it starts ticking.
01:06:42:03 - 01:07:02:10
James
6 to 12 months. I mean, if you if you think about 20, 21, we broke usually the euphoria stage happens when we break all time highs. So that would be potentially the first time that we see, let's call it like a change in market structure. Historically speaking, as we break the all time high, you go into the euphoric phase.
01:07:02:13 - 01:07:23:03
James
If we go to the next 1 or 2 legs higher and it's still quiet and trending sideways rally sideways rally, that would be a break in market structure that would actually be like we we could be heading a lot higher than people expect if we, on the other hand, we start to get real, like just starts ripping higher and you get this euphoric burst.
01:07:23:05 - 01:07:39:17
James
and remember that over the medium term you're not looking at like, oh, it's going up in this euphoric. It's like, no, it has to be euphoric and just keep being euphoric. That would once you get to that phase, it's like 6 or 12 months. A market usually can't keep going too much longer than that. People just get exhausted, capital exhausted.
01:07:39:17 - 01:07:59:16
James
It goes too high, too fast, too many people sell, too many coins and too much dumb money comes in and buys too. So, you know, that's the general frame of reference. 21. We went from, you know, December to April. I believe April was actually the all time high. from an on chain perspective, it's clear as day, that that was the sentiment capital all time high.
01:07:59:17 - 01:08:12:29
James
The second one in November was it was a fake peak in many ways, but, you know, that was five months. Six months. That's that's kind of it. You could argue November is a year, but, you know, it's kind of a strange cycle by that metric.
01:08:13:01 - 01:08:32:20
Marty
Yeah. And then the extension of the bull crap scenario, let's say this continues for the next year. And it's a very healthy step function up into the right, movement. What does that do in terms of upside potential in your mind?
01:08:32:21 - 01:08:33:27
James
He wants it. He wants a price target.
01:08:33:27 - 01:08:35:22
Marty
I want a price prediction. I want a price prediction.
01:08:35:26 - 01:08:54:17
James
So my I come to this again. You know, once you once you get a price prediction, it's it's anyone's guess. But, my fundamental price target as like a conservative estimate is 10.8kg a goal, right. Whatever the price at 10.8kg of gold is because that's how many gold. How much gold there is per coin. and that's I mean, we all know it's going to consume gold.
01:08:54:17 - 01:09:15:09
James
So that's, you know, last I checked, 1.2 million Australian. So whatever it is, 750 K or something. American dollars. now that's kind of a fundamental basis, right? How long it takes to get there. Who knows? Look, I would I've been saying 250 K, and I think 200, and it feels like it's not it's not an egregious number.
01:09:15:15 - 01:09:37:00
James
And what I was saying before about, Bitcoin is big relative to us. It's Bitcoin is big relative to where it has been. But it's a blip. It's a blip in the grand scheme of things. So how many Wisconsin pension funds allocating 180 million right as point 1%. I mean, they're looking to allocate up to 1 to 2%.
01:09:37:07 - 01:10:05:01
James
Fidelity recommended a 3% portfolio. These numbers by a multiplier of 3 to 5 are enormous. Now they're going to take a long time to happen. But when you just like, you know, spitball some numbers, 250 K still puts it in the realm of like, it's still much, much, much smaller than gold, but it also is fulfilling a role that is like competitive as a neutral sound reserve asset.
01:10:05:04 - 01:10:19:26
James
you know, I wrote a post the other day where you look at all the regulatory stuff, you look at all the capital changes, you look at the Wall Street side, you look at the ETFs. If you hadn't explained all of these things to me back in 2018, my head would have exploded because it's like, that cannot happen.
01:10:19:26 - 01:10:40:06
James
There's no way that all of these things will happen in six years. And yet here we are. Bitcoin is front and center in so many elements, whether it be political or otherwise. It's just this is wild stuff like it is. It is on the map now and more and more people are going to.
01:10:40:08 - 01:10:57:25
James
Our long term, long term allocation. So it makes all the sense in the world that, you know, 280 K is still small, it's still small, but it's also enough where people are going to say, hey, that's meaningful for me. And this is probably a good point. Bitcoin has to the market has to finance Bitcoin as lifestyles.
01:10:57:28 - 01:11:23:07
James
I've been thinking a lot about this. A lot of bitcoin is going to be approaching the stage where they've gone from saving their proof of work to now going, oh shit, that's like that's like a meaningful amount of money. They're going to look after it now. And I think that psychological element, you have to buy houses, you can have bitcoiners who are going to finance families and private school, and the market is going to have to finance all of these things because that's, that's, you know, that's what savings is for your savings.
01:11:23:13 - 01:11:43:07
James
A improving yours and your family's life. That's what it's ultimately what what else is it for? So I think a lot of Bitcoin is are going to take that approach. And so they should right. They should they should take their proof of work and cash it in for lifestyle chips. you know, I wouldn't recommend the Lambo, but looking after your family and, and looking after yourself.
01:11:43:07 - 01:11:45:28
James
Absolutely right. That's what your savings are for.
01:11:46:00 - 01:11:48:04
Marty
Don't waste your money on a Lambo X.
01:11:48:06 - 01:11:55:18
James
Absolutely not. Now, keep your, I mean, I'm a big advocate of the Subaru, right? The engine is going to outlast me, right? Just keep the thing. Who's taken over.
01:11:55:20 - 01:11:59:07
Marty
It? Your Subaru is your Toyota's. Keep it simple.
01:11:59:10 - 01:12:00:19
James
That's it.
01:12:00:21 - 01:12:26:15
Marty
And I mean on in terms of Bitcoiners coming into a lot of wealth as the price goes up, that's one aspect, is cashing in the Bitcoin that you've accumulated and saved for lifestyle chips in the short to medium term. But I think I saw you write a thread, maybe an article on it as well. Thinking long term in terms of generational wealth and passing it down to your children and grandchildren.
01:12:26:19 - 01:12:47:18
Marty
That's a second order effect of this newfound wealth. Yes, obviously you want to enjoy the fruits of your savings while you're living, but hopefully you're you're wise enough and conscious enough to understand that you like to pass them down to. And there's many things to think about in that regard, particularly, how do you actually do that?
01:12:47:21 - 01:13:08:04
James
100%. And I've been thinking about this quite a lot because, you know, if the Bitcoin is journey, which is my journey, right? I'm a bitcoin or and when you look at the the demographics, it's mostly millennials right? Millennials are the primary demographic in I'm sure your podcast download certainly my YouTube channel where the millennials in their life, they're getting into the family building home building stages.
01:13:08:04 - 01:13:30:11
James
And you know, you start thinking about your own mortality. You start thinking about, hey, you know, and I love this this test. You just asked your loved ones, hey, can you spend a single transaction from my called wallet? And what you immediately work as like, Holy shit, if I'm not there to guide them, those coins are going to somewhere in Nigeria, or they're going to get lost or they're going to download the wrong wallet, like there's so many ways you can go wrong.
01:13:30:13 - 01:13:49:10
James
So I've been thinking about this problem quite a bit. And, you know, you realize that my realization was that me as a Bitcoin, I've spent a lot more time thinking about my proof of work and my coins and my security than my family had. Right? And you can't expect them to just like, work it out because it may not be that easy.
01:13:49:13 - 01:14:07:24
James
you know, Bitcoin itself, just transacting on Bitcoin itself. To me, it's second nature. I don't think about it. But people who've not used it before got no idea. Right. They're like, I don't understand what all this transaction data is and I can't operate our wallet. What the hell is going on here? What do you mean? I have to move an SD card between this little calculator and my my my laptop right there.
01:14:07:24 - 01:14:32:03
James
Got no chance. So, you know, just just thinking about self-custody. Self-custody is super important as well. By the same token. So how do you get a solution that's like Self-custody has all of the benefits of Self-custody, but builds in the fail size. And like I eventually I just had this light bulb moment when I was talking with Peter Dunn with, from from Bitcoin Advisor and man, it just the light bulb went off.
01:14:32:03 - 01:15:07:28
James
I got Self-custody is a stepping stone before people start moving to some kind of collaborative custody. I just, I feel like and not everyone some people self-custody is the exact right solution. for for whatever stage in life you're in. But I think more and more people are going to start realizing that collaborative security is a very, very sensible option for planning in the inheritance banking, in what happens if you don't come home one day, you know, having this key security, like, you know, talking to my mate if he lost his keys, like he just loses 5% of his brainpower every day worrying about shit.
01:15:07:28 - 01:15:23:13
James
What happens if I lose my key? What happens if the house burns down? What happens if x, Y, and Z? There's all these different things you're like, imagine if you could just remove all those things and build in the fail safe. So I really that's going to be an area of growth. is the the custody setup, the inheritance planning?
01:15:23:13 - 01:15:29:23
James
I think it's and there's a few fantastic businesses being built in this space. So, to me, I find that area very, very exciting.
01:15:29:25 - 01:15:48:22
Marty
Yeah, I do as well. Obviously Unchained the sponsor of the show. They've really been spearheading that collaborative custody model. You mentioned Bitcoin advisors. Peter and the team there are really focused on this on ramp doing something similar. And I think it's only a matter of time because I.
01:15:48:26 - 01:15:49:17
James
Agree.
01:15:49:19 - 01:15:52:24
Marty
The price goes up as hardware wallets get very heavy.
01:15:52:26 - 01:16:11:06
James
That's and that's the thing, right? You don't think about your coins. And I've been talking about this a lot recently. People are about to move from the saving proof of work to the oh man, this is now serious. This is now serious money. And you know, it takes what, two, three cycles? And then you're like, I mean, I got to protect this.
01:16:11:06 - 01:16:25:23
James
Now, this is this is meaningful. So that's that's kind of the world that people are in. And that's why I think it's going to be it is going to be a boon, in terms of just like giving Bitcoin bitcoiners a solution that they may not even know that they need, but they might need in five years time.
01:16:25:25 - 01:16:56:04
Marty
Yeah. bit of a tone shift here, but curious if you've seen this in the on chain data, or maybe you wouldn't see it on the on trend data, but the Bitcoin existing in this interest rate environment, and maybe not even the interest rate environment specifically, but more in, bad economic times. And I think the data is becoming clear in the here in the US, despite what the government is putting out there.
01:16:56:05 - 01:17:15:26
Marty
And they're saying the jobs data is good, that CPI, that is good. But it's becoming abundantly clear that inflation is still a problem. Yes, they've reduced the rate of inflation, but it's still going up higher 3.3% per year as of last week and building on higher highs. And then the jobs data which they're trying to paint is rosy here.
01:17:16:01 - 01:17:37:26
Marty
Here in the United States at least, it's becoming abundantly clear that it's good because most people are going getting second and third jobs. And, they're they're not unhealthy, that they're not really going back to their tech jobs. And so do you have a view on Bitcoin in a macroeconomic environment in which you have a global economic slowdown?
01:17:37:28 - 01:17:54:10
James
Yeah, it's a great question. It's actually one that I puzzle over quite a bit. And you know, was well, it's everything I've said so far. It feels very confident. Something that I'm always conscious of is that this is a bloody hard market to rate. And even some of the strangely enough, actually, if I win back the clock.
01:17:54:10 - 01:18:12:03
James
So 2019 is really where I started getting into this financial, plumbing and macro and all that stuff. And I remember back then there was generally like a consensus. All the guys on macro voices generally had a pretty similar perspective, and they were contrarian as far as I was concerned. Now, a lot of those guys are on two sides of the fence.
01:18:12:03 - 01:18:29:28
James
Some agree that we're going to have a crack up boom. Some people think that we're going to zero, like there's actually a divergence between the contrarians and I. In a way, that's kind of what a market needs. You kind of need people to be on both sides of the fence. And I think, you know, some of the most qualified people to, to make this claim are all saying the same thing.
01:18:30:01 - 01:18:48:04
James
It's the hardest market they've ever had to rate. So I think that's being humble enough to know that you have absolutely no clue. and just trying to build a longer term thesis. And I think this is another concept in the short term. And this is why people get chopped up in chops validation. Right? We're going sideways till we get destroyed.
01:18:48:07 - 01:19:06:19
James
It's because people try to apply their short their long term thesis to the short term, or vice versa. They apply their short term thesis to the long term. It's a very clear bias that gets people wrong quite a lot. When I look at the I mean, as an engineer, if I was to look at things and say, well, what's the cause and effect?
01:19:06:21 - 01:19:28:02
James
The concept of fiscal dominance? I was switched on to that pretty quick because I was like, yeah, that makes a lot of sense. If you've got more government spending, yes, we should have a recession. Yes, the stock market should sell off. Yes. A lot of things are very concentrated and very unhealthy. But the government's also spending an absolute boatload of money every day.
01:19:28:05 - 01:19:50:14
James
So like you put those two things together, I was like, well, they might be papering over a lot of the stuff that rationally should happen. But if you look at it from a mechanical perspective, they're juicing so much money in that it doesn't surprise me in any way, shape or form that we just keep going higher. Now, I did put out a tweet the other day, which again, I have zero edge, none whatsoever in Nvidia.
01:19:50:14 - 01:20:07:24
James
I haven't looked at a single thing about their books, but I've looked at the chart. I'm like, that looks horrific. That chart looks absolutely ridiculous. And the fact that it's, you know, the main where it's like one guy or a toothpick holding up the whole world. I mean, it's it's basically holding up the, the stock market and the stock mega, the stock market.
01:20:07:24 - 01:20:27:04
James
So go the American economy. And to me, you know, Nick Zarb, I would say that centralized entities, the security holes, that looks like a single point of failure to me. And I don't know anything about the books, but if even somebody believes there's something wrong with the books and that thing starts to fall, then good Lord, who knows what happens in.
01:20:27:06 - 01:20:41:25
James
But what I do know happens then is no matter where that falls, no matter what happens in terms of the recession, no matter what happens in terms of how far down we sell, what are they going to do? They're going to kick that can as hard as they can, because no one wants to deal with this problem. Nobody.
01:20:41:28 - 01:21:05:22
James
So the end result, right. Taking my long term thesis and not applying it to the short term number go up right. Corn is going to go up because they don't have an option. They may bandy around. And credit to the one thing I found quite interesting. People mock the central bank. They mocked the how ridiculous it all is, but they all believe what they say, don't they?
01:21:05:25 - 01:21:23:27
James
Because the jawboning that they putting into play has people worrying. I mean, they're worried about so many things like they're going to kick the can. They have no choice. But they've done a fantastic job at convincing the market that, you know, everything's relatively under control and they're going to manage rights and all this stuff. I mean, look at this bloody chart.
01:21:23:27 - 01:21:44:25
James
What I don't again, I got no edge, but it looks like it looks like a lot of things that generally, you know, what goes up must come down. And it's not so much that it has to come down. The concern that I have is it's the only thing holding everything up. That's the concern. Right? That's the problem. And that's really the the underlying mechanics of the economy feel very shaky.
01:21:44:28 - 01:21:58:20
James
And you got one superstar, you know, the magnificent one that's kind of keeping everything together. But maybe the world is just going to bifurcate into a magnificent one. And then a magnificent not much. That's, that's that could kind of be the way things go. But it's very hard to read.
01:21:58:23 - 01:22:19:03
Marty
It is. And you hear so many conflicting narratives within I which is arguably holding up Nvidia in its stock. Is this whole hype cycle around artificial intelligence. And is it actually the innovation that Sam Altman and others would have you believe, or is it sort of petering out? and that's something.
01:22:19:03 - 01:22:35:08
James
And there's also the physical side, right. Like like Bitcoin mining. There's a lot of lessons from Bitcoin mining. Yes. People may be using the AI. Do you have the infrastructure to plug those chips in or are you going to buy too many chips and they're going to sit on the shelf for six months before the actual racking is even developed?
01:22:35:11 - 01:22:52:16
James
There's a whole lot of mechanics that like, it will only take one of those, like worldly constraints to hit, to put the put the brakes on this whole thing. And the concern isn't because it's the only thing running. And then if it's the only thing running, it's because everyone owns it. And if it's the only thing everyone owns, it's the only thing everyone can sell.
01:22:52:16 - 01:23:05:23
James
So it becomes this, like, you know, what can go up quickly. You can come down very quickly. Much like, Bitcoin in 2021. It goes from 20 K to 60 K in short order. Build no support on the way up there right. No support on the way back down.
01:23:05:25 - 01:23:09:11
Marty
Yeah.
01:23:09:13 - 01:23:17:14
Marty
Yeah. All right. With Bitcoin in this scenario does it become a flight to safety. That's the question I have.
01:23:17:16 - 01:23:32:10
James
I think the the model is that it will it will suffer like everything else. It will be a liquidity event. Everyone sells off. But it's going to be one of the first to recover because again, the can kick will come in and people know that Bitcoin is going to be the number one asset to to deal with that can kick.
01:23:32:13 - 01:23:34:18
Marty
Yeah I mean happened in 2020 right.
01:23:34:25 - 01:23:35:16
James
Exactly.
01:23:35:18 - 01:23:39:29
Marty
Bitcoin fell first fell hard and recovered rather quickly.
01:23:40:01 - 01:23:56:25
James
Yeah. And the other one is that a lot of people are looking at the two. They're looking at a 2008 or a March 2020. And I would hazard a guess given that markets rhyme and don't repeat. I would hazard a guess that people looking for 2008, in 2020, probably won't get what they're looking for. It'll look something different.
01:23:56:27 - 01:24:04:10
James
so, you know, it'll be one of those things where people will try and bake the lost wall and they'll they'll base it on the lost wall. But that may not be how it plays out.
01:24:04:13 - 01:24:20:21
Marty
Yeah. No, you've had the narrative that higher for longer is going to break something structurally behind the scenes. And who knows, that may be manifesting particularly in commercial real estate markets now. But does that pose a systemic risk to the rest of the season, as the rest of the system is yet to be seen?
01:24:20:23 - 01:24:34:20
James
I mean, the Australian housing market should be falling over right now at 7% mortgage rates, because we're not where all variables. And yet it keeps plugging new highs every single week. Plugging new highs like this is there's other forces at play. Yeah.
01:24:34:23 - 01:24:36:24
Marty
We live in interesting times James.
01:24:36:27 - 01:24:38:07
James
Oh yes.
01:24:38:10 - 01:24:42:10
Marty
It's thank God we have Bitcoin though.
01:24:42:12 - 01:25:02:25
James
what a grounding anchor. Just even just the intellectual puzzle that it poses that that alone has kept me so entertained and so intrigued for so long. That's what I mean. I love Bitcoin for how much it taught me way more than university. you know, as much as eight years in, in engineering. So it's it's a it's a powerful tool.
01:25:02:28 - 01:25:10:01
James
And I've said this before, I can't wait for our politicians to own Bitcoin because they might start making some long term bloody decisions.
01:25:10:04 - 01:25:23:05
Marty
Yeah, that's what I mean. That's been the most bullish thing here in the United States over the last eight weeks, is the fact that the politicians are being forced to talk about Bitcoin. It seems like they're being forced to be on the side of Bitcoin as well.
01:25:23:06 - 01:25:33:29
James
Which is good, as it's not often the Australians will will tune in to what's going on over there in America. But I think this, this, this could be different because this is a complete circus. But I'm fascinated to see how it plays out.
01:25:34:01 - 01:25:40:10
Marty
Yeah. It's, it's going to be an interesting six months. Not even four months until the election.
01:25:40:10 - 01:25:41:19
James
Yes, it is.
01:25:41:22 - 01:25:44:25
Marty
I don't think Biden's going to actually make it to the finish line.
01:25:44:27 - 01:26:03:23
James
I think I mean, it's it's it's a pretty grim it's a pretty grim lineup. I mean, it's funny because like, you look at these things and we all say it's like, is that really is that really the best? Like, you got 330 million people over there. Can you pick a guy in a suit off the street? Just just that guy over there, right.
01:26:03:23 - 01:26:06:01
James
The guy drink his coffee, run him?
01:26:06:03 - 01:26:11:00
Marty
Yeah. You can literally go in the corner six and Congress here and find somebody would be a better candidate.
01:26:11:05 - 01:26:39:08
James
Astounding. I think the framework that I've been looking at is that we're no longer in the world where politicians come from. Business or from unions or real world experience. They're all career politicians. and, you know, as a result, I just lack the life experience of understanding how these things work. Right. They have no one is, Bitcoin's role in the energy side, which I know you're, you're pretty pretty bullish on is, in my view, in terms of like a thing that gives me a lot of hope is that it's the fact that Bitcoin will be a forcing function.
01:26:39:08 - 01:27:02:13
James
And I, to an extent as well, a forcing function to fixing our energy supply. Because as an Australian, that's what concerns me, is the fact that we are dependent on other nations for our energy supplies, despite the fact that we produce a stack of natural gas, we don't take anywhere near as much advantage of it as we need because we keep trying to build windmills and solar panels and it's like, guys, the sun goes down.
01:27:02:14 - 01:27:12:15
James
Like, at what point do we deal with the problem? The sun goes down. and, you know, supply chain, all that stuff. So that's I'm super bullish on it, fixing the supply side of things, the energy side.
01:27:12:18 - 01:27:16:28
Marty
You guys have a lot of natural gas over there on that island. That prison island that you live on.
01:27:17:00 - 01:27:40:06
James
Well the other one is that we've got. So, Eric, what's his name from, Macro Voices. He was saying that if we, if Australia, if we look at, like, oil and Saudi oil to Saudi Arabia, is Australia to nuclear, we have so much uranium here that we would just us like 46% of, of reserves. and we're not even close to starting that process of actually tapping it.
01:27:40:06 - 01:27:57:12
James
And nuclear power is banned here, which is insane. I'm hoping that we get there. But like, we should be a nuclear superpower in the sense of we have the best engineers, we have the best extraction. We know how to build this stuff when we don't. But that's where Australia should be going, and we're just so far from the mark.
01:27:57:12 - 01:28:18:15
James
In fact, here's a here's a fun fact for you all. there's, north of Sydney is a place called Newcastle. it's kind of the second biggest, second biggest town in in to, New South Wales and a lot of ports there, a lot of, you know, shipping and mining, outputs and things.
01:28:18:18 - 01:28:45:00
James
There's been these wind turbine blades for offshore wind that's been sitting on the docks for years, like actually years just rotting away. And they're now going through a whole process of saying to the public, oh, you know, do we have approval to put these wind turbines on people? Like, what do you mean you've already bought them? Go. Well, actually, those wind turbine blades were bought for a different wind project that was inland, but they're so large that they can't fit on the trucks to actually take them out there.
01:28:45:01 - 01:28:57:19
James
So they just. So they've bought these wind turbine blades, just sit there on the docks, rotting away because, like, literally can't transport them on the road infrastructure to get them out there. I mean, it's just the most perfect summation of government policy you've ever seen.
01:28:57:21 - 01:29:06:23
Marty
Do you have hope that your politicians, or more importantly, the citizens of Australia, will get politicians in place to enact sensible legislation?
01:29:06:26 - 01:29:23:27
James
I wish I could say yes. there's been obviously events in the last couple of years have concerned me on that front. we don't have a very good crop either. granted, at least again, you don't trust a politician as far as you can throw them. At least one side is starting to talk about a more pro-nuclear stance.
01:29:24:00 - 01:29:39:10
James
you know, I had a debate with my friends the other day who I disagree with, generally speaking, on these things. And, he opposes nuclear because the other party that he doesn't support likes it. I'm like broke. And we look at things from like a, a factual energy. Can we look at things from an energy perspective, not a blue team.
01:29:39:10 - 01:29:44:10
James
Red team couldn't couldn't separate the two. But you know, that's that's part of the challenge.
01:29:44:13 - 01:30:07:08
Marty
We really need to break out of this bipartisan framing that dominates the world right now. It's everywhere you see it happening. It is right now the snap elections in France and people freaking out about a transitioning of the parties within the EU parliament. Obviously here in America, it's hyper polarized. That's what they want. They want you red team versus blue team.
01:30:07:10 - 01:30:09:29
Marty
Fight the other, yell at him. Don't look at all the politics.
01:30:09:29 - 01:30:31:27
James
That's what made the orange and white pill. That's what it's all about because it's and that's the thing right? You go to conferences, you meet people within the world of Bitcoin, and you can see behind their eyes they've done a level of proof of work that most people haven't. They've been through. And actually the the tumultuous ride of seeing your net worth dissipate by 75 plus percent multiple times.
01:30:31:29 - 01:30:50:04
James
That hardens you up, right? So at some point you've got a bit of grit, you've dealt with some hard shit. And that is actually like from a character building perspective, there's something about it that just helps you ground in rational thinking. And I just hope that we get to a point where more Bitcoiners get into more positions of decision making.
01:30:50:06 - 01:30:53:00
James
And just slowly but surely, the game theory plays out.
01:30:53:03 - 01:31:12:28
Marty
Yeah, that's Whitehill talking to turned to me about this. If you just look at as the price goes up, the amount of Bitcoiners that enter the top one, top point 1%, and how much capital they actually control within those wealth brackets, it goes up pretty quickly as the price goes up.
01:31:13:04 - 01:31:14:03
James
And absolutely.
01:31:14:03 - 01:31:18:28
Marty
With that much capital, you can deploy that capital to do things that make the world a better place.
01:31:19:00 - 01:31:35:07
James
And as you should. And whether that world is the broader world or your own world, I think that's that's a stigma that I'm a big fan of, is Diamond Hand as much as you can, but don't don't not sell because of a narrative. Improve your life. It's your savings and treat it as such.
01:31:35:09 - 01:31:40:02
Marty
Yes, completely agree James. You've got to do this more often. This is a.
01:31:40:07 - 01:31:41:12
James
Pleasure.
01:31:41:14 - 01:31:50:07
Marty
This is. Pleasure's all mine. before we wrap up, is there anything else you'd like to add? Any final thoughts for? For anybody listening?
01:31:50:09 - 01:32:05:15
James
Yeah. I mean, I mean, check on change, a new venture. I think we're about ten weeks in to the year to the journey, but, Yeah. Check and chain.com is kind of the new venture. It's a Substack, and there's a charting website which is which is all free as well. and, you know, really, I love longform writing.
01:32:05:15 - 01:32:23:11
James
It helps me. I do longform, but also video because some people like the video side. some people rage, some people do both. But I just love exploring what Bitcoin is doing. Right. It's it's such a fascinating machine under there. And the framework I like to look at it from now tagline. We try to be your Bitcoin personal trainer.
01:32:23:12 - 01:32:39:21
James
And the idea is that it can be hard to Hodl, right? Is it is it the top? Is it not the top. And I don't know, but let's try and work it out. And it's about training the reaction function and just being prepared for like I did report code chops, validation, expect chops validation. And here we are two months later.
01:32:39:27 - 01:32:49:17
James
Expect chops validation right? Just helps get you in the zone to understanding what is possible and what is probable. And, you know, make decisions accordingly.
01:32:49:19 - 01:33:17:15
Marty
Yeah. We'll link to check on chain. But the charts and the Substack in the show notes. Check it out. I mean, the work that you did for Glassnode was incredible. And I'm really excited to see you branch out on your own. And really go after this, because I think, again, like I mentioned earlier, and there's multiple times throughout each cycle, I'm like, I should probably have a better grasp for this on chain data so I don't make emotional decisions and can see the broader emotions of the market and make decisions based off of that.
01:33:17:16 - 01:33:19:01
Marty
Not my own monkey brain.
01:33:19:03 - 01:33:35:16
James
Well, then we also have a masterclass. So each every two weeks we roll out a pace to just like, explore from a very ground level with starting with basics. What is the realized cat? What is MVR, what is sober? And just step through these one by one and then after we finish that, we'll do, advanced courses.
01:33:35:16 - 01:33:49:22
James
So there's not any like the market analysis. We're also teaching people how to use this stuff as well. So and some people just like to understand right. Just understand why. And when the market sells off or rips higher that when they understand why it makes it easier to Hodl. And that's that's really the goal.
01:33:49:25 - 01:34:00:21
Marty
Yeah. Well thank you for doing it. Thank you for joining. Hopefully it's the first of many conversations because I'm sure there's going to be a lot more to talk about in the future as as the market develops.
01:34:00:23 - 01:34:05:19
James
Absolutely. Well, I'll be in Nashville as well. So if you're floating around, which I can't shake hands going to be.
01:34:05:22 - 01:34:18:13
Marty
Yeah. See you in person. in a little over a month. Thank you for joining us. Enjoy your Tuesday. I'm going to go enjoy my Monday night, and, we'll, we'll do this again at some point soon.
01:34:18:15 - 01:34:20:05
James
Good on you, mate. Been a pleasure.
01:34:20:07 - 01:34:21:17
Marty
Peace. Love for the gay.
