Onchain Data w/Checkmate

Summary

The transcript discusses the recent all-time highs in Bitcoin's value across different countries, suggesting currency debasement against the USD. It highlights the importance of understanding Bitcoin as an international asset and the impact of market fluctuations on retail investors. The conversation emphasizes the significance of on-chain data in analyzing market psychology and the potential for ETFs and new market dynamics to influence Bitcoin's future. The speaker shares insights on Bitcoin's organic growth, the role of human psychology in its price movements, and the potential for ETFs to bring new dynamics to the market.

Takeaways

• 🌐 Cryptocurrencies like Bitcoin and gold are reaching all-time highs in various countries, reflecting currency debasement against the USD.
• 📈 The speaker monitors Bitcoin and gold prices in Australian dollars, highlighting the impact of currency fluctuations on asset values.
• 📊 There's a noticeable market cap all-time high for Bitcoin, ranking it among the top global assets.
• 📉 Silver is experiencing a tough day, but the speaker suggests that Bitcoin's price milestone of 100k USD could be a significant psychological marker.
• 🚀 The 2022 down cycle in the market was damaging, leading to retail investors being more cautious and possibly preventing them from participating in the current market.
• 🔄 The concept of unit bias is discussed, emphasizing the importance of focusing on percentage gains rather than price and the role of passive investment flows.
• 📝 On-chain data is considered valuable for understanding market psychology, but its reliability depends on the quality of the analyst interpreting it.
• 🧠 Bitcoin is seen as a reflection of human psychology, with its price movements being influenced by fear, greed, leverage, and capital.
• 🔄 The speaker suggests that if traditional financial assets had block-level data, similar patterns of human behavior would emerge.
• 🔄 The introduction of Bitcoin ETFs and other financial instruments will bring new dynamics to the market, but their impact on on-chain data is yet to be fully understood.

Q & A

What has been happening recently with Bitcoin and other countries' currencies?

Bitcoin has been hitting all-time highs in different countries, indicating that their currencies have been debased against the USD.

Why is the speaker looking at Bitcoin and gold in Australian dollars?

The speaker is looking at Bitcoin and gold in Australian dollars because these assets are tradable in every currency and serve as an international benchmark.

What does the speaker notice about the British pound, Euro, and Bitcoin's market cap?

The speaker noticed that the British pound, Euro, and Bitcoin's market cap have all reached all-time highs, with Bitcoin being the 7th largest global asset.

What is the significance of Bitcoin reaching an all-time high of 100k USD?

Reaching 100k USD is a significant psychological milestone for Bitcoin, and the speaker believes it will lead to increased mainstream media attention and public interest.

How did the 2022 down cycle affect retail investors?

The 2022 down cycle was damaging for retail investors, many of whom got burnt and may now be unable to afford Bitcoin at its current prices.

What is the role of unit bias in Bitcoin investment?

Unit bias refers to the focus on the price per unit rather than the percentage gain. The speaker believes that re-educating investors about this concept is crucial for understanding Bitcoin's value.

What does the speaker think about the future of passive investment in Bitcoin?

The speaker believes that passive investment, where people allocate a certain percentage of their portfolio to Bitcoin regardless of the price, will be a significant driver of future demand.

How does the speaker view on-chain data in relation to Bitcoin?

The speaker views on-chain data as a reflection of human psychology within the Bitcoin market, providing insights into investor behavior through transaction patterns and other metrics.

What is the speaker's perspective on the reliability of on-chain data?

The speaker believes on-chain data is reliable when interpreted by skilled analysts, as it provides nuanced insights into market dynamics and investor psychology.

How might the introduction of Bitcoin ETFs affect market dynamics?

The introduction of Bitcoin ETFs could bring new dynamics to the market, such as quarterly rebalancing and seasonal performance effects, but their impact will depend on the percentage of the coin supply they represent.

What does the speaker suggest about the market's response to completed cycles?

The speaker suggests that as investors complete cycles, they may experience compound growth, leading to meaningful amounts of capital that can be used for significant purchases or investments.

Outlines

00:00

🌐 Global Currency Highs and Market Insights

The speaker discusses the recent phenomenon of various countries hitting all-time highs in their respective currencies, highlighting the debasement of the US dollar. They mention observing these effects by looking at assets like Bitcoin and gold in different currencies, emphasizing the importance of understanding international currency dynamics. The speaker also reflects on their initial struggles with currency conversion in the industry and how they've developed a deeper understanding over time. The conversation touches on the significance of Bitcoin's price reaching 100k USD as a psychological milestone and the impact of past market cycles on retail investors' behavior and affordability.

05:01

📊 On-Chain Data and Bitcoin Psychology

This paragraph delves into the significance of on-chain data in understanding Bitcoin's market behavior. The speaker argues that on-chain data reflects human psychology, as it captures every transaction and decision made within the Bitcoin network. They discuss the importance of the quality of analysis behind on-chain data interpretation and how it can reveal patterns of human behavior, such as fear, greed, and leverage. The speaker also introduces the concept of 'SOAPA' (sum of all profit and loss), comparing it to the funding rate in futures markets, and suggests that on-chain data can be a reliable indicator when interpreted correctly. They conclude by discussing the potential impact of ETFs and other market structures on the interpretation of on-chain data.

10:02

💡 Bitcoin's Market Cycles and Capital Reallocation

The speaker explores the concept of Bitcoin's market cycles and the impact of capital reallocation on individual investors. They discuss the idea that as investors complete cycles and accumulate more capital, they may choose to release some of that capital for personal use, such as buying a house or a car. The conversation also touches on the potential for new buyers to enter the market, which can absorb the capital outflow from experienced investors. The speaker anticipates that the upcoming cycle will be interesting due to the introduction of ETFs and other financial instruments, which may bring new dynamics and seasonality to the market, but also notes that these changes may not significantly affect the overall market structure in the long run.

Keywords

💡All-time highs

The term 'all-time highs' refers to the highest price or value that an asset, such as Bitcoin or a currency, has ever reached. In the context of the video, it is used to describe the recent performance of cryptocurrencies and certain currencies against the USD, indicating a significant increase in value. The speaker mentions that hitting all-time highs in various countries suggests a devaluation of the USD against these currencies.

💡Debasement

Debasement refers to the reduction in the value of a currency, often due to inflation or other economic factors that decrease the purchasing power of money. In the video, the speaker uses the term to discuss how various currencies have devalued against the USD, as evidenced by the all-time highs of Bitcoin and gold in different countries' currencies.

💡Bitcoin

Bitcoin is a decentralized digital currency that operates without a central authority or government. It is mentioned in the video as an asset that the speaker is monitoring in various currencies, such as Australian dollars, to understand its performance and the impact of currency debasement. Bitcoin's role in the discussion highlights its status as an international currency and its significance in the global financial landscape.

💡Unit bias

Unit bias refers to the tendency of investors to focus on the nominal value of an asset, such as the price of Bitcoin in USD, rather than the percentage gain or the asset's performance relative to their overall portfolio. The speaker in the video discusses the importance of overcoming unit bias to understand the true performance of investments, emphasizing that it's about percentage gains rather than nominal price increases.

💡On-chain data

On-chain data refers to the information derived from the blockchain, such as transaction volumes, addresses, and other metrics that provide insights into the behavior of cryptocurrency users. In the video, the speaker discusses the value of on-chain data in understanding the psychology of Bitcoin investors, as it captures every transaction and decision made within the Bitcoin network.

💡Psychology

In the context of the video, psychology refers to the emotional and behavioral responses of individuals to market conditions, particularly in relation to their investment decisions. The speaker suggests that Bitcoin's price movements are influenced by human emotions such as fear and greed, and on-chain data can reveal these psychological patterns by showing how investors interact with the market.

💡ETFs (Exchange-Traded Funds)

ETFs are investment funds that are traded on stock exchanges and hold assets such as stocks, bonds, or commodities. In the video, the speaker discusses the impact of Bitcoin ETFs on the market structure and the potential for new dynamics, such as quarterly rebalancing and seasonality, that may affect the interpretation of on-chain data.

💡Market structure

Market structure refers to the organization and operation of financial markets, including the systems and mechanisms through which securities are traded. In the video, the speaker talks about how the introduction of Bitcoin ETFs and the potential for other market innovations, like the Lightning Network, could change the way the Bitcoin market operates and how investors interact with it.

💡Leverage

Leverage in finance refers to the use of borrowed funds to increase the potential return on an investment. The speaker in the video uses the term to describe how investors in futures markets use leverage to take directional positions, which can be seen in the funding rates and on-chain data that reflects the profit or loss being locked in by traders.

💡Cycle

A cycle in the context of financial markets refers to a series of repeating patterns or phases that an asset or market goes through over time. The speaker in the video talks about how markets, including Bitcoin, tend to replay similar cycles, with investors experiencing growth and potential compounding effects as they go through multiple cycles.

💡Re-education

Re-education in the video refers to the process of teaching or re-teaching investors about the true nature of investment performance, focusing on percentage gains rather than nominal price increases. The speaker emphasizes the need for re-education to help investors overcome unit bias and understand the importance of gains in percentage terms.

Highlights

All-time highs in different countries indicate currency debasement against the USD.

Bitcoin and gold are assets that can be traded in every currency, making them useful for international comparisons.

The speaker has been studying data and markets full-time, noticing effects of currency devaluation on asset prices.

The British pound, Euro, and Bitcoin have all reached all-time highs recently.

Market cap of Bitcoin has also reached an all-time high, ranking it as one of the top global assets.

The speaker recalls the significance of Bitcoin's price milestones, such as $1,000 and $10,000, and anticipates a similar impact when it reaches $100,000.

The 2022 down cycle in the market was damaging, and many retail investors were burnt, which may keep them away.

The unit bias is a significant factor in Bitcoin investment, with many focusing on percentage gains rather than price.

Passive investment flows and ETFs are becoming more important for Bitcoin exposure.

On-chain data provides insights into human psychology within the Bitcoin market.

The quality of analysis is crucial when interpreting on-chain data, as it is nuanced and new.

On-chain data reflects every transaction's fingerprint, offering a rich dataset for market analysis.

Bitcoin's price movements are organic and reflect human responses of fear, love, fear, and leverage.

The speaker believes that on-chain data is reliable when used by skilled analysts.

Bitcoin is seen as a perfect free market, with its data reflecting human psychology.

The cost basis pricing model for Bitcoin is constructed to represent the average value over time.

If traditional markets had block-level data, similar patterns to Bitcoin would likely emerge.

The compound growth of Bitcoin investors across market cycles leads to meaningful capital and new opportunities.

ETFs and other financial instruments will bring new dynamics and seasonality to the Bitcoin market.

The impact of ETFs on Bitcoin's market structure and on-chain data will depend on their proportion of total supply.

Transcripts

another interesting thing that's been

happening I think recently is that we've

been in hitting alltime highs in

different

countries yes and every country we've

hit alltime high before the USD just

proves we've been debased against them

like the British 100% I've actually

noticed myself that um when you look at

either Bitcoin or gold or whatever asset

because they're they're the kind of

assets to trade in every currency right

I'm not looking S&P 500 in AUD but I am

looking at B coin and gold in Australian

dollars because it's it's it's an

international currency for many regards

and you do notice those effects like the

more time you spend looking at this

stuff and particularly me I'm spend all

time studying data and markets and

what's going on I remember when I first

got into this industry and you're trying

to do ratios to understand like what

what's like fractions with shitcoins and

Bitcoin you can't get your head around

it's the first time you've done like

live fire currency conversion but now

you can see it and you can actually get

a feel for hang on a second when not at

all all time high in that currency but

we are in mind that just shows that the

AUD has gone down versus the the US

dollar yeah exactly I mean we had the

British pound I think the pound and the

Euro uh alltime High yesterday yes we

also have the we also had a market cap

alltime high as well right yes it's over

Silvera actually so it's it's number

seven I think in the world in terms of

global assets um so poor old silver is

having another Another Bad

Day interestingly though I I've only had

a small handful of the phone calls or

the texts from people saying yeah like

two or three I think we have to get over

the alltime high and get the mainstream

media just going crazy about it I I

actually think it might even be once it

goes over 100k because I think that 100K

data point is just it's just huge it's

like this huge marker I mean I remember

back in

2017 when we went over

$1,000 I remember that clearly and I

know we'd been over it before I think we

Wicked over in didn't we get 1,200

previous cycle yeah 2013 then I remember

10,000 now I think 100,000 like

USD I think that's going to be a big day

and I think that's when the phone calls

will be the the only difference this

time is I think a lot of people go just

can't afford it this time yes no I think

there's there's a few layers to that

right I think a lot of people if you go

to the retail side I think people

underestimate how damaging La the 2022

down cycle was because it like you know

if you buy a shitcoin and it goes down

90% 99% it's painful if you buy anything

or Bitcoin and it goes to zero because

some guys are scammer that's a real

painful like that's that's a zero that's

return of capital not return on Capital

so I think um people got really really

burnt in that cycle um so I think that's

definitely a component that keeps retail

away but I I think the the unit bias is

definitely part of it and I think that

for for Bitcoin it's going to really be

about the passive flows now I want to

have exposure it's x% of my portfolio I

don't really care what the number is um

I'm buying a $45 ETF all I really care

about is give me that 1% allocation I

think that's going to be where a lot of

this comes from now well it's it's a

process of re-education now in helping

people understand that unit bias

understand it's about gains percentage

wise not price I also I could also see

some of the exchanges flipping to start

just pricing stats I think so yeah no I

I've always wondered that just as like a

product developer you you'd be wise to

at least have the option and just see

how people respond to it right let

people toggle between the two and um see

if you get different different effects

yeah yeah all right man well listen look

I know you got some charts for us

looking forward to this do you want to

run through it yeah no I mean we started

talking about the the shrimp I can't

remember if it was like slide two or

three um Danny but there's one with with

shrimp bounds which I think is actually

a pretty nice nice place to start well

let before we get into this like we're

clearly we're clearly covering onchain

data uh there are different opinions on

onchain data some people's like it's

like Voodoo some people like it's

nonsense some people think it's good

like how much can we rely on on chain

data that's a great question um the

truth is it depends who's interpreting

it right like like ta how many ta charts

do you scroll past you you never go back

and be like hang on a second this guy

was dead wrong um like anything it's the

it's it's the quality of the analyst

behind it that that makes all the

difference um at the end of the day what

is on chain data and and the lens that I

come at from is I mean it's not unique

but it's it's certainly something that

I've tried to Pioneer and push forward

is it's all about psychology right

Bitcoin is and we all know this it's a

very organic creature it it captures

something that no other even when you

look at the price chart there's just

something very organic about it

everything comes in twos you get like

two pumps or two rounded tops or two

triangles in 2017 19 there's just

something about it that's quite

structural and my lens over the top

is because it's the most hated and loved

and feared and revered asset ever right

it justs people up on both sides you get

a very human response and my lens is

that it's essentially human psychology

right what is price price is fear and

greed coupled with a bit of Leverage and

capital um plotted Against Time onchain

data is just all of that information

baked into the Bitcoin Ledger every

decision you make um every transaction

you send look there's people who will

say that all the trading happens on

exchanges um I did some calculations the

other day on any particular day between

30 and 60% of the spot trading volume is

occurring in inflows and outflows to

exchanges by deposits and withdrawals

like billions of dollars a day and every

particular the inflows every single one

of those transactions has a fingerprint

did it come from a guy who's held it for

two years is he locking in big profits

is he bailing out in a fat loss um and

when you aggregate all this stuff

together there can be error bars around

the individual but in aggregate it

actually tells you what humans are doing

and one of my favorite charts because I

get this question a lot I'm talking

institutional clients they're trying to

they're coming from a traditional

Finance world they're trying to get

their head around why are they should be

looking at or considering onchain and

when you plot one of the metrics that I

love to use which is called soapa it's

it's how much profit or loss people are

locking in it's the exact same chart as

funding rate so you're measuring the

leverage and the amount of directional

um um leverages in Futures markets and

it looks exactly the same as the amount

of profit or loss the people are locking

in in spot and what that's telling you

when you've got lots of guys locking in

big profits some other gu is paying a

huge funding rate and going lever long

at the top so they're telling you the

same story and there's so many of these

analoges where different data points

tell you the same thing um so look in my

experience I think it's reliable but it

does depend whose hands it in because

it's it's nuanced it's new there's lots

of jargon there's lots of headlines

where like people read the the title of

the and they don't actually what it's

doing oh cool this says it's Wales it's

like yeah but it's you got to understand

what that actually means when talk about

Wales so do you think do you think in

some ways Bitcoin is almost like the

perfect free market and it yes it's it

the data is telling you uh it's like a

replay of human psychology yes and and

the metric I was talking about before

that pricing model that's dead in the

middle which um Dave and I we spent a

lot of time working through it at a like

very fundamental level like by the way

way it's constructed and measured and we

didn't know this was the case we just

kind of discovered it I put it in the

bucket of a discovery rather than

invention um it it it's constructed to

be the the cost basis but then we ran a

very longterm what is the average value

and what is the median value as price

oscillates around it it was one and one

now in a statistical sense that means

it's literally dead center on the

average basis and it's also dead center

when you look at like how many

observations there are so it is very

organic and these things that come from

first principles then appear to actually

be in the middle and I reckon I like if

gold and the S&P and all this had Block

Level data you could see what was going

on every 10 minutes and you just

aggregate it I guarantee you'd see all

this stuff the same because you know

it's why price charts in the 1920s look

exactly the same as now one of the

things I've always been interested in as

well is that with these markets

replaying the same every kind of cycle

is that you you do have a bunch of

people who maybe have completed their

first cycle maybe their second even

their third and if you're even your

second and your third you've got that

interesting kind of compound growth like

if by your second cycle say you had a

million in Bitcoin and then the next

cycle you had like five million you

start to see like meaningful amounts of

money and thinking about things you

could do with that maybe you buy your

parents a house or a car or have a

holiday and so you have to release some

of that Capital to do those interesting

things that you just could not do before

and if the Cycles are replaying the same

there's enough new buyers coming in the

market to soak up the E the outflow of

capital from those

people absolutely and and I think that's

what this cycle is going be really

interesting for right lots of folks are

saying oh look these ETFs are going to

take coins off chain so therefore the

the data is going to degrade and it's

like well how many analysts when they're

analyzing the global economy only look

at money moving around on one system

right if money is moving around the ETFs

you study the ETFs if money starts

moving into lightning then you add that

layer on lightning um with exchanges do

you filter them out do you keep them in

you know this this is the value of this

stuff it's like you know how do you work

out what matters and these ETFs they're

going to bring all sorts of new Dynamics

like rebalancing quarterly performance

there'll be all this seasonality that

will come into it but we're already you

know we're only talking about single

digit percentag of the coin Supply so

whilst it's very meaningful right now

it's because it's coming from zero right

we're going from zero to a couple of

billion once it's a you know 50 billion

which is the size of gold and I saw a

chart the other day I think we're

actually 50% of the gold ETFs already

which is uh pretty pretty brutal but um

you know once we get to these meaningful

size the ETFs will kind of hit a

saturation is kind of level where it

starts having more of the rebalancing

flows you know you can't have half a

mill half a billion dollars every day

forever um maybe you can we'll find out

but you know it's one of these

interesting Dynamics where we're going

to see how Market structure shifts as a

result but it depends it may cap out at

you know 5 6 7% of all Supply and that's

not really enough to kind of move the

the needle in some ways we'll find

out