Bitcoin Is Running Out Of Sellers | Checkmate

0:00This was by far and away the densest, most concentrated, what we call point of control. Tons of supply has been sold and therefore accumulated by somebody in this price range. So if I force the price to go down to 45k, the only bear market that is comparable is 2015. This is starting to look a lot like seller exhaustion. I'm sure there's a lot of wealth still to be generated in the AI trade, but I think the parabolic crazy money has probably happened now and now it probably won't be as explosive so investors are going to start going okay what what else is out there that is attractively priced and well positioned for the future i think because it really is but yeah really you're waiting for that demand and folks are like well what's the narrative that's going to drive bitcoin into the next bull market and honestly it's just the price going up a little bit i look at the world that's coming for us they're going to have to print the money none of this has changed the mathematics of the equation These things take ages.

0:54At some point in time, the debasement trade is going to come back. The fastest horse is going to get looked at. It just takes time. Mr. Checkmate. We're back, man. Rock and roll. We started already. We've got a lot of stuff to talk about. We do. For the price going absolutely dead flat, there's a lot happening. Well, I think that's the best place to start. I do want to talk to you about the cold card hack vulnerability and about the Bitponten failed fork.

1:19But we should start because these are two big events. especially the cold card vulnerability. This is something I've never seen in Bitcoin. I think it's hopefully a black swan we never see again. But while we've had all of this FUD, well, not even FUD, these problems, Bitcoin price hasn't really given a shit. Yeah, that's pretty remarkable. And not only that, you've had, not in the last couple of weeks, but you've had the ETFs, they puked eight and a half, almost billion dollars.

1:44You've had Sailor be a strategy, be a seller. So the two public entities, if we all remember, were the only ones propping up the Bitcoin price would be net sellers. there's a lot that's happened, and the price is hanging in there. So, I mean, that doesn't mean that it can't go lower, but from my perspective, this is starting to look a lot like seller exhaustion. It feels like we've been saying that for a long time. I think not even last show, the show before that, we'd started saying, like, clearly we're near the bottom, and I think the price was probably similar to today.

2:14This is just the time period. Totally. So I think we spoke, we had a podcast very shortly after we hit 60K in February, and my read at the time was we've just seen a major capitulation event uh likely that we're in the process of bottom formation and i think this is something that i talk about all the time a lot of folks worry about the bottom tick to me you're looking for those changes in when market structure changes investor behavior changes capitulation events they are generally very large you can feel it february felt like you could fear the fear you could feel how fearful people were yeah my inbox slammed. So that was a point in time where sentiment hit a level where we go, oh, okay, now this is a full scale bear. There was no denying it. But also we've seen a ton of people puke out coins. Then you go into the time pain chapter. So I call that the price pain capitulation.

3:04If we go back and look at 2022, that was June 2022. Luna collapsed shortly after three hours blew up. I think Genesis was then in the headlines. We'd seen the majority of people who are price sensitive puke. Then you have the chop. And I've described this before, but it was 17.6 in June 2022. That was the low, 17.6. Bounced back and chopped around the 20K. And then we bottomed it 15.6. For most people, given Bitcoin is a long duration asset, the difference between 17.6 and 15.6 is the eight months that separated them. It's a time thing, not a price thing. So here we are in our current bear market. And I believe that 60K level in February was the price paying capitulation.

3:48We just saw all the people who are price sensitive give up. And then you've got this choppy period. We rallied up to 80. We sold back down. Strategy sold 32 Bitcoin, took us down to 58K gang. You've got a second capitulation event. This is very similar in terms of the on-chain signatures, looks very similar to FTX. And then you've just got this quiet period where if you go back to 2022, after FTX, we technically bottomed in November, like 18th of November from memory.

4:16And then we chopped sideways until the 1st of January, doing absolutely nothing. And I remember writing a report over the Christmas period, which is always very, very quiet. Bitcoin traded with like a $250 range. It was just like complete nothingness. So look, I'm not drawing a perfect example, right? Markets are going to do whatever they're going to do. But from my perspective, there's a lot of similarities in terms of the investor behavior, the drawdown is nowhere near as significant, as we've seen in previous pairs, as most people know.

4:42But the overall investor behavior is remarkably similar. And I think we're going through that time pain chapter, but I think the reason that things take ages, there's no influx of new buyers, right? You're really left. And why the cold car thing is interesting is from an investor standpoint, it kind of hit the hardcore folks who've been here for a long time, the sat stackers. So that's why I think for us, even though it was small in terms of overall coin volume where I think 2 is ballpark of how many coins we believe were lost It a small number in the grand scheme of things but it hits us all really hard because it was cold storage It was, you know, all of those elements.

5:19So I think there's a lot of components here, but like this quiet, no volume, like volume is through the floor. All of these things are what you typically see in like peak apathy, late stage bears. It's only us, you know, like there's no people rushing in. So any kind of sellers that are there are being met with just the folks who are willing to stack away, but you don't have that influx of buyers. Like 2023, we spent almost the whole year below 30K.

5:45We just couldn't really get any momentum. So even the start of bull markets are really quiet and sometimes indistinguishable from a bear. That's why they call it the disbelief rally. No one believes it. And it's just kind of this nothingness, choppy period. Drives people mad. But I think most, I believe in February, most of the price paying damage was done. I would love for 58K gang to just be the bottom wick that would just be so poetic. Very Bitcoin, but we'll see how it plays out.

6:11I think the question that everyone probably has right now is while we're going through this time pain, how long do we have left? Because after the ETF, we were in that chop solidation. I think that's where you first coined the phrase. And that was a long time. I think that was like nine months. Eight months, okay. How far into this are we? Maybe five months, six months? Yeah, so it depends. So from my view, I think my broad picture thesis, I think we're very late stage bear.

6:33Yeah. Now, that may have another leg lower. I've modeled, and I get this question, I wrote a piece called, what if I'm wrong? Because my current working thesis is, I don't think we go below 50, right? I think that if we do get a leg lower, it's probably not going to be driven by a Bitcoin thing, it's going to be driven by a macro thing. Not, sorry, adding to what we were talking about before, not only have we had cold card, soft forks, sale of selling, ETF selling, we've also had equities pullback, The AI trade had a pretty meaningful pullback, probably not the end of the bull, but a pretty sizable pullback.

7:0564K, 64K, 64K. So we just hit this point where we've got rid of the vast, vast majority of sellers. So now it's people who are frustrated. There will always be this kind of slow drip of people coming out of the system. But yeah, really, you're waiting for that demand. And folks are like, well, what's the narrative that's going to drive Bitcoin into the next bull market? And honestly, it's just the price going up a little bit. Yeah, the narrative normally comes a bit later.

7:31Price just goes up a little bit because you get seller exhaustion, there's enough buy side that it just gets it above a moving average, suddenly a hedge fund buys, and it goes above another moving average, you get support level, and suddenly people just start getting interested because the chart doesn't look like ass anymore. So it's a process. I'm convinced the next narrative will be the same as the last one, institutional adoption. I've always been to the view that people are like, oh, it has to be sovereigns now.

7:52It's like, no, no, no, you just need corporates to go one extra step. Yeah, because I don't know if we really, truly saw institutional adoption. Like, I think one of the most obvious signs of that is Saylor's stretch product, which has obviously had a bad time, but it's like getting close back to par, been impressive, is like 80% retail. I think that proves that the institutions aren't here properly yet. Yeah, no, I think the whole industry, by and large, is still individuals.

8:18By and large. Now, there's certainly companies, and I think what I find very interesting, I mean, we're a Bitcoin company. We stack Bitcoin as part of our treasury asset. You know, we're a small firm, but there's a lot of us. There's a lot of small firms, Bitcoiners who are running their own business or, you know, whatever it is. There's going to be a ton of these. You hear it from the rivers and the like. They often say, like, our clients are plumbers, electricians.

8:39Dentists. You know, various small businesses. Which is awesome. That's what I want to see. I totally agree. This is what Lynn's doing with Orange Juice, right? Looking for those businesses that are, they understand the value proposition of Bitcoin. They're profitable. They're small, but they're this consistent buyer. So I think all that stuff is great. The bigger corporates, and I think folks often, I mean, this is just very human nature. The reason why the TradFi bros were like the ETFs and Saylor is the only thing propping up the market is because they don't understand the market.

9:08So they look for the big boogeyman entity that they can blame or point fingers to or say this is the only thing to confirm their own bias. But in reality, those entities have been sellers. So who is buying? There's clearly a pool of people in these spot markets who are buying this thing. I'm buying. Totally. So you said ETFs have sold 8 billion, did you say? I think it was 8.2, I think, in total. And I think when we look back in the arc of history, this is like June, July, was the stretch, about eight weeks.

9:37When we look back in history, I think this will be a case study for an ETF capitulation because we've never seen what the ETFs, how they're going to respond in a bear. So 8.25, I think it was about a 12% total drawdown in cumulative inflows. And to give you a bit of an idea of like, what was the driving factor? I try to apply my own on-chain lens to this, which I think is all about psychology. What was the forcing function for the ETFs? Because they hodled through most of it.

10:03And they only gave up the ghost in June, July. Yeah, everyone used to say they were the best holders. And they were. They were. And that's why I think this was a notable capitulation period because in terms of the average inflow cost, we can't know the cost basis because you've got shares trading behind the scenes and all this kind of stuff. So you can know the exact on cost basis like we can for Bitcoin itself but we were about 30 percent below the average inflow So if you got like assume all the inflows like a big set of DCAs.

10:32Average cost base was like 80K, 82. We went 30% below that. And then if you look at all the inflows on the date they occurred, and again, this is not a perfect model, but 87% of the inflows had occurred at a higher price. So if you kind of think about that like percent supply and loss, right we're at 87 percent for the bitcoin side we got to more than 50 percent of supply and loss all of these things are enough and then we see the reaction function which is 8.2 billion of outflows so to me incentive a lot of people underwater by about 30 percent 87 percent of inflows underwater outcome 8.25 billion of outflows during a period where the market was scary went back to the lows of february feels like capitulation so we've been in bitcoin quite a while. And at 65k or whatever right now, you have to rip Bitcoin out my cold dead hands. There's no way I'm selling at this price. But with ETFs, is that just classic newbie behavior that they're selling the bottom? Look, I think part of it's going to be that. I also think that we can't underestimate just like the rotation. I want to put it in something else. Anything else? I think

11:34that that's been, honestly, with the AI trade, people have just been putting money into the AI trade. No matter what, they're selling everything, right? They could have sold gold, could have sold S&P, whatever it is. I think there's been this like, just, there was a point in time where I was looking at my trading view i've got my you know certain list of macro assets and things i was tracking and there was points in time over the last six months or so where you could almost feel the black hole of money as everything got sucked into your chips and your memory and korean stocks and all this kind of stuff and then interestingly they start lifting some of those companies on the u.s markets and that was the peak and you've got situational letters blowing up and like all these things, it felt to me like there was this black hole of money. At some point in time, I'm sure there's a lot of wealth still to be generated in the AI trade, but I think the parabolic, crazy money has probably happened now. And now it probably won't be as explosive. So investors are going to start going, okay, what else is out there that is attractively priced and well-positioned

12:30for the future? I think it comes in a really good spot. Yeah. See, this is a narrative that I really believe, just in my gut, is that when the AI trade does either slow down, roll over, whatever happens there, if you're looking for where to park that money, Bitcoin is the best option. It's something I spoke to Peter Dunworth about. Do you believe that's going to happen? No, I do. Honestly, I'm a simple dude. I think Bitcoin and gold, just as if I look at the world that's coming for us, they're going to have to print the money. None of this has changed the mathematics of the equation.

12:58These things take ages, right? Macro tends to move glacially, and then it happens all at once. At some point in time, the debasement trade is going to come back. The fastest horse is going to get looked at. It just takes time. Yeah. I was speaking to Luke Groman about the AI trade and he was, we were kind of asking the question of whether they're already too big to fail. And that's what sort of sparks the money printer next time. Well, it's really interesting how, what China is doing with the open source side of things. I think if you kind of wound back the playbook two years and said, China is going to be the open source and America is going to be. I would never have believed it. No, I don't think anyone could have picked this, but it's a fascinating part of their strategy, and this is what they've done for many industries, mostly like commodities and chips and all the rest of it, they essentially subsidize local businesses to undercut any Western price, which just drives them out of business.

13:44In the AI front, they've kind of recognized there's a ton of capital being burned. That's probably irrecoverable. You know, some of these frontier, you know, the open AIs and the anthropics, are they really going to be profitable long term? Ever, maybe. Ever. So then they do the open source side, which again is wild. Yep. And some of these models, I mean, Rob Hamilton and his red team, they can't use American models. That's a crazy, crazy insight.

14:09And it's not even that they just can't use the normal models that mean use. They're on the cybersecurity team, and they still can't use them. Totally. So from that instance, China has undercut them by offering a price of near zero, and the gap between a frontier AI model and an open source one that is as good is like three weeks now. So these things happen real quick. So I think from the whole AI perspective, again, I'm no equity analyst, but if I look at the memory shortage that's going on and I think forward five years' time, there's going to be just a glut, a total glut of memory because there's a massive incentive to spin up more production for these things.

14:46A lot of stuff is going to get commoditized because you've got infinite intelligence. You can produce things at lower and lower costs. This is very much the Jeff Booth thesis of everything is deflationary. at some point in time, like it's just going to bite. I listened to your interview with Luke. I mean, he's all over this kind of stuff. At some point, the pressures that the governments are under is going to bite. Bitcoin's going to be back in the headlines again because the price is going to go up.

15:09And then we'll find a thousand one narratives as to why it's going up. If you hold Bitcoin long enough, there's going to come a time when you need some dollars. It might be a tax bill, a business expense, life getting in the way, but whatever it is, it might come at a time when you don't want to sell your Bitcoin. That's where Ledin comes in. Ledin lets you borrow against your Bitcoin instead with tiered rates that go as low as 9.25%. So you don have to sell your stack if you don want to Ledin have operated through every market cycle since 2018 and have originated over 11 billion dollars in loans But the important part for me is the way Ledin handles these loans Your collateral is held in custody and never lent out to generate interest And Ledin's more than just loans. Tether Gold is now live alongside your Bitcoin with instant trading across 10 pairs. And later this year, you'll be able to borrow against gold in the same way that you do with Bitcoin. Ledin really is an awesome company. I've used them multiple times.

15:59the applications have taken you less than 15 minutes and you have the dollars in your account within hours. If you want to check out Ledin, go to ledn.io and use the code WBD for 0.25% off your first loan. That's ledn.io and use the code WBD. Every Bitcoiner eventually has to answer one question. If something happened to me, would my family know what to do? Could my wife or parents recover my Bitcoin? And would my children inherit the Bitcoin that I spent years stacking?

16:26That's where Anchor Watch builds Bitcoin custody models to protect you and your family against real life, accidents, errors, kidnappings, and even your own death. Every Anchor Watch custody solution includes their inheritance protocol, designed so when the unthinkable happens, your Bitcoin reaches the people you intended it for. Whether you're a self-custody expert or want multi-institutional support, your Bitcoin estate plan shouldn't be an afterthought.

16:49Bitcoin is only generational wealth if it can actually be passed down through the generations. So make sure they can access in the future what you've built today. Anchor Watch is your custody, your way. Visit anchorwatch.com to get started. That's anchorwatch.com. If you own a Bitcoin ETF, especially if it's GBTC, you need to listen up. Spot Bitcoin ETFs provide price exposure to Bitcoin, not direct ownership. You can't withdraw it, you can't self-custody it, and they charge you a management fee every year to hold it.

17:16Well, Swan recently announced Swan Real Bitcoin Exchange, and it's ready to use right now. RBX is a structured in-kind exchange that converts your Spot Bitcoin ETF shares into real on-chain Bitcoin. It does that without selling on the open market and it's designed to support a tax-efficient outcome. So for example, if you hold GBTC, you're paying 1.5% a year in management fees for Bitcoin price exposure. But by swapping GBTC for real Bitcoin with RBX, you can drop that figure as low as 0% by just holding it in self-custody. This is designed in a way that maintains your cost basis and in a manner that supports the deferral of capital gains tax so if you own a bitcoin etf especially if it's gbtc you need to talk to swan private about rbx today head over to swan.com forward slash wbd and book in a call with one of their team that's swan.com forward slash wbd do you think that ai coming out of china is is their form of essentially like economic warfare like they see how important the ai sort of trade the ai industry is to america and are just attacking that do you think that's why they're

18:19doing it yeah i mean it kind of when you actually put it in the lens of what have they done with every other industry it is the same playbook undercut so so heavily undercut that you can't be competitive so i think it's a fascinating but when the entire u.s economy is propped up by the ai trade at the moment like that's really dodgy it is but there's all i mean it's also very clever yeah i mean like that's it's um it's statecraft yeah so a lot of these chess pieces that are moving are very very big and have been thought about for a long time the scary thing is like I don't, who knows what's going to happen in the US, but I could see them trying to regulate the use of Chinese AI, which is such a losing move.

18:54It is. I mean, that's what governments tend to do, right? They tend to put more rules in, that'll fix it, and very rarely does, in fact, I was talking to people the other day, almost every time the government puts a regulation in, they achieve the exact opposite result of what they want to do. So I can only imagine this is going to happen at some scale. All right, back to Bitcoin. Last time we did a show, we were, again, talking about the bottom looks like it's in.

19:15I think so far, at least, it still looks the same. And I had a ton of comments under the show. I can't remember the guy's name that everyone was referring to, but everyone was saying 45K is the bottom. Sure. Why don't you think that's the case? Yes. So this is the piece I mentioned before. What if I'm wrong? So I wanted to run the study and say, look, I've seen this kind of general consensus forming about 45K. 40K, 45K. Because I can't predict the future like anyone else, right?

19:40I'm just trying to use the data in front of me and look at how investors behave. Are we seeing certain things that look like bottom formation, in my view? Yes. What if we go to 45K and my thesis is incorrect and we go below 50K, right? Which, by the way, across a number of metrics, would be very consistent with previous bear cycles. So my thesis is that this cycle is a little bit different from the bear market perspective. I think there's a lot of angles there.

20:03So I forced all my models to go down to 45K. Now, one of the really cool things about on-chain data is we can see where all the coins have moved. What's their cost basis? where do people accumulate coins? The 200-week moving average is like $63.6 or something at the moment, basically where the price is now. This is the densest. We haven't seen something this concentration of cost basis levels, excluding the cold card thing, even before that happened, because obviously coins move.

20:31Even without that, this was by far and away the densest, most concentrated, what we call point of control. Tons of supply has been sold and therefore accumulated by somebody in this price range. So if we force the price down to $45k, all those coins right now, which are at their break in, level suddenly go into loss. The people who bought the top go even more into loss. The folks who are holding from 50 go into a loss. So you can actually model how the damage, like how many long-term holders are going to be underwater. What's the unrealized losses, all of these dynamics.

21:06So if I force the price to go down to 45K, this is not to say it can't happen, totally could happen. The only equivalent bear market on a damage done, supply and loss, long-term holders underwater, all of these dynamics. The only bear market that is comparable is 2015. Now, 2015, I wasn't there for 2015. Me neither, but the most brutal of brutal bear markets. The most brutal of all brutal bears, right? Down 90% and stayed there for a year. The market cap of Bitcoin back then at the bottom was a billion dollars.

21:37One billion. Tiny. Yeah. Strategy has $4 billion in cash that they raised over the last month. So there's that side of the equation. Mt. Gox had failed. like coinbase is only just started it's kind of like there's bit stamp is like the only exchange that's like meaningful um with the price history back that far so there's very little infrastructure back there um and if we the bottom formation zone that i've been talking about 58k which is our current low um to about 78k we can talk about why i picked that level but that's kind of the zone that i've been describing as the bottom formation like we're hammering out the floor um that is equivalents you go back to 2022 of like that 25 to 15 right it's a range where we hammered out the bottom takes time it's months there's leaky price all these things but it was the bottom formation no one who looks back even today at the ass end of a bear mark is going to go oh i really regret buying at 22k you know no one cares yeah so from that perspective in that bottom formation range we've got like 320 billion dollars worth of cost basis levels the market cap at the bottom of 2022

22:40two was 300 billion so the whole bitcoin market cap is just in this price range in terms of cost basis level people sold that much and other people bought that much so there's this like massive zone of accumulation that's occurred the last time we saw something of this concentrated magnitude was after ftx so from my perspective yes of course we could go to 45k because the market's going to clear where the market's going to clear if that does happen in my view it's going be very, very fleeting. I've got a model I use, which I call my mean reversion index.

23:14Markets are mean reverting. They swing away. Let's just take the two in a week moving average. It swings away for it for several years, and then it comes back to it in the bear. Swings away, comes back. On-chain, we've got cost basis levels. Why does the market oscillate around these levels? Because people bought, price goes up, they're in profit, they sell. Price goes down, they get scared, they capitulate. So it swings around people's cost basis because what people paid for it. So I've got a set of these different anchors. Some are technical, some are on-chain, different things. And we can then look at quantiles. You can look at the power law. What quantile are we in? We're in the bottom 10%, bottom 5%, upper 95%. Going down to 45K is like a Q1 or a Q2 event, which means it's like the bottom 1% of the distribution, bottom 2%. Can it happen? Yes.

24:001%, 2% of the time it does. It's just not something I can professionally form a base case on. And you'd have to imagine, like, if we did have a drop down to 45k, it would most likely be on some serious news. And further to that... The interesting is, like, at the moment, we've had two pieces of what I would consider serious news. I know it's a little bit inside baseball when you're talking about cold card and Bit110, but price hasn't moved. And I think there's like a meme that when price doesn't move on bad news, you're probably at the bottom.

24:27I don't know how true that is, but it seems true. Likewise, when bad news means nothing at the top of a bull, right? You've still got legs. Exactly. So you're looking at these sorts of things, but going down to that Q1 type event, it's possible. It puts us into a 2015 bear market type setup. To me, it just feels too much. That's like a major, major player break. And when I ran another study, because I had a fantastic question from one of my clients, and he was saying, look, a lot of us are DCAs.

24:56We've got a salary, we buy. There's a lot of other folks who they've just sold a business, they've got a bunch of cash, they've got a cash pile, and they want to know what's the best strategy for allocating. Obviously, I don't help people directly, but I wanted to go through the process of, because I'm a big fan of DCA. Even if you have a lump sum, DCAing just takes the emotional toll out of the whole thing. Because if you do want to allocate, if you're trying to pick the bottom wick, what ultimately happens is the price rallies and you think, oh, shit, I've missed it.

25:27And then you throw everything else in. Correct. But if you just DCA, you just buy the whole bottom. It's just a really good way to manage the human element of markets. Anyway, I tried to run an analysis and say, what happens if we go to Q20, Q10, Q5? So I've got my mean reversion index. If we get to these different quantiles, look at previous bears. How long are we at Q5 and below? How long are Q10 and below? Q20 and below? And the simple kind of summary of that, Q5 and below is like seven days.

25:56And every bear market has been between one and seven days COVID was like It the COVID week COVID week week It the 2018 You like dip down and then suddenly you trading around 4K not 3K Yep FTX, it was 15.6. And next thing you know, you're hovering around 16, 17, climbing back to 20. The crazy thing that I didn't realize until recently about FTX was the price when it blew up was only like 19K or something. It didn't drop that much. It went, I think it got to like 16 something on the FTX news.

26:23And then there was a couple of days later and then it had a final 15.6. and then chopping higher. But Q10, you're like three, four months, right? So that bottom 10% of the distribution, you've usually got four or five months down there. Q5 is like seven days. So it's like a week. And then Q20, sometimes it's eight months. So it kind of gives you a ballpark. To me, we've been in this bottom formation zone, which has been Q20 for eight months now, nine months in February or whatever that is.

26:54So in my view, we've kind of got all the statistics kind of look very similar to previous bears. So you said, you mentioned 78K before, as like the top of this range. Are we in a situation now where above 78K, you'll start calling the bull market back on? So the way I think about the recovery, like all things, you have more, it's easy to call it a bull market when you punch to a new all-time high. It's much harder to call it when you're further down.

27:19And it's really hard to say it's a bull on the day of the, like the last day of the bear, which is the first day of the bull. Yeah. So you look for levels where your confidence can start to build and increase. And I've got a fairly simple framework. The short-term holder cost basis is just a really powerful tool because it's people who bought in the last five months. Now, think about the last five months. It's been horrible, right? People who are buying in the last five months, normally we think about short-term holders as speculators, fast money traders.

27:49At the bottom of a bear, it's the only time where that interpretation flips over because the people who bought in the last five months are people like you and i who understand this thing it goes to 45k i'm certainly not selling i'm buying as much as i can so you get to this point where the short-term holder cost basis is actually representative of the hardcore folks who stuck with it through the bad times so that's like 67k at the moment getting above that my simple framework is until we're above the short-term cost basis, keep your bear market goggles on. Just assume that every rally is going to fail. But at some point, it's not going to fail. It's going to get above that level.

28:26And then it's going to hold that level. And then it will get above the 200-day moving average. And then your hedge funds start to notice, right? Because it shows up on their screeners. And then suddenly, momentum starts to switch in the other direction. So I try to build up confidence and say, look, above short-term cost basis, that's the first line of defense for the bears. Same way it's the first line of defense for the bulls when we break through it. It was 114K, breaking below 114 you go okay maybe not a bear but i've got one goggle on once it goes below the 200 day i probably should have both goggles ready to go and then once it goes below you know 50 week moving average now your confidence builds and builds and builds you say okay now i think it's it's flipped so short-term cost basis is the first level 200 day moving average second level once you get of like 78 80 that's the the breakdown in the start of the year 80k was the low in November. That's just kind of punching new highs. Technically speaking, the chart's now in a weekly uptrend. Your momentum traders start to notice. That's the midpoint. The reason I use

29:2578K, there's a model called the true market mean. It's the cost basis for active investors. Now, active investors is an interesting idea because there's two models. I'll go a little bit into the weeds here because it is important. A lot of folks are looking at the realized price. The realized price is the average cost basis per Bitcoin. There is a problem with the realized price. The way it's calculated in the numerator is the realized cap, total value every coin in the supply at the price when it last moved.

29:55What was the price that Satoshi's 1.1 million coins moved at? Zero. So it's contributed nothing to the numerator, and it also holds a tremendous amount of unrealized profit. So hold those two ideas. But you have to assume that's never going to actually be realized. Which it can't take. Yeah. On the flip side, in the denominator is circulating supply. So you go realize cap, total wealth in the systems, just over a trillion dollars, and then you've got the total circulating supply.

30:20Satoshi, early miners, even the dude who bought it five bucks and still holds, they've contributed nothing to the numerator, but their full dilution in the denominator. So if you understand how a ratio works, that means that you are going to underestimate the cost base of people who are real and active and doing stuff in the market. So if we consider the realized price, which is 52, as the cost basis for the market, to get to the break-even level, you need to offset the hundreds of billions of dollars of profit that cannot be taken by lost coins by folks who buy the top and just hold.

30:57Now, a lot of people do buy the top and hold, but what do a lot of people do? They panic and they sell. So the unrealized losses can be locked in and realized. You can reduce that, but you can't reduce the unrealized profit. So as Bitcoin gets bigger and that unrealized profit in lost coins gets bigger you need a much bigger profile of people who buy the top in size and just tough it out But they don tough it out We know for a fact that they capitulate.

31:22So what that means is the realized price of 52, as the Bitcoin gets bigger, we should stop going below. We've gone below it in every previous bear market. So here's me, Mr. OnChain, saying, look, we've gone below this in every previous bear. The standard default OnChain analysts would just say, yeah, of course, we've got to go below the realized price. And I'm saying, maybe not. Why? Because it actually isn't correctly formulated. And the true market mean adjusts for that.

31:49It basically looks at all the coins that are high dormancy, have never moved. We discount them as a function of how much they've not moved. Can I ask a question on that? Would it have discounted the coins that were sold at the top last cycle, the 10,000 Bitcoin that hadn't moved since like 2011? So, yes, basically it's a self-correcting system. So think about every coin in the supply. This is not a perfect analogy, but I think it'll make sense for most people.

32:11Imagine every coin has a health bar. And every day, each coin produces coin days. So one Bitcoin will produce one coin day per day. Two will produce two. It's got a health bar. And when I say coin, UTXO, Satoshi, yeah, whatever. Satoshi's coins are 100% of that health bar. It's coin days created, never destroyed. The guy who spent his coins yesterday is 100% coin days destroyed. So what this basically does, it looks at the whole network of all the coin days that have ever been created in the system, how many have not been destroyed.

32:45The more people hodl, buy, put in a cold storage, it sits there, it does nothing, that's starting to accumulate more coin days. And the activity, the active investors are the ones destroying coin days. So someone sells, someone buys, the buyer, once they're a hodler, they change the ratio from 100% destroyed to 1% stored, 2% stored, 5% stored, 10%. The more hodlers, the more the health bar ticks in the other direction towards hodling. So what the active or the true market mean does, it corrects the realized price by discounting. Coins that are 100% CoinDays stored, never destroyed, we actually don't care about them. Ones that are active and mobile, we care a lot more about them because that's what people respond to. Satoshi doesn't respond to the market going up and down.

33:31The guy who bought at 100 absolutely does. He feels it every time he checks his portfolio. So to me, that's the angle that we should be looking at things. So if we don't go below the realized price this time, is that one of the things that kind of breaks the cycle theory? And I know this is a bias question, because I don't really, I just can't buy the cycles. They can't exist forever. I know you don't. But is that something that completely changes the structure?

33:54No, I think that's just a technical, like it's the way it's constructed, that it makes sense for us to stop going towards it. It's an underestimate of where the cost basis is. The reason why this is actually important, the cost basis for investors is what drives people to make decisions. When you've bought and it's gone up a lot, people feel the demand to sell, to take profit or do something dumb, go to 11. When they're well below their cost basis, they sell in a loss.

34:22So the reason we use cost basis levels is because it's that forcing function, the incentive for people to do something. If we're mismeasuring the cost basis, then we're going to mismeasure the results that come out of it. And my thesis was when we go below the true market mean, which was at 80K when it happened in February, selling off below that is probably going to precipitate the capitulation event. And that's more or less what we saw. By far and away, the largest like $1.5 billion a day for like a week, every single day, just massive, massive losses.

34:52People are going, no, I'm done, I'm out. So my thesis was the true market means a level that's going to precipitate the sell side. We went below it. We saw the sell side. And that's how I like to frame this stuff up. Now, in terms of the cycle, the four-year cycle debate is fascinating, right? My framework, I do not worry about it. I don't use it as part of my analysis. And the main reason is I'm just not going to look at the calendar and assume the market does what it should do on that calendar date.

35:20For me, the way I like to frame it up, show me when the capitulation happens, bottom formation dynamics happen, enough pain is in the system. Are we seeing bottom formation? Yes. What's the date? I will look at the mechanics and then I'll look at the date rather than say the date, oh, therefore bottom. You know what I mean? Like I just flip it around. Like I want to see the thing that puts bottoms in and then I'll check the calendar and the price.

35:44Yeah, see, I agree with that. But you have to give the cycle crew their dues. Like it did top when it should have done, quote unquote, like the number of days from bull market to bull market top. And if we do end up rallying into sort of Q4 this year, that kind of is the cycle. It is, but then if you assume that we must then top exactly 1,050 days in the next cycle and we don't, you're going to be looking at your compass going, what's going on, right?

36:08So from my perspective, if we're at 1,050 days and we're seeing no realized profit and no long-term fold of selling, it's going to be really hard to form a top. So you kind of flip it around, like are we seeing the mechanics that put a top in People messaging saying hey where do I lever up Long holders selling with massive profits massive volumes And to touch on this again in a technical detail a lot of folks asked me recently, has the cold card event, it was about 210,000, about 100 times more coins that were attacked, moved in that period of time.

36:44So a lot of people shifted their wallets and all the rest of it. Does that disrupt a lot of these on-chain metrics? And the truth is, yes, there is obviously going to be an impact because coins move. But the realized price went down from like $52 something. It went down by like $40, $50. So just to give you a bit of a sense of scale, we've got 210,000 long-term holder coins moving. Realized price moved by like $40, $50, $100, which is insignificant in percent terms.

37:09Imagine how much realized profit occurs. So when someone takes profit, it pushes the realized cap up. Realized price goes up. It's come from $20,000, $25,000 in the last bear up to $52,000. So if 210,000 coins moving in a short window drops it by 100 bucks, just think about how much profit-taking occurred in the bull to get it from 20,000 to 52,000, or it peaked at 54. It gives you a bit of a sense of scale that, like, there's a ton of sell-side in bulls.

37:38You wouldn't reuse a Bitcoin address, so why does your phone broadcast the same identifier for life? Every SIM has a static ID, and carriers, ad networks, and bad actors all use it to track you. The big carriers have been caught selling that data over and over again CAPE is America's privacy first mobile carrier Their identifier rotation feature changes your ID every 24 hours So you look like a different subscriber every single day And SIM swaps are off the table Your number can't move without a 24-word phrase that only you hold There's also no name at sign up, no social security number And there's no profile to build on you If you're a Bitcoiner in America, I honestly don't know why you'd use any other network You can head over to cape.co forward slash WBD and use the code WBD for 33% off your first six months.

38:24That's C-A-P-E dot co forward slash WBD. Do you want to pay less in taxes and stack more Bitcoin? Of course you do. Well, by mining Bitcoin with Blockware, you can. Under section 168k of the US tax code, Bitcoin mining servers qualify for 100% bonus depreciation. This means every dollar you spend on miners can directly offset your income in a single year. and it's true for both business owners and W2 earners. So if you have $100,000 in ordinary income, you can purchase $100,000 in miners and potentially offset your tax liability entirely.

38:55Blockware's mining as a service does all the heavy lifting. They secure the rigs, they source the low-cost power and they handle all the day-to-day maintenance. So you get to stack Bitcoin every single day while drastically shrinking your tax bill. Get started today at blockware solutions.com forward slash WBD and use code WBD for $100 off your first miner. That's blockwaresolutions.com forward slash WBD If you're already self-custody Bitcoin you know the deal with hardware wallets complex setups, clumsy interfaces and a seed phrase that can be lost, stolen or forgotten BitKey fixes that BitKey's self-custody built for real life It gives you an intuitive, easy to use wallet with no seed phrase to sweat over and it has a strong recovery system and built-in inheritance for long-term peace of mind And BitKey's just had a massive upgrade The new device now has a screen so before you approve something you can check it on the bitkey itself the transaction the address or any account changes it's a big difference you're not just trusting what's on your phone you're seeing it for yourself on the device it's simple secure self-custody without the stress go to bitkey.world today and

39:57use the code wbd to get 10 off the new bitkey that's bitkey.world and use the code wbd it all makes you realize how small cold card was really as a again like this was the hardcore Bitcoiners, right? It would have been catastrophic if something like this had happened to Ledger. Yeah, I was asked that question, what would happen to Ledger? And honestly, my answer is none of us want to know that story. Yeah. If it was like a Trezor or a Ledger or a Coinbase, just pack it in.

40:22Yeah. Thank God it was a small company. Yeah. And like I knew they were small. I was surprised how small they were, honestly. And again, not all the coins that moved were going to be a cold car. There's going to be people who are always moving stuff. But when you see an event like that and then suddenly long-term oil supply has just been climbing because we've got more of that hodling going on, as I was saying before. You get a very significant drop.

40:45It's related. Yeah. I want to say that that sounded very flippant, saying, thank God it happened to a small company. I'm very sorry for anyone that lost money. It's just, it could have, like for the entire market, it could have been. And honestly, I think something, I wrote a couple of pieces on this. I think the industry did a really good job in a really stressful situation of doing something about it. Yeah. As an example, I had about four of my clients reach out and say, I got hit, which is just devastating.

41:10I had about 20 people reach out. And again, these are just the people who reached out. I had 20 people reach out saying something to the tune of, I'm not on social media. If you didn't send that notice, I would have got hit. Yeah, when I did the show with Rob Hamilton, I had quite a few comments underneath saying, I'm not on Twitter. Thank you for doing that. 100%. But I think Rob, Calais, James O'Byrne, these people have done such impressive work.

41:31And the red team kind of is a bit scary. It is. They've been finding vulnerabilities in almost everything. It is. I think so. software has changed forever. One of my mates, so I had two friends that had a cold card, a Mark III. In fact, Alec, my co-founder, literally the version of the firmware on a Mark III, passphrase. So anyway, my other mate, and I said this at the meetup last night, thank God no one listened to me about Bitcoin. I only had two people to call.

42:01Anyway, he works in the airline industry and the legal side, and he had a great framework. The actual event is always a tragedy, than it is. It's a horrible thing to happen. And he used the analogy of airlines. The reason the airlines are so safe today is because we learn from all the disasters in the past, right? The disasters themselves are tragedies, but over the long arc of time, the industry hardens. We learn how to avoid those things in the future.

42:27This is engineering 101. Unfortunately, bridges fall down. And we learn how to make bridges earthquake resistant. You know what I mean? So we learn these things over time. So Bitcoin was always going to be on the forefront of these attacks. open source, codes visible. It was going to be on the forefront of these things. But if we wind the clock forward, it's going to be hardened much sooner than a lot of the other stuff in the world. And again, I mentioned this in the meetup, like, don't worry about banks and the like.

42:53Like, I'm worried about hospitals and water supplies and electrical grids and all this stuff. Like, there's a lot, I mean, imagine the bugs out there. And like, Bitcoin was always going to be at the front of this, not only because it was open source, but also like, you get someone's keys, you've got that Bitcoin. Like, there's no recourse. but like absolute tragic event. Can we get a bit of fun and talk about the bull market? Sure. This is pure speculation obviously at this point but what do you expect the next bull market to look like?

43:17Because one of the things that you always said throughout the last bull market was it authors the bear that follows and I think we've seen that. I think so. If this is the bottom we have seen that play out. Do you think we get any sort of blow off top style euphoria bull markets ever again or are they done? It's hard to tell. I'm very much of the view that anyone that says we can never go above or below a price again is wrong because of course we can.

43:39We can never have a blow-off top again. Silverbug's just got a blow-off top. They've been waiting 50 years for it. So no, I think Bitcoin can absolutely have a blow-off top because things can get just really euphoric and really crazy. So no, I don't think there's any reason we can't. I also don't think that we have to have diminishing returns. I think the market can, it'll find its level wherever it does. I don't like Anchorage saying this must happen, this cannot happen because how could you know?

44:04Does that actually work the other way where the bear market can author the bull that follows. We've set such a solid foundation here if this is the bottom. We've chopped around for a long time. Does that give us a better springboard to go from? Of course. I mean, every bear market, it's horrible at the time, but the reason it goes up is because you just get to sell or exhaust you and no one wants to sell anymore, and your ownership is disproportionately hodlers.

44:26People who want to be there. It's the same for any asset. This is not just a Bitcoin thing. We just happen to be able to see this with the on-chain side of the equation. I'd love to see the on-chain data for gold and silver because you would see all the long-term holders dumping a ton of it at the exact point in time when retail FOMO is kicking in and people are lining up and say bullion dealers. So, yeah, I think that the bear market always authors the bull and vice versa because you form the base.

44:50If we form a base at 60K, right, we're at 15.6, like the CAGR of the floor, the CAGR of the 200-week moving average is like 30%. And CAGR is a bit like inflation rate. So CAGR is a bogus metric. Part of the reason is like we've been chopping sideways for months, effectively sideways for months. The four-year CAGR has ripped from like 8% to 30%. How does that work? Price has gone sideways to down. Because we've taken our previous bull markets. Basically, it's literally an anchor.

45:21What was your exactly four years ago? What was happening exactly four years ago, we were puking down the ass end of the 2022 bear. So you're kind of measuring for a different starting point. So my preferred approach, if you're going to do CAGR, do it on something like the 200-week moving average. It's a little bit like inflation rate. What is it on the 200-week moving average? About 30%. But you've got to remember that it's like the inflation rate.

45:43It depends what you buy. The guy who bought 58K in 2021 and then just sat and is now looking at 58K and being like, man, this thing goes nowhere. The guy who bought at 15.6 is happy as Larry because his CAGR is significantly better because of his starting point. So, you know, that's why I'm like the bottom 10% of the distribution. What's the price of gold right now? Oh, 4,300, something like that. The reason I ask is, I remember you obviously told the story of when gold was at its peak and you went to the gold shop and there was queues outside.

46:17I was in a shopping center last weekend, a mall for the American listeners, and there was a queue outside the bullion place. Oh, interesting. And I wondered if Euphoria was coming back there in any way. That's interesting because I've been through Martin Place, not regularly but every so often recently and there was like lines outside ABC Bullion that seemed to have gone away maybe it's coming back I don't think there's any euphoria at this point in precious metals honestly I think precious metals were a good price at this point in time I thought when it gets to 6k Aussie which is about where we are now that's where I've been like yeah kind of happy to start rebuying because I still think golf has a very important role not that fuss on silver Honestly it was always a trade and a speculation for me But no I very much like a gold Bitcoin savings That's where I park money that I just, I know I don't need now.

47:01I might need in the future. I just put it there as safe harbor. Yeah, I pay basically no attention to gold, but I kind of get it. I just don't want it. I want Bitcoin. No, that's fair. What else have you been watching? What else is looking interesting right now in terms of the on-chain stuff? honestly I mean we've been in this bottom formation zone for a while and like I feel like I've hammered out the thesis fairly well it's why I'm like testing the extremes I ran a couple of pieces being like you know we've got the CAGR on the upside what could we potentially get to and like spitballing honestly I think spitballing like where the peak can be is much better in the bear market floor because once the market starts running it switches over but I thought the cold card incident was interesting to like just analyze how the market moved I know you spoke to Lloyd recently, who did a fantastic dashboard, like studying the attack and then how people started moving their coins and then this wave two and three.

47:52I think that stuff was fascinating to see. That show will probably go out after this one, but everyone should listen to that. Lloyd's done some really interesting stuff. He basically did the exact attack and got all the data. He's been crushing it. Yeah, yeah. No, it was amazing to see. So I think like that kind of stuff is really, really interesting. We're very much in a waiting game. You know, we're in peak apathy, which is why the market goes absolutely nowhere where even though there's a bunch of bad headlines, I really thought the cold card incident was going to be far worse than it did, and it's just sideways.

48:21So that's a data point. When it does start running, how quickly do you think we'll go back to 126k, or above 100k? It's hard to tell. I mean, look, previous bears take a long time to recover from. So for example, 2018. But when, in the last bull market, wait, which one was it? No, when we went back above 20k in 2020. 2020. 20. That was a long time, obviously, hammering out the bottom. But once it started moving, we got above 20k quickly. And it also didn't stop.

48:48I expect us to chop around the all-time high then for a long time. It just didn't carry. No, the general way that Bitcoin is traded is you have the bottom and then you have the 2023 period, which was like nine months of nothingness. Just sideways grind. Every sell-off, there's a lot of realized loss because it's a disbelief phase. People think it's just not a lower high and they've got whatever a technical model that tells them it's all over again.

49:132019 actually is a very interesting bear. There's a lot of similarities. If you consider 2019 as a bear market in its own right, coming off 14,000. So we had the 2018 bottom. And then you had the scam work because of the plus, what was it called? Plus token. So we rallied up to 14K, which is interesting because it's a miniature bull. Yep. A very heavy spot bid that sucked up like 2% of the coins. I went from 3K to 14K. Which was actually not dissimilar to GBTC in 2021.

49:40Hoovered up 2% of the supply in a very short span of time. Plus token was kind of the same, and then the CCP started mass selling it. For anyone who wasn't there, that was a Ponzi scheme running out of China. Yeah, it was. And so 2019, if you look at 2019 in terms of its own bear, remarkably similar to this bear market. It's actually the most similar. If you just map it on price and all these things, 2019 is actually the closest analog to today. We even had that like rounded top into a COVID sell-off when Strategy sold 32 Bitcoin.

50:09It's like the exact same chart. not to say that that's going to be a perfect analog, but 2018 bear market bottomed, and then we had a second bear, which is 2019. 2022 bottoms, then we had the 2023 just like sideways grind until the ETFs came in, and then we chopped around the all-time high of 2024. So generally speaking, the recovery phase is often a long journey, but it's also cheap prices relative to once it gets to the all-time high, long-term holders, and I think a lot of people understand it now, didn't see it at the time, long-term holder selling is almost always what kills the ball.

50:46Yeah. Almost always. There's always like, oh, CME futures went live or there's always a thing. But that comes after all this sell-side pressure has occurred and the real-life cap's gone up. It's a 52K in terms of price. It's a lot of sell-side. Long-term holders start really ramping up their sell-side at the previous all-time high. So they're generally quiet up until then and then they start to unload. And for those people who think the bull market starts when you beat all-time highs, you've missed 100% gain by the time that happens.

51:15Totally. And that's the way your CAGR depends on when you accumulate. And again, can't tell anyone what to do, but I'm of the view that when Bitcoin's in a level where it is now, I think it's really, really deep value. So if you've got that longer-term time horizon, I think it's a fantastic, fantastic zone. And that's why I'm a big advocate. Don't worry about the bottom wick. Just buy the whole bottom. It's a process. DCA just takes all the emotion out of it.

51:41For me, I've been in Bitcoin long enough where, like, I'm going to buy as much as I can now. I'm in a stage in my life where, like, I actually need to buy other stuff, right? Gold, equities. Just because, you know, you need a bit of diversity. As you get older, you've got dependents. There's just other things in life that force you to have to be a bit more conservative in some ways. Why do you think you need diversity? Because like the famous line from Saylor is diversifying is selling winners to buy what loses Totally understand that So my general view is that I not a portfolio of 50 things When I did that, it was shit coins and it was a bad mistake.

52:1410 grand to 10 cents, that's how you do it. Generally speaking, there's a handful of assets that are the dominant proportion of your returns. For example, I've used this for gold. It's just a great example for this. I save because I want to buy something. That could be my kid's schooling when he's old enough. It could be a house, house deposit. Imagine the Australian housing market's a great example. We're coming off the top over the course of the next 24 months.

52:42I think the Australian market probably comes down more, certainly in terms of purchasing power of other things. There is a potential world, I don't know what the structure of it is, where a ledger gets hit or something really bad goes wrong and Bitcoin just has a lot longer to chop at lower levels. but the house market is absolutely ripe for me to buy. If I'm all in Bitcoin, stiff. See, this is like a risk tolerance thing, I think, because we're in the same situation where we're both looking at buying a place at some point soon-ish.

53:09And I look at it like, have your money in Bitcoin. Like, in two years, do I think it's going to have broken all-time high again? Yes. So the price of the house essentially hurts. Sure, but how guaranteed is that? Not. No, it's not guaranteed, but I mean, it's not with gold either. I mean, for sure, it's probably going to be more stable. But if it does, I'll just wait a bit. No, that's fine. And look, I think everything is about duration. Yeah. I mean, duration matching.

53:37Bitcoin is my longest duration asset. What is Bitcoin, like from the way I think about it, my Bitcoin is there to clear my mortgage. Yeah. Right? It's there to get my kid through school because he's one, right? Not even one. So I've got 12 years until I have to worry about private school. So there's a bunch of things there where I've got a long duration. house this is something in the next like three four years right that's kind of the time frame so from that perspective yes bitcoin will probably be higher but i might need something that's not quite as volatile as bitcoin for that period of time because i'm saving relatively near term for example i would not buy bitcoin if i had a if i need to buy a car i'm not saving a bitcoin i'm saving probably cash honestly i wouldn't even go to gold so it's a duration problem the car one makes sense. I really don't understand the house one. Like, obviously, Jeff- What if the housing market is perfect in 12 months? I have to sell my Bitcoin at 60k. It's terrible.

54:30No, well, I mean, we don't know what it's going to be in 12 months. But also, I don't think the housing market matters. I think the moves in the housing market will always be disproportionately small compared to the moves in Bitcoin. They will. And so, like, even if in 12 months the timing is perfect for the housing market, you wait another 12 months, Bitcoin might have ripped another 70%. And the house, even though the house prices have recovered, you've still got a cheaper house.

54:51No, no, I understand that. But when it comes to housing, I think housing is a special case because buying your fortress is not about money. In my opinion. I totally agree. There's a part of that where it's like, it's actually just a thing where you just want security for your family. This is a different animal. I do not look at this as an investment, but I'm looking at like opportunity cost of where I can have that money. Oh, no, and look, there's no right or wrong way to do this.

55:12I'm not looking at this investment, but I wanted to buy as cheap house in Bitcoin terms as possible. Yeah, yeah. And that's why I think like for me, I actually don't really care about selling my gold ETF. Really don't care. It's purely a fiat instrument. Its purpose is to be sold for the deposit. The Bitcoin's there to clear it when the time is right. You know what I mean? So yeah, it's the way I do it. I'm sure you saw Jeff Booth talk about his house in Bitcoin terms.

55:34And I'll get these numbers wrong, but like directionally it's correct. He was like, when he first bought his house, it would have cost him 100 Bitcoin. And then by the time he sold it, it was like 12 or whatever. However those numbers worked out. That's the trend I'm betting on. For sure. And I've got a chart that shows the Australian housing market in Aussie dollar terms versus Bitcoin terms. And it's the same thing. Depreciates over time, which means your Bitcoin's kicking ass.

55:56Again, it's why I'm disproportionately Bitcoin. But also, for me, it just seems I would like to have other things. Again, it's really hard. I've said this before, but I try to get gold to like 10% of my portfolio and then Bitcoin goes up and I'm just like constantly chasing my tail. So like you actually need a Bitcoin to go into a bear market to hit your 10% level. So, you know, Bitcoin will always do its job, but yeah, it's just duration. It's funny, I was talking to Luke after the show we recorded.

56:23I hope he doesn't mind me saying this, but I was basically asking him for advice as to what he would do if he was in my shoes. And some of the advice he gave was really good advice in terms of just making sure I've got a more solid foundation rather than just being all in Bitcoin. I just can't make myself do it. I can't make myself sell Bitcoin to buy things that I think are way less interesting and have way less upside. And honestly, part of it is that emotional decision.

56:46It's hard to sell the Bitcoin. I don't care about the gold ETF. It's a number on a screen. So in a way, I'm saving there because I know I'm going to sell it. Yeah, it may not go up as much. But also, I know the wealth is going to be there when I need it. It's a psychological game. All this stuff is psychological. Work out what works for you. Don't worry about what other people are doing. Some people are going to be all in Bitcoin. I know I'm in a phase in my life where I could be all in Bitcoin.

57:11I've done that journey. I just need the 10 that not because that works for my current setup Yeah Gives me optionality Especially I got I don think I even said this but I got another kid on the way as well I know, congratulations. I mean, I know you know that, but that makes you think. I don't know, man, it's hard. It is. I just love Bitcoin too much. Yeah, no, and even with all the chaos that's gone on this week, the last couple of weeks, all the security, you know, You've seen lightning services get shut down left, right, and center.

57:43There's a lot of holes out there. After the disaster, engineering is about learning from the mistakes and it's going to be hardened as... Yeah, I think that's the silver lining that everyone has. It's easy to look at the stuff the red team are doing and be like, holy shit, so much stuff is broken. But at the end of this, we're just going to have a way more solid base. 100%. There'll be consolidation. Lloyd used a great term, it's Darwinian. Yeah.

58:04And it's going to be Darwinian for a little while, but that's kind of the world we're now in. I forget the exact terminology, but it's like vulnerable world or something. There's like this framing that we're now in a, you know, you can't obscure things and just hope no one finds it. We're now in a vulnerable world where everything is exposed. We're so digital that there's going to be just holes found everywhere. Yeah. It's going to be interesting, man.

58:26Should we talk about Bit110? Sure. This played out exactly as I expected. I think it's one of those really hard lessons. Like I've got nothing against the normal people who sort of fell for the Bit110 narrative. I've got a lot of things that I find wrong about the people that were selling the Bitp110 narrative, but everyone's learned a harsh lesson about how Bitcoin consensus actually works. Do you want to just give a take on everything that's happened?

58:50Yeah, I mean, look, from my perspective, remove the politics of what Bitp110 was trying to do, because that's its own discussion today. And I was talking to a lot of guys at the meetup last night. I agree. I would love to stop the spam. I think it'd be fantastic. I think you'd actually be hard-pressed finding too many Bitcoiners who aren't on that side. And it's funny, that got so much noise in the argument, but everyone agrees on that, generally.

59:12Generally speaking, the challenge is devs will always find clever ways to hide the data. Anyway, that's part of the politics of it. I think what's a bigger lesson here, the default answer, there was a lot of talk about we need to launch a user-resisted soft fork. If you imagine a world where that was correct, every soft fork proposal that a government three-letter agency can cook up in a basement and rally a bunch of bots on Twitter to make a bunch of noise.

59:42By the way, I'm not saying that that's what happened with Bit110. I'm just saying if the network had to actively fight every single one of these things, we'd be bug squashing forever. You'd never get anywhere. Bitcoin's done. The default position of all Bitcoin is no. All soft work proposals, the default answer is no. Until proven otherwise. And I think the main lesson that should be learned from Bit110, there was a I think delusion is probably the right word as to how far down the rough consensus path they were I don't believe they'd come anywhere close to achieving rough consensus no there's a lot of talk about miners being a cabal that got together in a back room with sailor and shut it all down look mining there is a problem that is mining pool centralization it is a problem definitely I believe BIP-110 is a terrible case study to demonstrate that.

1:00:34Why? Because the miners must sell the coins. If the users won't buy the coins, then their mine effort is worthless. As there's still miners, I think they found a new BIP-110 block today. They did, yeah. They're mining something that's worthless. There's not even a market for it. So they're kind of just burning their money. The miners follow the users. And I think there was this delusion that this was going to play out like SegWit. SegWit had consensus by the users.

1:00:59Taproot had consensus by the users. We saw in speedy trial, the miners slowly and surely flipped the bit. And over time, we actually did have rough consensus. Now, rough consensus is really hard to measure. It's not node count. It's not number of bots on Twitter. It's really difficult to measure across the board. I think it's also worth pointing out the threshold that needed to be hit for Taproot. I think it was 95%. 90% or 95%. Whereas they were asking for 55%.

1:01:24Yeah, I mean, to be honest, the fact that we didn't see any miners like pivoting to ocean in the months before and then using their BIP 110 pool, there was just no evidence of demonstrable rough consensus. So the miners, they did, I mean, not that I know, but if I was going to be, if I'm a betting man, I do not believe they got into a shady room. I listened to the stream that Canute hosted where they actually watched the thing come in. There was points in time where they said, oh, the Chinese government, the American government must have leaned on the pools.

1:01:56on my bro that's insane they don't know that this is going on no this is so irrelevant um i think that there was an overestimation of rough consensus having been achieved they believed it i think in many regards when it didn't play out as expected they needed to blame something the miners did what they should have done which is nothing they just pressed on with exact because there's no consensus so don't change the default answer to all soft forks is no user-resistant soft fork by default is doing nothing and just continuing to run the code you currently do um and i i love to use the of chess as explaining Bitcoin consensus rules to people who are like, why can't people just spin up your Bitcoin. It's like, okay, you got a game of chess for BIP 110 because they wanted to revert something. I'm like, alright, they're taking away the pawn moves to forward move.

1:02:40Right? I think it was like the 1500s where they brought this in. And then they go, okay, but chess is impure. We have to get rid of the two pawn forward move. It's the only way to play chess. But the rest of the world's like, yeah, but that kind of... No. We don't want to play that game. Chess has two pawns. This is how it works now. This is how it works. We've agreed on it. You can change the rules, but the problem is you're only going to have your small chess club who plays this weird modified version. No one wants to play that game at scale. I bet there's a chess club in the world that plays those. There is a chess club that plays with 14 queens, right? Somewhere out there, that's part of the game. But it's just not the consensus version of the game. It's a small clique of people in order to change the rules.

1:03:21Now, the reason I like to use chess as an example for Bitcoin, chess has changed. There have been evolutions of the rules. People in China agreed, people in America agreed, people in Europe agreed, everybody agreed these are the rules. So it can change. It's really, really, really hard to do and it happens very infrequently. And the longer that it goes on, you know, this is where you get to kind of ossification, I suppose. And that's not the perfect example, but I think that chess example is a great example for why we just resisted the change because we kind of like the rules as is you may want to change it and you may even have good arguments for it.

1:03:56It wasn't rough. We hadn't reached rough consensus. This is exactly how it was going to play out because there was an overestimation of how far down this pipe the system, the change was. One of the things that I found really frustrating, especially towards the end of the Bit110 thing, was they kind of took the Bitcoin mining pool centralization as their narrative, as if no one in real Bitcoin was talking about it. But this has been something we've been speaking about for years and years and years.

1:04:21And now they've got one miner. Yeah. But like... Yeah, well, exactly. Now they've got one miner. For now, until they're changing the proof-of-work algorithm. But like, the stuff that Straten V2 have done, Ocean with Datum, really like good moves. It was amazing seeing Ocean on both sides of the chain. It was the most beautifully ironic thing ever. It totally was. And the chances of... So for anyone listening, Ocean mined first or second block. Second block.

1:04:43Second block on the BIP-110 chain. And then they got the fourth block on the proper Bitcoin chain. And like, that shows, like Ocean and Datum very very cool fantastic I'm incredibly bullish on that company now Luke and Mechanic have gone and that narrative is not going to be driven as hard from that company I think that was a really really good thing to see you know I know that Foundry tried to do like a minor vote probably not the right way to do it but I hope that we do see that process where you give and we should probably separate there's miners and there's hashes right people providing the hash power and then the miners I don't even like that it's complicated but yes we do have a minor pool centralization problem I of the view and I used this example in the Meetup the other day Say what you will about quantum We can all agree I just going to use it as an example Let just imagine that quantum is like all right, shit, it's coming.

1:05:30We can see it, like they're starting to crack stuff. And it's like, we all agree that it's now happening, just for simplicity. Imagine that's happening. And then the miners refuse to put in some kind of a change. Now we have, that is a good example of minor centralization being a problem, or they want to force their own signature scheme. That is an example of a problem. The BIP110 is not a good example because we did not have rough consensus. So in the event where we do have rough consensus and the miners are causing trouble, that is a good example.

1:05:59The case where we don't have rough consensus, the miners have every incentive to do absolutely nothing because the existing chain is the default. The answer is always no and that's proven otherwise. I want to give a shout out to Bob Burnett. I heard him on a lot of spaces around the time of the fork. And I think he's been really good. As a board member of Ocean, I think he's on the board. He had some really good takes. And I'm glad there was some dissent at least amongst that company.

1:06:19No, I think a lot of people have reflected. And in my view, the correct thing to do is to reflect and go, what went wrong? Because clearly it didn't play out to plan. So rather than blaming a shady cabal, actually just self-reflect and go, well, what if there's actually a simpler answer, which is we just didn't achieve consensus? You know what I mean? You can always find a boogeyman if you think long and hard enough and you go digging through someone's emails.

1:06:42But at the end of the day, is there a simpler answer? Yes, you just overestimated where you're at. I think it's also interesting. They were claiming there's a shady cabal in Bitcoin Core or whatever. If you look at the two groups, they look like the shady cabal. I mean, there's a Discord server where they're picking a new proof-of-work algorithm now. Like, it's kind of, guys, it's a shitcoin. You know what I mean? And then in the circles that I've been in this entire time, everyone's like, please don't talk about Bitpontent.

1:07:07No one wants to even have the conversation. Everyone's bored of it. No, no. And I think it's probably time to move on and stop giving it air. Stop giving it oxygen. Because we have more important stuff to focus on, which, frankly, is almost anything else. Yeah. Do you think... One of the things that I think has been very interesting with the cold card vulnerability is the idea of covenants has come back a little bit. Sure. And for anyone that doesn't know, essentially, this just limits where you can send coins.

1:07:31It gives you control and constraints of... So you have to send it to a staging address or something like that. And I've always thought covenants sound like a good idea. Do you think this actually goes against the ossification narrative and might open the idea of having changes in Bitcoin? again yeah so i i do actually i think this has been a um a bit of wake-up call now again i'm not promoting any particular bit because i'm not i've read enough of them but like things like the great consensus cleanup is kind of just bug fixes in the world of ai i think we should actually really be taking these things seriously so i'll spend the time to review that and understand it a bit better um covenants this is one of those things where i think we have to be careful i'm for i'm pro covenants i think it a good idea uh however i also am very cognizant that this is gonna be of those things where we will assume that going to be much more powerful and then we don use a lot of the tech Taproot So Taproot is a good example. However, I've also seen a lot of people using Taproot for, you know, the Frostnap guys. Fascinating. Awesome piece of hardware. I think it's great

1:08:30in terms of like the UX and all the rest of it. Uses Taproot to its fullest extent. All of like over time different whether it be hardware. I can imagine for covenants where this is going to be really useful. You know, imagine an anchor watch or an unchained or a CASA. They would be able to use those types of things as part of their setup that the user is a bit more hands off, but they can opt in with a user interface. I think fewer people are going to be loading up their Sparrow wallet and building covenants by hand, but companies, insurance companies can suddenly start using as collateral because it can only go here and time locks and all this kind of stuff.

1:09:07I think that's where it's going to be really, really useful. There will be a lot of pushback. I mean, Sailor's a classic example of like ossification, doesn't want anything to change. I think that we should probably be a bit more open to like, but also let's not assume it's going to change the world. So maybe a bit more measured about all of these things. Yeah, no, that's fair. If you had to put like a probability on it, where do you think we will get changes to Bitcoin?

1:09:31And maybe take out like clean up, the consensus clean up. Like, that one seems obvious. I don't think there'll be many people that are against that. But a real change, like adding covenants or something like that. I do, actually. Yeah, I'm actually just gut feel. I feel much more constructive on Bitcoin is now going, okay, let's not argue over this small stuff. And I mean, you gave a good example when I spoke to you after the cold card incident. You said you put out a tweet that was saying, you know, elevating Rob Hamilton and some of these guys who have been fairly anti-Bit 110.

1:09:59Very. And there's a lot of Bit 110 folks who were liking the post. I thought that was a real unit. even though we disagreed on that one issue, there was a lot of unification at that time because we realized this is a bit bigger. Yeah. You know what I mean? So look, honestly, I actually kind of hope the gears have been unstuck a little bit and we start thinking a bit more from a technical, what are we actually going to benefit from moving forward?

1:10:19So I'm constructive. I couldn't give you odds on it. But I think there'll be a lot more technical discussion now, which is very healthy. Yeah. Do you think there's a path back for the very, very sort of loud Bitponten voices? I mean, not Luke and Mechanic, I don't think, but the other people, the sort of influencers that were on the Bitpontent train. Look, I'm in the view that Bitcoin has kind of two setups, right? It humbles you, no matter who you are in some way, whether by price or by technology.

1:10:45And you have to slay your heroes all the time, your regular thing. So, I mean, I certainly don't hold any grudges against any folks. I think that, by and large, the whole idea of Bitcoin is a single chain. If you want to go and do a proof-of-work chain, that's an altcoin, guys. That's a whole different thing. Bitcoin is unchanged at this point in time It hasn changed from however many days ago It the exact same system There a benefit from network effects I think anyone that wants to support the asset and by the way, Bitcoin is also money for enemies.

1:11:14There are people who are going to disagree as Bitcoin gets bigger on a lot of stuff. That should be the default. Yep. So, yeah, I mean... I hope they do. There's just not that many cases in history of people sort of doing something like this and then coming back to Bitcoin. Like Marshall Long is probably the best example of someone that did. He was, I think it was a Bitcoin Unlimited, the fork he did. But the shelling point is it's the money that everybody uses.

1:11:34And there's only one of them. You can't replicate this thing. You can't change the rules of chess and expect everyone to sit down and play your game. Yeah. It's going to be interesting, man. It is. Anything else you want to talk about? No, man. I think we've covered a lot. So, yeah, look, I think Bitcoin's really good value down here. And again, you've got to set your time horizons. In the short term, no one can predict anything in terms of markets.

1:11:56But from my perspective, have we seen the capitulation? I think we've seen two of them, one in February and then what I call the time pain in June, July. ETFs have capitulated. We've seen a lot of bad news. Prices have gone nowhere. The two biggest public buyers have been sellers. Prices have gone nowhere. I think we're close to seller exhaustion. If I just look at the equation, right, if we go to 45K, it's like a 2015 bear. Not that the market cares what I think we deserve, but do we deserve that?

1:12:27Probably not. I'm constructive, man. Let's go. One thing that I want people to do, so I went to the Bitcoin meetup in Brisbane last week and then last night we had the one in Sydney. I'm so bullish on those events. Like we need to get more and more people to them. There's almost been a case of, I think, shared trauma over the last couple of weeks. Totally. The cold card thing. But like the in-person events, I think are really important. So if you're in Brisbane, first Thursday of every month, Sydney, second Wednesday?

1:12:50I think so, yes. Go to local meetup. No, I agree. They're fantastic. We got a massive turnout yesterday, which was great. And just case in point, right, Bit110 is obviously one story. But we had the Q&A. It was all cold card. Everyone wanted to understand about entropy and, you know, how multi-sig works. And it was all about the technical side. So it shows that that was the shockwave. That was the real shockwave that affected people. And it was a unifying event, I think, across the industry.

1:13:19I think as terrible as the event was, given that bad circumstance the way the community rallied I think is tremendous again the Rob Hamilton and Callie and these guys I think it's incredible work it's hard to go through the storm but once you get to the other side it's greener pastures let's go thank you Checkmate thank you mate it's been awesome as always I'll speak to you in a few months good on ya Thank you.