BTC012: Bitcoin On-Chain Analysis w/ Plan B & Willy Woo (Bitcoin Podcast)We Study Billionaires - The Investor’s Podcast Network
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- 10 Feb 2021
In this episode, you'll learn:What are some of the most important trends and data Plan B and WIlly Woo are looking at todayWhat are their thoughts on a mature derivatives market having on the priceThoughts on the impact of CBDCThoughts on the India banImpact of TetherWhat is Willy's Go-To chartWilly's pricing model Vs Plan B'sThoughts on the Lightning NetworkBOOKS AND RESOURCES MENTIONED IN THIS EPISODEPlan B's TwitterAll of Plan B's writings at www.PlanBTC.comWilly's TwitterWilly's NewsletterGet a FREE book on how to systematically identify and follow market trends with Top Traders Unplugged. Elevate your writing with 20% off Grammarly Premium.Automate your money with M1 Finance. Get $30 when you sign up for free today. Give yourself an upgrade with Helix Sleep's perfect mattress for you. Get $200 off all mattress orders and 2 free pillows.Have everything you need to grow online with Squarespace. Use code WSB to save 10% off your first website or domain purchase.Create automated investment portfolios of diversified, low-cost index funds with Wealthfront. Get your first $5,000 managed for FREE, for life.Push your team to do their best work with Monday.com Work OS. Start your free two-week trial today.Browse through all our episodes (complete with transcripts) here.Support our free podcast by supporting our sponsors.
You're listening to Teip. Hey, everyone, welcome to this Wednesday's release of the podcast where we're covering Bitcoin on today's show. I'm really excited to bring you both of our guests because there are two of the biggest names in the space, and that's Willie Wu and Plan B. Both of these gentlemen have over a half a million followers on Twitter alone. And the reason why is they have some of the most fascinating online analysis charts, models and creative thoughts on what drives Bitcoin cycles.
During our discussion, we talk about some of the metrics that they find important today, their favorite metrics for looking at trends, the impact of central bank digital currencies, their thoughts on further liquidity shocks to the overall economy, concerns or risks moving forward, and much, much more so without further delay.
Here's my interview with Willie and plan B, you're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Kristen. OK, so like I said in the introduction, I've got Willie Woo and Plan B both here together. Man, am I excited to have this conversation. How you guys doing?
I'm great, Preston. I'm Willie. I'm very much looking forward to talk to the two of you. Yeah, likewise.
I've been looking forward to this all day, actually. I think this is the first time we've spoken plainly, but an honor, likewise. So, guys, I want to start off with Plan B. You recently put out a picture just showing where we're at in this cycle versus the previous four year cycles that have happened before. Talk us through this a little bit and then tell us whether you think that this is a good way to measure it, to look at things.
Just give us some of your ideas. So that's a chart that shows that price track from the housing to times to housing, that was May 20 20, and then you compare it to the other two of how things in 2016 and 2012. And what you see is that the current price track is right in between 2012 and 2016 price track. So it's it already tells us a lot. Right, because there's a lot of people thinking that cycles are going to be longer and lower.
But, well, this data point shows it's right in the middle of the last two allow things that are a lot lower. So that's one point. The other point is the chart also shows that after the initial bull market, it will sort of stabilize at an equilibrium after that bull market. So it goes down and it stabilizes. And for 2013, that was around. Well, if you compare it to current price levels, around three hundred thousand dollar level.
And if you look at the more current 2017 bull run, that sort of stopped at the hundred thousand level. And I find those very interesting, of course, because those are exactly the price levels of my stock to flow model under a thousand and stock to flow across. I should model that to eighty thousand dollar level. So yeah, I like that charge. It's very intuitive. It's very simple. There's no models. Yeah. Maybe the model targets that I brought in there, but I think for people new to Bitcoin, it's good to see that there is a very distinct pattern after the halflings.
That's a very interesting phenomenon in Bitcoin. So yeah, I would recommend learning everything about how things what that is, what that means.
And it also price wise, Willie, what do you think about using the previous having cycle, maybe the number of days, the percent that it's moved is kind of a metric to understand what might be happening this time around.
What are your thoughts? It's absolutely obvious it makes a large difference. I picture it as it's kind of like it's a shove right to shove, but like if you're sitting in a bathtub and you kind of push the water at the right time and Bitcoin has this little push, the supply shocks push on the market. The cell pressure halves because these are the new supply is at the rate it's coming onto the market as having each time. So you get the shove and then it sets up this resistance and bitcoin cycles.
And actually all the crypto the entire crypto space circulates around these four year cycles of bitcoins happening. And so no matter what in crypto you're analyzing, you're locked into these four year cycles because Bitcoin is really the huge kind of 800 pound gorilla in the room, which all makes its orbit around. And, you know, they shove tends to last. If you look back at the charts, it tends to last well over a year. And my thinking is that you get this year of momentum and then that develops this kind of I guess, you know, the upward price movement from the lower cell pressure and accelerates the price upwards.
And then people get that kind of Fomalhaut effect and people start buying and you get this run up in price and the momentum sort of loses its steam. And around the December after the happening, like the year after the happening, we tend to have seen all the market types. And and I think that's because people sell to pay their taxes because they've just had this year of ridiculous gains. And so generally agreeing with Plan B here that I'm not subscribes to this lengthening cycle thesis more that this four year cycle is the lock lukken the tax season of the December after the happening the year after.
The other happening is the sell pressure that locks us back into this bearish market. So plan you and I talked a little bit offline about this idea of the four year cycle being broken into thirds and the first third being the bull market, the price is going up. The second third is the sell off. And then the third portion of the four year cycle is the reversion back to the mean or the stock, the flow valuation. We've never talked about it publicly.
So I'm kind of curious to hear your thoughts. And if I was going to describe it to somebody who understands how the protocol works. So you have two hundred and ten thousand blocks in a four year cycle and if you would divide that by three, every seventy thousand blocks is a major inflection point. So this move that we're seeing right now, I would guess we're probably like thirty six thousand blocks into it from the having. So there's about thirty four thousand blocks remain until we get to that seventy thousand mark where we would have met an inflection point in the past.
Now, whether that plays out again moving forward, I have no idea. But historically speaking, that would be about halfway through this bull market. So I'm kind of curious what your thoughts are on the idea of splitting it in the third's and using block is maybe a good metric to understand where inflection points have occurred. That's a very interesting point, because although we don't have much higher things to look back at, only two. And that's why this this third thing would be very interesting to sort of verify this view.
But if we look at lost to a half and indeed you see a bull market that well, in 2013, it was like 17 months and two thousand seventeen. It was 13 months on average, 15 months, which is about the seventy thousand blocks that you're describing. And of course, we see the current track right in the middle. So it wouldn't surprise me at all if indeed the next all time high, if you will, will be at exactly or around the seventy thousand blocks after the Hafidh, which would put it somewhere.
And this year, December probably. So, yeah, that's very obvious. And it's also very interesting because you see the blocks online, but you can see much more in online analytics. So you see this. Why is there a bull market after the whole thing? For example, is there any logical reason? And I think there is an especially if you look at all the data and Willie will probably recognize this, but you see this shortage actually fall before the whole thing.
It's like a wave of constant demand or even constantly increasing demand. And then the supply, of course, is fixed and then it gets hot.
And after that whole thing does a non-linear dynamic that sharply increases this shortage. And it's like a wave that's hitting the beach. It gets higher and higher and higher and it breaks. And it's so interesting to see that unshaved and the same in the second period. If I look at. So the first third, if you will, as the bull market, then we get the bear market, if you will, where people followed out in in the last part of the bull market.
And they can't handle the volatility, the weak hands, as we like to call them. So they're selling normal human psychology is also there. Right? There's far more there's fear. And you see this fear in that second third of the cycles. And after that second part of the cycle, you get the last part, which is that you climb out of the bottom of the bear and you sort of stabilise around the price level. That is reflective of the demand and the supply at the time.
And then it slowly builds towards the next half. Very interesting to look at it. So will be a lot of people listening to this conversation right now might be fairly new and you're the expert of launching data and in kind of reading where that's going to take us kind of moving forward. I'm curious what some of the trends are that you're seeing today that people listening might find interesting. You know, the Unchained Data, it's it's very interesting in every cycle is completely different, and as is this one, the one that has been very interesting to me is that there's just so much of the coins that have been moved off the exchanges.
And, you know, like is plan B might break the cycle into these three phases. I break the bull market into three phases and you kind of have this accumulation being biased and you see this price floor you've seen it in every cycle is a flaw that it doesn't drop behind below because buyers will just keep scooping up those cheap coins and then you get this initial break out of that downward move. And that's the initial early part of the bull market.
It's popped. And then you get this thing where it settles in. Typically traditional investors, we call that the re accumulation phase of the bull market. And with Bitcoin, because we've got this ledger, you can actually see the capital flows. And this accumulation phase coincides with the inventory sitting on these exchanges where a lot of people store their coins with a lot of people speculate and you'll notice that the inventory starts to drop. These players come in and they buy those coins and they take them off the exchanges.
They put them into cold storage and they just keep accumulating. And you see this kind of depletion. In the last cycle, we had five months and this cycle it's been, I think, 11 going on 12 months. I'm not even sure if it's over yet.
So this phase has been going on for over two times longer than normal. And this obviously goes with all of this narrative we're seeing with institutions coming in. It started just before the crash, and that was six months before MicroStrategy announced that they started acquiring large amounts of Bitcoin. Michael Saylor himself said it was six months that they needed to get greedy to buy the coin for that company. But we know that he and his peers bought most likely six months earlier, and that coincided with that, the start of the accumulation.
And that's still going. And what we expect right now is that eventually retail will come in. And that's what we're seeing right now, is that since the Bitcoin sort of topped out at forty two thousand, we've retested around twenty nine thousand. And when this consolidation began of up, down, up, down, shaking out the weak hands that have just recently bought, we're seeing this quite accumulation of even more wells come in. And we're seeing the very first hints of retail.
And when retail comes in, you'll see the inventory on spot exchanges increase. Now they increase because retail a small holders and they tend to store their coins on the coin basis of this world. And so in the later phases of this bull market, you see the inventory on these exchanges increase and we're still not seeing that yet. So we're still really early in this phase is just mind blowing how different it is and that the length of the accumulation of exchanges is so long and so deep.
And secondly, the amount of whales which are holders of more than a thousand coins, so around thirty five, forty million dollars of Bitcoin upwards, they're exploding in numbers right now. And we've never seen such a sharp climb. And that species of holders then typically you see that climb early, they'll sort of stabilise near the end of the bull market and then they start selling. And we're just seeing a rapid climb right now. So it's an incredible bull market.
This wild, like technical traders looking at the price say this thing's overheated. Now, I've never seen a move like this in my career inside Bitcoin, where the price goes as sheer vertical wall. Yet the fundamentals of the buying is supporting that. And there's no real path right now for us to go down to some people who are saying twenty two thousand dollars, you know, my modelling were bare for right now is around three and a half thousand.
I think I checked this morning. And that's based on the amount of capital that's coming into the market. So plan B, you had mentioned that the volatility in how violent it gets at the top is what really kind of starts removing some of the speculators and then you get the crash that follows based on what Willie just said, if this trend of pulling coins off the exchange, corporate buyers stepping in and putting it on their treasury, and they're looking at it from a strategic long term interest of, hey, I'm going to hold this thing for five or 10 years.
I'm not stepping in and being, you know, a day trader and trying to capture price movements on a day to day basis. So if we see this trend continue, which it has not let up correctly, this this is just the people pulling coins off the exchanges, keeping pace. It hasn't slowed down. Does that mean that that volatility that we've seen at the top, call it seventy thousand blocks after the having, might not be the same?
Would that be your expectation? And I guess I'm opening that up to both of you guys. If I may first add to what he said about exchanges, where you can see people taking the coins off the exchanges, you can see actually also other stuff on chain, you can see markers that are very specific for a bull market or markers that are very specific for a bear market. So you can actually really let me phrase it always. If you give me one month of blocks only on blocks, I can tell you without looking at the price, if it's a bear market or a bull market and there are very distinct markets, it's like looking at at a radio telescope data, you see these impulses, these spikes, these patterns.
So I totally agree with the theory that we're in a bull market and into early phase. So we have a long way to go, if you ask me. We're in the bull market since November, December. So we have, well, at least a half year to go. And volatility wise, what you see in bull markets normally is that the volatility disappears. Right, because it goes up and up and up and there's less volatility. And then the big volatility comes when the bull market is over.
So after the crash, that big crash brings the volatility back. But there's also a big difference between the 2013 and the 2017 bull market. For example, the 2017 bull market had six or seven corrections in between and big corrections like 30 percent corrections all the way to the top. We did not see that in 2013. So that was one big plateau, if you will. It jumped from five dollars to one hundred dollars and then it stayed there for a couple of months.
Then it shot up to a thousand dollars, but no corrections in between. And so it's very interesting to see what what we will be having next few months. There will be 30 percent corrections in between like 2017 or not. But on the whole, I think if we look at the return distribution of this thing, Bitcoin, it's not a normal distribution for sure. Of course, it's a very asymmetrical distribution. Depends on how you see it. But it's so distribution that we'll have volatility, I think, till the end.
So it will not be like a classical startup or venture capital or Amazon like stock that you have the volatility at the beginning. And then slowly when it goes bigger, the volatility goes out. I know a lot of people see it that way. I don't see it that way. I think it will stay a very asymmetrical distribution of returns with a lot of big swings upwards, big swings downwards and very asymmetric. Like, for example, we have in the last 12 years we had, I think two or three down years and all the other years were up.
So the chances of having an up here will be so much higher down year at that asymmetrical part is part of what investors like about Bitcoin, of course. And I also look at IBM's data. Do you have the price data? But another thing I look at very frequently is the derivatives markets. So in this case, especially the option markets, of course, and they trade volatility. Right. So they trade implied volatility and you can derive implied volatility from the option prices.
And these option prices show, well, 80 to over 100 percent implied volatility still for options out one year from here. So I guess we will have volatility all the way to the end of this year. And I don't see it going away, to be honest.
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I want to get back to the derivatives, but I want to give Lily a chance to add his comments. You know, the volatility changes over each cycle, you know, when I look at the price chart, I just see the entire history of Bitcoin etched on it, you know? So I've pulled out the data from the very first day that we at a price, which is in 2009. And I know many people see that on their charts because Mt.
Gox didn't launch until I think 2010 11. And you can see this whole litany of different volatility and prints. You know, for example, the 2013 it was the first major bull cycle where the whole world had access via Mt. Gox. So we kind of had our first liquid market and we had that double rally, that double pump. And I liken that to like an impedance mismatch of the sheer wall of capital coming in to this tiny assiut. And you see these waves get set up and traders will see this in a shorter time frames.
When there's a huge rally, they set up these waves and there was a 93 percent correction and it wasn't a bear market was a consolidation, because you can look at that on the unchanged and you can see that the buyers were still accumulating and it was really for another move up. But anyone in traditional markets would have said that's a crash.
I think a crash is anything over 80 per cent or maybe 60 per cent.
There was the imprint of volatility from a whole bunch of people coming in and buying quickly and leading that. Correct. And the last cycle, particularly in the twenty eighteen phase onwards, we had the invention of beatniks and we started to see these very, very, very high volume derivatives being traded. And in that market we started to see the price being controlled by very high volume traders. And you start to see this different pattern happening. And it just so happens that in the last two years, the whole price of Bitcoin has been trading until recently, well above the kind of what I call it, a floor price.
But it's also what you might say is a model of what the organic prices supported by the long term investors of Bitcoin, not the short term speculators, and whenever were high above the organic price. We have a lot of volatility. And what's happening right now is that we've got so much spot buying, actually buying the underlying asset and doing a way that the floor price has been creeping up and creeping up and you'll see the volatility drop. It started dropping after covid.
And while people were seeing this price whipsaw up and down, up and down, this organic valuation crept up, crept up, and it squeezed the price upwards because the UpDown movement couldn't go down anymore, had to go up. So right now we're seeing this volatility reduction. And that's because Bitcoin is now getting into the spot dominance where underlying asset buyers are holding it rather than the short term speculative markets determining the price. And so I think the cycle, we'll see a net reduction.
We're already seeing that in volatility near the tail end of bull markets. As always, the price starts to get overheated. We start to rise above this organic valuation. The tops are always formed by lack of buyers. You can actually see this through industry data. You can see it through, you know, like exchange user accounts. The new rate starts to reduce the wallet companies to start to see a reduction of people coming in.
And so that's sort of like buying and holding. Organic price doesn't climb. The price still carries on with momentum. But then at whipsaws up and down, that's when you get this volatility. And so I think that it's going to be really interesting. The syrup we've got right now going into this next bear market. I know it's early, but like thinking of the next bear market, I don't know yet. But what I see is leverage is a friend of volatility.
And this is the first bull market with the head and bitcoin with significant amounts of leverage in the system. We've got, well, well-developed derivative markets. We've got products like Block five, which allows you to loan your Bitcoin or put your Bitcoin out there, gain interest and or even get a fiat loan of that collateral. And a lot of those guys, Blackfire has reported that they're using it to buy more Bitcoin. So essentially this is a massive leverage coming into the market.
So that's probably going to create a pretty volatile bear market, I would say. Yeah. So the whole block fi thing in the lending and you look at how much that market, this whole derivatives market has matured since where we were at four years ago, it's kind of mind blowing how big this has become. Now, what I'm really interested in is hearing your thoughts on this idea. So when I was listening to interview with Zach Prince about Block VI and the question was, well, why would anybody borrow Bitcoin at nine percent interest?
Why would somebody do that? And his response was, well, you have one of two situations. You have a corporation that's just looking for working capital really fast and they're going to pay it back almost immediately within 30 days. So it's not a real big deal for them. And the other person is a short seller who has to have Bitcoin in order to sell it short. And I thought to myself, OK, well, that's kind of interesting.
And this is just me playing this out. I'm kind of curious to hear your thoughts. Let's say you're a Wall Street type and you're able to sell it short and you come to a place like Block VI with USD in dollars and you put that up into escrow in order to borrow Bitcoin so you can sell it short. If you're not borrowing or lending Bitcoin, you might not fully understand how this model works and it's through over collateralized debt. So if you want to borrow one Bitcoin and let's just say the price of Bitcoin is thirty five thousand, you're going to have to over collateralize that at I don't know what the amount would be if it comes down to the rates that they use on their site.
But you're putting in more than thirty five thousand, you're putting in call it fifty thousand or sixty thousand in order to take out that thirty five thousand dollar bitcoin I would imagine. But I don't know for sure that block fee would immediately convert those dollars into Bitcoin in order to hold that in escrow, because that's what the lender provided so that they don't have any counterparty risk.
So what I find fascinating is, is you're having these people that are locking up Bitcoin in Blackfire in escrow, but they're over collateralize and what they lent out, meaning the amount that's getting locked up that can't go back onto the market, is more than what's being dropped into the market, into a short sale. So because of over collateral ization of all lending that you're seeing in the space, does this turn into an event that maybe drives the supply suffocation even more than what we've seen in previous cycles?
I think it will and actually I tweeted once that forget about the mass adoption, it's all about arbitrage and arbitrage will bring this about. And that's essentially what you're describing, landing bitcoin to go short, handing out your Bitcoin for interest.
There is an entire space right now that's effectively arbitrage and the quantitative easing, easy money world with negative interest rates. And I mean, I'm talking from a European perspective with minus 4.5 percent interest for all accounts with more than 25 dollars in the bank account. We're really looking for alternatives. And what you see right now, if you look at the futures markets for bitcoin, is a 20 percent, 15 to 20 percent base rate. So if you have Bitcoin, you can lend it or you can have it.
But if you don't have it, you can lend it. And then you use that Bitcoin that you have and you sell it one month further or three months or a year further. That's a short right. By the way. That's not a naked short. That's not selling a future, selling a Bitcoin that you don't have that. Selling a Bitcoin you have. So there is no risk. You just sell it. And the thing is, the future price of Bitcoin is about 20 percent higher on an annualized basis than the spot price, the current price.
So if the spot price is 35, then the future market would be a 38 or something. So that's an instant profit with almost zero risks because futures are collateralized daily to the tune of 20 percent.
Right. Yeah, yeah, yeah, so you can get a 20 percent return, almost risk free, and it baffles me. I really don't understand why not everybody is doing this, because even if you don't like Bitcoin, don't know what Bitcoin is, you can get Bitcoin by Bitcoin and sell it immediately at the same time for 20 percent more and cash the 20 percent in the foreign exchange of your choice. And that's the game. That 20 percent, of course, opens the door to a more up to lending business opportunities.
Because if you have cash, if you have funding, if you have Bitcoin, you can get the 20 percent. So every percentage below 20 percent, if you can borrow money for 10 or five or even zero percent, that's pure profit. The only restriction here is funding. And I guess that's why those companies are growing so fast and the market is growing so fast. So I also see this whole future's market and derivatives markets growth as a opportunity, not as a risk, nor a lot of people see it as a risk and people suppressing the prices with futures.
But I see it as a very natural place where speculators that want the leverage find the Wall Street types that are perfectly OK with the risk free 20 percent.
Do you think it's a regulatory thing, plan B that's that's holding back like maybe these big bankers can see the trade, but because of regulatory reasons, they just can't step in and do it with the massive amount of funds that they're sitting on.
No, I don't think that's it.
I think a lot of those big banks and even insurance companies have commodity funds and commodity mandates on their balance sheet, and they are doing this exact game with gold futures and then they earn one percent every year, which is just laughable compared to Bitcoin. The only thing is that Bitcoin is a new assets, so they don't know it. And most like 80 percent of the old traditional banks, the old institutions, I mean, I can see it because I work at one.
They are captured in this narrative of it's drug money, it's for criminals. It boils the oceans. And they're really stuck into that 2012 narrative still. But the the smart guys, the fast guy, that little bit smaller guys, the hedge funds, for example, they're moving fast and it's fun to watch. And I really don't understand why not everybody is doing it. And my guess is that more and more people are doing this like every day more capital gets allocated to this kind of arbitrage, like I see them and we haven't even talked about the option market.
So, yeah, I think a lot of the action is going to take place here, you know, on the options side.
And I want to get over to Willy Bit back in June, the price was I want to say it was around eight to nine thousand.
I bought options, long term call options. They were like, I'd say three thousand dollars for a ten thousand dollar strike. I was paying three thousand dollars for these options at a ten thousand dollars strike and they mature in December of twenty one. And so I'm not bringing it up because of how awesome the trade has been. I'm bringing it up because the person on the other side of that that wrote the contract had to lock up a bitcoin for every one of these contracts that I bought until December because their European style options, so that Bitcoin has been closed off the market, it's sitting in escrow, one hundred percent escrow, and it's never coming back on the market until December of twenty one.
It's crazy to me. And it's great because you are happy and the guy who locked up that Bitcoin is also happy. Yeah, and that's why I think it's a very natural meeting of the minds of people that are used to five percent interest. The reason why Plan B is saying that the person who who wrote the contract to me is happy is because they were in the market to just capture that spread that he's talking about, that 10 to 20 percent spread between the long and short.
So they had a short term focus. I had a very long term focus and we both walked out winners of what we wanted. So it's crazy. Or Preston, they have different balance sheets, like you might maybe put a million and call options like this, but the other side has maybe a billion or 10 billion to invest and they cannot do that in coal options. That would be too risky. It's also a risk return game. So the 10 billion they have, let's say one billion, they can put it easily in something that gives them a 20 percent risk free return.
Right. Because they don't have to have capital behind it. There's no risk they can put that big chunk of money to work. But with smaller amounts, you can do the leverage like buying the coal option you just described. But maybe one more thing, and that's a bit of a mistake in the markets, and that's why you can see the markets are not mature yet as well. Normally, you would as a professional investor, you wouldn't do directional bets with options.
So if you think the price goes up, you would buy futures, not options, because options is a volatility straight. Right? You sell options when the implied volatility is high, when it spikes and the fear is at the highest levels of the market. And then you so you sell them at that point and you buy them back when the fear is gone and the normal market returns and then you pocket the volatility difference. Volatility harvesting is the name of the game.
And that's what they do to big players, the one with the one billion dollars he's going to do. Right. Those options to sell all options when the volatility spikes, when the fear is at highest level, and then he buys them back a month later to normal prices. Yeah, and I think there's a lot of people doing directional bets right now with options, which is easy prey for professional investors. Willie, you got any thoughts on some of the derivative stuff?
I just like to see more of the cyber trials going on, because it's definitely going to make my funding of lungs a lot cheaper. You can see how inefficient that market is. And I I just gather like anyone who's in the space that really understands that they want to go long. They don't want to be in the US dollar basis. But certainly these additional funds out there that want high yields, low risk US dollar kind of faces, they really need to be in this game.
I just think that by the time they understand it, like I do think that they want to be exposed to the long side of it rather than be the sort of market neutral arbitrage you would gain. So, Willie, before you were talking about this like a price ceiling, you had mentioned that when the price goes up and goes through this price ceiling that you that you've seen historically that the price is strughold after doing something like that. I'm looking at a chart off of your Twitter.
It's just titled Bitcoin Price Model. And you have this line that's that's way above where the price is typically at. And then you have some lines down there that are kind of representing a floor. Can you talk to us a little bit about this? And more importantly, I guess the thing that I'm really trying to get at is if you would see this ceiling projection model still stay significantly above the price action and let's say we're beyond this seventy thousand block mark.
Would you view that as a sign to continue to stay in because the prices might be going higher? There's a mean reversion model. Fancy words with saying they're everything to its averages, but this one tracks the averages as it pertains to the very tops of the market. And it's, you know, every single top in the history of Bitcoin. And even in the early days, it doesn't quite cause a lot of things don't hit in those early days, but only because we don't have the price of Bitcoin from the time that Satoshi started mining and new liberty standards, you know, first priced bitcoins via electricity.
So I actually think that model even works back then. I don't know why it works. Maybe it's because Bitcoin is like a machine. It's got a very mechanical price rhythm to it with the happenings, the supplies, we see it. But yeah, I have a lot of faith in that model. It tends to work. It always has work, I should say. And right now when I'm looking at it's one hundred two thousand dollars and it tends to curve upwards.
So we've still got a bit of room to move. You know, incidentally, in 2013 where it hit those two very big rallies that hit the ceiling twice before it topped out. I'm seeing covid explain what that is for folks, and this is the flaw in the model is titled CVRD and does that also play into the top of the model as far as the ceiling? Yeah, very to the very different models, the CVRD stands for coin value days destroyed, and I should just call it the bottom model.
So it's based on one of the very first on chain indicators, which is Bitcoin days destroyed. So we look at how much destruction there is per day. And that's just a fancy way of saying we look at the coins that are moving between investors over a window of a day, and then we look at how old those coins have been latent in a wallet between moving from an old wallet to someone and new investors wallet. And so you kind of tally up the days that was those coins have been latent in.
Those are the days that you've destroyed as those coins moved in. So it kind of works in this way where if you get like maybe it's Voorhies or maybe it's a Rajvir. These guys bought bitcoins from the early earliest times of Bitcoin and they bought it maybe a dollar, maybe 50 cents. Now you've moved it to someone who's buying gold at thirty five thousand dollars. Essentially, those guys are going to be wanting to hold their coins. I want to hold their coins at these higher values and so the floor rises accordingly.
So this is what this attracts is all coins move to new hands, the floor price moves up and of CVD and that model hits all the bottoms. You're not joking, I'm looking at the bottom that played out on the last four year cycle and I mean, it literally came and kissed that line and that was it. It's amazing. Yeah, they find a lot of this in Bitcoin is that it's very robotic and mechanical and it's just mind blowing how these models can put a wrapper around the price range and predict way ahead of time where the bottom may be.
And what I like about this model is that it goes up, only goes up. It's very hard for it to go down. And so as floor rises and rises and you're coming into BMF and you're in a bear market, you see this rising floor coming up at you as the price is dropping. So you kind of get a good signal there of where how much further it may drop before the bear market is over.
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Because I think this is a really important piece. I want to hear your thoughts. Yeah, I think it's logical for central banks to introduce central bank digital currency, quite frankly, it's not Bitcoin, right? Obviously it's a centrally controlled thing. They want to have control of the central banks. They'll control the money supply. So it's not scarce like Bitcoin. It will be easier for central banks to do quantitative easing even more easy than it is today.
And it will be especially more easy to get that money in the hands of the consumers of the people, because right now they have to they create money, right? The central banks, then they buy government bonds and then the governments have this money and the money then has to go to the people through fiscal policy. And that's where it stops a lot of times. So the central banks are actually frustrated, but governments are not doing their part and doing fiscal policies with the central bank digital currency.
They can bypass governments altogether. So you just got a wallet and they put money in that and you can spend it in the supermarket. So no fiscal no government need it. And also no banks needed, by the way. And the clearing and no. So the whole industry is a major threat to the traditional banking industry and it should be a top priority for a CEO of of all the banks in the world, because they're going to be bypassed by their central banks very soon because I think they will introduce it somewhere this year.
And then another part is it is necessary to for central banks to do this because they have to go to negative interest rates. This will allow them to do that much faster because you're locked in into that central bank digital currency system and they'll just say it disappears if you don't spend it in in a year or they they put a negative interest rate on it, which is basically the same thing. So, yeah, I think it's I think it's a logical step for the central banks to do, but it's something completely different than Bitcoin and it doesn't pose a threat to Bitcoin at all.
If anything, it will it will make it easier for stimulus money to go to the public and for the public to use that stimulus money to buy Bitcoin, unless, of course, they prevent that, because that's sold out Aparo central bank digital currency. So they can put all sorts of restrictions on it. They can freeze at well, they can freeze your accounts. If you go to the wrong meetings or vote for the wrong people, they can just take your money and they will maybe not allow you to buy Bitcoin with it, which is even more reason to buy Bitcoin right now.
You're saying that this is the highest priority if your banker is a threat to the business. Do you think that that's going to cause bankers to be allies of Bitcoin? Very interesting thought, I don't know, but it's it would be a smart move, actually, because it would be one of the few things that they could do in that kind of environment. They could do custodian services. They could make it easier to buy and sell Bitcoin, and they could open up the derivatives markets and indeed provide some kind of interest.
So a bank could be could do what Blowfly is doing. It could be in the middle of this complex derivatives game. And if half of that profit as an interest to their customers, which would make a hell of a lot more sense for customers than keeping their money in central bank digital currencies with negative interest rates. Great idea. What's your thoughts, Kristen? So I think that when you look at the whole Teather thing or any stable point, for that matter, if it's not auditable and some type of regulatory body saying, hey, we conducted an audit, they were 100 percent backed to prove that there's no fractional reserve being generated behind the scenes for whatever stable coin is.
Is that the stable coin that might be put up as collateral? Could maybe the underlying piece of it, the protocol and the people that are managing that centralized token could be running a scam in the background. Does that have any type of long term impact of Bitcoin? Absolutely not. It just has an impact to the people that might be exposed to that through lending. And so with the central bank digital currency, you basically remove that risk because it's being issued by the government.
But I think if I was going to push back on Plan B's thoughts on the programmability, I think that gets really hard. I think it's easy for us to say that all those things are possible. But I think doing it from an engineering standpoint would be a little harder than people realize or think. But that's just my two cents without having a lot of background or understanding of how that would actually take place, I just kind of suspect it's a harder engineering problem than that.
Maybe we perceive it to be. You know, I've been in Bitcoin since 2013, and like I know the first few years, probably still true today, a lot of people have a resistance to buying Bitcoin because they see physical dollars in their hands and they go, this is what just what a screen on my phone. And they're not used to this idea of evaporating and selling this cash that they have in their hands and having, it appears, digits on the iPhone.
You know, obviously, it's sort of like upwards generation, which, you know, that's most of the wealth that's being held in those generations.
And like if we move to a digital currency and that's mandated by central banks, I think that you've just destroyed a lot of the resistance because everybody's on a digital dollar.
Now, I think that's actually quite bullish for Bitcoin because of the sheer mindset of going, oh, yeah, now I'm forced to be in digital and this is digital and so is Bitcoin. That's a great point, and I've heard the same thing, I think when people can't tangibly touch it or feel it or see it, it's just it's very hard for them to wrap their heads around what it is. Yeah, so what's your guys thoughts on the whole India news and what kind of implications do you think that has for other countries?
Well, he has a better view on that as me. I just see it as a China ban. What used to be China bans Bitcoin is now India bans bitcoin off off. But maybe that's too simplistic. Look, we've seen all of this happen. We've seen I was arrested in Pakistan, been in countries go and attempt to ban it and then they backpedal. I just wonder how long it will take for them to back pedal. You know, if you think of Bitcoin as the monetary network, the monetary Internet, you might as well just ban the Internet from your country.
And then and I see how how well your country will thrive without the efficiency of the Internet and how well your country survive without the monetary network of the future. So I don't see that's going to stop me thinking, you know, if you look at the history of Banning's is that it just makes that asset even more prized. So people tend to buy it more. I know the price was up on the day it was announced. Usually when you ban something but you make it illegal, then when you criminalize that price goes up.
Right. It's something in this I should look into it.
So I want to talk just overall macro market right now. Do you guys see a big liquidity crunch, credit crunch like we saw in March, playing out again maybe this year or the year after? And what are your thoughts on what that might mean for Bitcoin? You mean March this year was covid, right? Yeah, the big downturn that we saw just a run for dollars back in March. I don't think we're going to see that again. I think the central banks are ramping up the printers and their stimulus and our quantitative easing.
So liquidity, I don't think that will be a really big issue. Solvency, however, defaults, and especially after covid with all the companies in real trouble because their business is essentially gone. Right. Are people going to fly again? I mean, you can stimulate Boeing as much as you like, but they're not going to fly again. And same with restaurants. You can help everybody through the winter, all the restaurants. But if people are not allowed to eat in restaurants, the business is gone.
So there's a long term or solvency kind of problem lurking underneath. And I think that will be a really, really big problem more than a liquidity problem. The covered event was one in one hundred year pandemic, and, you know, I look at that as the whole world stopped revisited the risk models sold to cash or the markets crash against cash and then they redeployed. And I don't think we're going to have this talk. Is it going to be some sort of a black swan or something unexpected?
And I think people are very much expecting what's coming out. And I do think the course of action right now is just print more money. So people are very heightened to a potential crunch, which means that it's more or less, you know, the risk models of planning for it if it's going to happen. So it's usually when things happen, that is beyond what we expected, that you kind of see the sort of crash where everyone runs to the safety of the US dollar.
So any kind of downward move, I think, is going to be met with more quantitative easing. So it's just bullish for Bitcoin. This is the question I've really been waiting to ask, you can only take one chart with you to show somebody because you two have the best charts out of anybody on Twitter. What chart does Willie take and what chart this Plan B take? Really, you go first. I get asked this all the time and I go, what is wrong with you?
It's like you want me to pick one shot because the nature of this question is showing me this thing that's going to work and will forever you know, I will start off as traitors or whatever. Show me the simple sign. Let me is let me rephrase it.
Which are you most proud of, Willy? Like most proud of. I don't know, I mean, like I would get asked this question, but phrased differently, OK.
The one that I have is a proprietary flow model that predicts the floor price of Bitcoin based on the capital flows coming in. And it's very responsive, very accurate. And it's not if. Interesting boy, I want access Quamby, I would take the stock to float its gross asset chart with stock to flow on the x axis and market value on the y axis. With all the markets plotted together with gold and silver, real estate and the clusters of the Bitcoin prices of the last four Bitcoin price clusters.
And what I like about the chart is that it even without mothe without a model at all, you can look at the data and you see this historical track, 12 years bitcoin going one direction. And then at the end of that track lie the four other markets, silver, diamonds, gold and real estate. I just know it just sort of feel that this is not coincidence. And the bonus point, I think what this chart really shows, what gives me all the confidence in the world is that gold has a higher stock to floor at a higher value, but real estate as well.
So we don't have to extrapolate like all other models. I know we can just interpolate in a data range that we already have. So, yeah, for me, that's the one I take with me. It's not the best chart to show at a newbie, someone who's due to Bitcoin, though. So it's a chart I would take to my banker friends or investors that no risk return and bitcoin history and all that.
Can I jump in? And I said, this is like, do they ever come back and say, well, I expect I know that, like, the stop the flow goes to infinity for Bitcoin. So what happens on that range when you know it's perfectly scarce? How does that surprise? Yet they keep asking that. That's the question. Oh, good. All right. But frankly, I don't care. I'm focused on it's like a weather forecast.
I'm not interested in the weather over 10 years. I'm interested in the weather tomorrow or next week. And right now I'm interested in the Bitcoin price the next four years when I expected the market to go to five trillion. And then after that, I'm really, really interested in the next phase that we can interpolate when we go off the real estate, when we go to 100 trillion US dollar. Oh, I like that name market. And after that, yeah, I don't know.
The whole world changes. We probably count everything in bitcoin. That's exactly right. It's like if it actually does get infinite, right, because you lose the unit of account and you estella's because it's the new money. The question would be akin to, let's say that you didn't have all the countries in the world, but you only had one country, one country, and there was one currency for that country, what would be the value of that currency?
You arrive at the same situation, right? Yeah, you'd have to value it in horses and houses.
And that's the only way you could value GDP yet. Goods and services. Yeah, exactly.
It's kind of funny that the global debt market is one trillion euros dollars. The global equity market is 100 trillion dollars. Global real estate market is one hundred trillion euros dollars. That number comes up too much. I've been thinking about this is this whole thing about a unit of account, this dollar thing, you know, like how big is GDP? Well, GDP should be the unit of account, like how much money do we need to print so that the amount of units of trade match is roughly GDP.
So we think flows. And in Bitcoin, we don't do that right. We've got twenty one million bitcoins and we just keep dividing it smaller and smaller.
So like if you know, I kind of think sometimes Satoshi if he had just invented Bitcoin with a unit of total unit of all coins in circulation is one bitcoin, we'd get over this whole idea of I can't afford a Bitcoin because you're having how much of the slice of pie of bitcoin do I get?
And if it became the entire monetary base, then that one bitcoin, the only amount of coins in circulation, that one Bitcoin would roughly equate to GDP. And so you get away with this idea of you can just talk about slices of the GDP and at least people would start to think about the economy and get in without being sort of led astray by this unit of one U.S. dollar. Never thought of it, that is a yeah, that's a really cool idea.
I love that. And Robert Breedlove loved it, too. Hey, guys, what's your thoughts on lightning?
Very interesting, of course, with the stuff that check balance. And I was doing a straight lightning and the other second layers on Bitcoin are for the next phase. Right. This will bring the transaction back to this store value thing that Bitcoin is right now. And it will make very cheap, fast transactions possible. And I think it's the next thing and it's big, actually, if you think about it, you need Bitcoins to be part of this transaction network.
So not having Bitcoin is a real disadvantage. I could envision a world where you can have a credit card once you deposit the Bitcoin as a collateral and then you can buy at the supermarket. And if you don't have Bitcoin, you don't get the credit card you cannot buy at the supermarket or buy certain cars or travel or so it becomes sort of you have to have Bitcoin, otherwise you can't be part of the economy. And it's very akin to like one hundred years ago you had to have land, right?
If you don't have land, then you have nothing. You can put yourself to work, but you would never earn the money, never enough money to make a good living. You need land. And that, of course, was Thomas Piketty in his book. The Capital Book was the big socialist movement against it. But if you don't have land, you are nothing, and that we might have a new world where if you don't have Bitcoin, you cannot be part of the lightning network.
You cannot have a credit card, you cannot earn an interest because you will be at the mercy of the central bank digital currencies with negative interest rates. So, yeah, you better get some. That's how I envision the end game. You know, if you look at that from an engineering standpoint, it's not really ever going to scale if everyone's using the main train.
And so we kind of need a way to get the throughput of transactions to carry global commerce. And there's really no other technology that I've seen. You know, you've got side chains, but that's kind of centralized. You need federations, interested parties essentially to make that work.
And so Lightnings, the best shot we've seen so far. And it's still in its early stages, but the performance on the stuff is just so great.
And like I was thinking, you know, here's one implementation, which is Jenolan strike start up and then they convert whatever currency you're sending. Maybe it's US dollars and I'm sending euros over to Plan B. It converts to Bitcoin and it zaps along with lightning within milliseconds. And does the forex transaction to Europe and other things is instant and occurs to me this is like straight. Could I use Mongo DB because both sides of that transaction is like converting the forex to customers on their straight apps.
And so they chose to use Lightning Network as a proof of concept of how this works. What would make it really interesting is it's not strike on both ends and it zips across. And it was another company, another bank, another payment provider that came in and converted back to euros for Plan B, and then you got interoperability between essentially users that he built on the Bitcoin network, the Lightning Network. And it's not just this monolithic one app and that decentralizes this.
Normally we see as this one payment provider, like whether it's a transfer wise or any number of their competitors. And so I find that very exciting. It's almost like the DNA of Bitcoin, whatever it touches, the decentralizes. And so, yeah, it's I think it's very exciting. It's incredibly exciting right now. This is the first time that you two have had a chance to talk. Do you have any questions for each other? Yeah, overreactive, which is, I think, a question, which was what happens when I'm stuck to flow to INS?
Perfect. It's a perfect scarcity, I guess maybe a question, as I see a lot of interesting charts that are coming out, but they're not the well known stuff to fly models.
But I think I just saw recently it looked like some sort of heat map of the block chain and blocks. And you're building models right now from it or like, is this like this year research process you're going through right now? What are the goals of this research? Yeah, that chart is the entire you take the set of Bitcoin and I track it from block to block, so I have six hundred thousand of those charts and that's about 100 million data points.
So it's really a lot of data. And what I do is it's input, it's food for my models, actually. So those are the X-ray pictures that I'm looking for, patterns and the way actually that you do them as well. So I look for coin movements. What are the old coins doing? What are the new coins doing? What are the bigger amounts doing? And the lower you take those doing? And who are they coming from?
Are they coming from exchanges? Are they coming from miners? You can, of course, also track the Satoshi dice coins or all kinds of known addresses you can track. And yeah, so I track basically the changes, the deltas between a day or a week or a month in. Do you take societ? And there's all sorts of markers that you find and that the goal is to and I think that was 50 percent of the people answering this question.
What should I ask really? And Plan B was about, oh, when do we sell an all time high and how do we play?
That's all. Wow. This is basically aimed at that. How can I recognize the next top and the bottom? Of course. And well, like I said before, give me one month or a week of blocks. No price data, no options data, nothing else, only a week of blocks. And I can tell you, if we're in a bear market or bull market or at the top, actually, it's astonishing how accurate it is. So I'm testing it in real life now because, of course, it's all the history.
And but I have been trading these models the last couple of months and I have to say it's been nice.
Yeah, that's those are the words. But yeah. And I really I like to ask you because I'm building all this stuff myself. I have this note. I'm a programmer, but I brushed off my python skills. And so I'm extracting all the data from my my little note and uploading them and doing the analysis. But I'm doing that all myself also because I don't trust maybe other data. But I saw you use glass node or there's a lot of people who already done this.
You know, I wish that I had the patience to sit down and put a note on the network and sort of brush up my skills on command lines and then, you know, work from that level upwards. And, you know, I've played a little bit with that, with the help of friend and gosh, the amount of data you have to move just to index things. Stuff is ridiculous. Anyway, like I've found my sweet spot is really just working with data providers I know that are probably losing, most certainly losing the same sorts of levels of detail that you'll be getting, because obviously when you work with this data, you see a lot of things.
You don't get the sort of the level I'm working and I'm not going deep down inside the box. And those being so close to the ground, there's always stuff that comes up that I'll be isolated from. But yeah, I've been working with Code Matrix and now a glass node. And so I use a lot of the data that's already pre indexed and preprocessed. And last night have, I think, at the teams about 50 people now. So engineers, data scientists, how much work and smarts is put under the hood there that, you know, I get the privilege of just getting the very high quality feeds.
For example, if we want to look at the flows coming into and out of exchanges, it's a full time job.
Just indexing, tagging and keeping on track of these exchanges. Just move to a new wallet. OK, we've got to label the new bullet. And that wasn't a flow out of the exchanges. That stuff's manual work. And it's just teams now to do this because the complexity of the ecosystem so well developed to now that I couldn't ever possibly work at any kind of pace trying to keep track of all of it. And so I'm getting feeds from stable coin, some other networks and not only Bitcoin, Ethereum.
So contract flows from one to the other. And so all that kind of stuff, I can get much more of a better high level picture. And obviously the models I do can work off more networks, more data, more processed. And that's, you know, I guess it's more classical rather than finite element, you might say, in the engineering world. So, you know, that's the way that I've approached it, probably because I wasn't a diehard coder from the early days.
And it's lead to different results. And certainly the way that I picked up, I'm going to be quite different from reading UTX Homesites. Excellent. Well, I think that's the right decision if you ever need something the providers can't provide gave me a ring, we might benefit from teaming up with every great hey.
Using a topic like that. Yeah, well, that's always my my fear. Right.
I know at the time when when mutatis funds and he used the data from block chain info, dot info I guess, and there was a data error with a number of addresses and but then the settlement addresses were not in the account and I'm always oh yes, yes, yes.
But it's not in the data that there is that I know this is like I remember we were going well into the bases, remember, we were like in twenty was a twenty eighteen and were trapped at six thousand and the bottom was owned by a lot of people. And then we crash. Right. I was really sure all the data said we just did not have enough investor volume coming into this and they crashed it below three thousand and the data still said the bottom not.
And then I remember we're just scratching our heads, all of our unchained indicators, we say the bottom. And if you don't use volume, but if you do use volume on chain volume, the book will fire from the bottom and it's going to go down even further from the three thousand.
And they kind of came along and said, Oh, Quain Matrix, we've got this new estimate of volume. He sent that data through.
And yeah, there was that we were using book info who were the first providers of chain data. And the new data came and it was exactly that. The transactions that were of the new, you know, versions, the same with the different types of I'm not too I'm not up to speed with the latest stuff, but at least the secret transactions we've being picked up is what we thought. And it was giving lower than normal volume between investors. And so it's always a worry.
But now we've got so many data providers you can sort of cross reference to. I kind of spent a rainy day in Bali trying to figure out what the on chain volume is without using the data and using other indicators. And that was kind of the aha moment as well. Yeah. Yeah.
Well, if you ever have a question or want to double check something, let's do it, because those are painful mistakes. If you have real money on the line constantly if let's see that.
And don't forget about your friend Preston.
All right, guys, I know we're we're over the time that we had allotted. And, man, I appreciate your time coming together like this. I would love to do this again in the future if you guys are willing.
This was just awesome. Thanks for having us. Yeah, thanks for having us. It's been real fun. So guys give a hand off to the audience where they can learn more about Joe. And so I'm at plan B at 100 trillion dollars trillion USD that is at Twitter and actually everything is on there. I noticed a lot of new followers. Fifty thousand new followers last month, I think, where you had even more, but lots of new followers.
And make sure you've read the articles as well. Was like two or three articles that I wrote, and 80 percent of all the questions is answered in those articles.
So on Twitter, on Nomic. So you can follow me there. You can keep looking at my profile and plan these, for that matter, because that'll track the amount of new investors coming into the space.
So I write a newsletter. It's really that subsector. You can see it all on my profile on Twitter. So I do make it forecasts based on online data that you can subscribe to. And also I have a whole bunch of live chats, chats that we build dot com. So a lot of stuff we've been talking about. Those chats are up there for you to have a look at. Guys, thanks so much for making time, this was awesome.
Hey, so thanks for everybody listening to the show. If you enjoyed the conversation. Be sure to subscribe to the show on whatever podcast app you're using. We really appreciate that. And if you have time, leave us a review. So thanks for joining us this week and we'll catch you next Wednesday. Thank you for listening to. Make sure to subscribe to millennial investing by the Investors Podcast Network and learn how to achieve financial independence to access our show notes, transcripts or courses, go to the investors podcast.
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