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On this episode of the Fed Watch podcast, Christian and I sit down with Dylan LeClair, head of market research at Bitcoin Magazine Pro. Each week, he and Sam Rule write near-daily updates for subscribers, and once a month they release a major Bitcoin market report. Bitcoin Magazine Pros “May 2022 Report” is what we cover for the most part in today’s episode.
You can find the slide deck we’re using for this episode here, or you can see all the charts at the bottom of this post.
Fed Watch is the macro podcast for bitcoiners. In each episode we discuss current macro events from around the world, with a focus on central banks and currency matters.
Before we get to the awesome charts LeClair brought with him, I want to get an idea of where he sees Bitcoin in his market cycle timing. I’m jokingly asking if we’re in a bear market because we’re definitely not in a typical 80-90% drawdown.
LeClair responds by saying that we are in a classic bear market, not necessarily a classic Bitcoin bear market He points out that this cycle’s upleg didn’t have the typical parabolic blow-off top we’ve seen in Bitcoin before, and that there was more technical and fundamental support in the mid-$20,000s up to $30,000 there – so drawdown pressure will probably also be limited. LeClair also adds that the average user cost base has been hit by the wick to recent lows. All in all, there is significant support below the current price and it remains to be seen if there is enough bearish momentum to push new lows.
Finally, on the issues of market cycle timing, LeClair points to a very underestimated market trajectory: the collateral type on exchanges has largely changed from Bitcoin in previous cycles to now stablecoins like Tether (USDT) and USDC. In other words, the dominant trading pairs and cash deposits on exchanges have changed from bitcoin to stablecoins. In the past, the main trading pair for any altcoin was versus BTC, which has changed to a stablecoin like USDT. This is a monumental shift in market dynamics and will likely result in much more stable prices for bitcoin as less bitcoin will be forced to liquidate in the hyper-speculative shitcoin bubbles.
Bitcoin Magazine Pro charts
“This is the spot volume from Coinbase, the dominant American exchange, and the perp [perpetual futures] Volume aggregated across a number of different derivatives exchanges. What we can see are various volume spikes. Historically, when bitcoin trades hands of this size, it signals some kind of market top or bottom, a significant change in market structure.” – Dylan LeClair
The next chart shows the difference in market structure due to stablecoins. LeClair says that around the summer 2021 sell-off, 70% of the derivatives market was still collateralized by bitcoin. Today it’s much much smaller than that. As such, we should expect there to be fewer liquidations in bitcoin when shitcoin bubbles burst, and that’s exactly what we’re seeing.
What’s great about the Bitcoin Magazine Pro In addition to looking at the Bitcoin market, newsletters also look at how macros could impact Bitcoin. The next two charts are about CPI and interest rates. LeClair does a great job of breaking these down during the podcast.
I ask LeClair for his thoughts on Federal Reserve monetary policy, and he focuses his analysis on real interest rates. He says real interest rates must remain negative to erode the massive global debt burden. So if the Fed hikes even to 3.5%, the CPI needs to stay above for real rates to stay negative.
Next is CK’s favorite indicator, the Mayer Multiple, or the 200-day moving average price divided by the current price. When the price is below the 200-day moving average, this ratio is below 1 and has historically been a good way to time the market.
One of the densest information charts on Bitcoin Magazine Pro comes next, and that’s Reserve Risk.
“The reserve-risk chart essentially trades Hodler’s conviction, whether strong or weak, against price.”
Our final chart for the day is realized price and this is LeClair’s favorite. It’s a great way to block out much of the noise and volatility in the bitcoin price and focus on the trend.
“One of the cool things about the transparency of this network is that we can see when each and every bitcoin has ever moved or ever been mined. We can also [assign each UTXO a price of when it last moved] to come up with what we call the realized price. […] We can see when, on average, everyone is underwater.” — LeClair
Senator Lummis’ Bitcoin Ordinance
At the end of the show, we conclude with a discussion of Senator Lummis’ recently proposed bill that will outline a new framework for Bitcoin and what the bill calls “digital assets.” In fact, they don’t use the terms bitcoin, ethereum, blockchain, or even cryptocurrency at all in the draft.
Suffice it to say we tease out some opinions from LeClair and go back and forth with the livestream crew, but you’ll have to listen to get this full insightful discussion! We dive into the implications for the bitcoin market, exchanges, and a future bitcoin spot ETF!
That’s enough for this week. Thanks to the readers and listeners. If you like this content, subscribe, rate and share!
This is a guest post by Ansel Lindner. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.