25 April 2023

Dylan LeClair comes on to talk about the current market conditions for Bitcoin on-chain analytics and news.

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  • What has Dylan been doing with Python, AI, and on-chain analytics?
  • A review of charts that Dylan is finding most important.
  • Does the lack of exuberance in the past cycle compress the spring for the next cycle?
  • Dylan’s thoughts on commercial real estate.
  • Dylan’s thoughts on Binance moving forward.
  • What comes next from the G7 government on the crypto enterprise?


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Preston Pysh: Hey everyone. Welcome to this Wednesday’s release of the Bitcoin Fundamentals. Back by popular demand to talk about Bitcoin current events is the one and only Dylan LeClair. Dylan is one of the lead writers and researchers at Bitcoin Magazine Pro and has some of the most interesting and well-researched takes on what’s currently happening with the market.

[00:00:17] Preston Pysh: During the show, we cover his use of AI and programming back testing on-chain analytics, what’s driving the recent surge we’ve seen in the Bitcoin price since the start of the year, and what he’s personally paying attention to in the general macro overview. This is a good one, so sit back and get ready because here’s my chat with Dylan LeClair.

[00:00:39] Intro: You are listening to Bitcoin Fundamentals by The Investor’s Podcast Network. Now for your host, Preston Pysh.

[00:00:58] Preston Pysh: Hey everyone, welcome to the show. I’m here with Dylan LeClair. Dylan, welcome back. Excited to have you. We got a ton to talk about.

[00:01:06] Dylan LeClair: Excited to be back. I think this is round three.

[00:01:08] Preston Pysh: This is round three. This is round three.

[00:01:10] Dylan LeClair: Here we go.

[00:01:11] Preston Pysh: Okay, so I just want to start off, because you and I have been having a private conversation about how you’re using Python and you’ve never had any formal training in Python through AI.

[00:01:24] Preston Pysh: So like lay it on us, like why are you doing this and what has the experience been so far?

[00:01:31] Dylan LeClair: It’s been pretty cool. I mean, everybody is you know, I’m sure has at least if you haven’t had any experience with AI, ChatGPT, I mean, it is the hot new buzzword in town. Wow. What a powerful tool. It is certainly mind blowing, especially as you continue to play with it.

[00:01:46] Dylan LeClair: Me, myself, right? Like a, a data analytics guy. I, I look at data and, and visuals all day, every day. It’s what I like to do, even if I’m not technically on the clock, per se. I had just kind of an interest in, in computer science and coding, but I’d never took it formally as a class and, and decided as kind of my like New Year’s resolution, I was going to learn Python. I was going to learn, you know, learn how to code and, you know, behind the scenes the whole AI thing was starting to gain traction. I mean, this has obviously been in the works for years now, but ChatGPT 3 was released and then subsequently, I think like the last month or two, 4 has been released.

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[00:02:20] Dylan LeClair: And it’s mind boggling how powerful of a tool it is. I mean, like, again, I’ve taken five, five or six, you know, replica entry level one courses. Not even courses, but just little mini lessons to get my, my feet wet, but like far from an expert on GitHubs or repositories or any of this stuff, and just throwing the most basic of questions at, at this artificial intelligence thing.

[00:02:43] Dylan LeClair: And in, in a couple weeks, I’ve, behind the scenes haven’t released anything yet. I, I’m building out full websites, python integrations quant portfolio allocation models, all by is describing what I want, right? Being like, you know, I, instead I plot these two things, pulling from this API and have it look like this and just describing it in, in very complex detail.

[00:03:03] Dylan LeClair: So like, I mean, it’s no special talent of mine, but what it’s made me realize. Is that this is going to dematerialize and I don’t even know if this is necessarily a hot take, like a, you know, there’s a lot of like AI researchers and theorists and fanboy that, you know, have a similar take. And it maybe sounds like too, you know, very VC change the world, like here’s my pitch deck type of thing.

[00:03:24] Dylan LeClair: But it’s real, like this is going to dematerialize millions, tens of millions and, and you know, maybe hundreds of millions of kind of the white collar jobs as we think of, of them as us Westerners. Think of them specifically post covid, right? Like, you know, everyone was just chucked on a laptop, zoom, university, zoom as a job.

[00:03:41] Dylan LeClair: And now it’s like, whoa, this thing is going to just chop the head off of all of these entry jobs, all of these basic jobs that can be automated. Like the internet’s already done that in a way, but, you know, that excess, that slack hadn’t really been, been handled and you know, just some of the stuff that this is doing right?

[00:03:57] Dylan LeClair: Like, I think I said to you, you know, the days of like a, you know, entry level, $200,000 a year thing, software engineer, you know, that learned how to code a year and a half ago. Those days they’re not done yet, but they’re coming to an end. And I think that’s just the just the surface level, right?

[00:04:15] Dylan LeClair: Like how, how deep does this rabbit hole go?

[00:04:17] Preston Pysh: Yeah, it’s totally insane. So I was trying to run a relay for Nostr. I have no idea how to go into terminal and to do that type of stuff. You know, I’ve coded a webpage in HTML and done that and it’s really basic stuff. But the running a relay through terminal, I was, I had no, literally no clue.

[00:04:37] Preston Pysh: And so I’m getting these air messages, I’m literally copying the air messages, dropping them in the ChatGPT, I don’t even know the right question to ask. And I was just pasting it in there and then it was responding back and it was saying, it looks like you are trying to do this and if so, here’s the steps you need to take.

[00:04:59] Preston Pysh: And then this is the, this is the code you need to paste into the terminal. And I’d be like, okay, my terminal is saying this. I don’t even know how to close that screen to move to the next one. And I would type that into ChatGPT. And it would literally, Give me the, the prompts that I needed to navigate.

[00:05:17] Preston Pysh: Like I literally had no clue what I was doing. And this thing was assisting me through the setup of something that I was a total idiot on. Yeah. And so I would imagine like your experience, so talk to people about like what you’re trying to do with the site and like, cause it’s not like you’re trying to do easy stuff, like with the charts and stuff you’re building in Python.

[00:05:38] Preston Pysh: Tell people what it is that you’re trying to do.

[00:05:40] Dylan LeClair: Yeah, I mean, I have a couple, couple different things I’m working on. Some of it’s for Bitcoin Magazine Pro, which is the research newsletter that I do with Bitcoin Magazine. Some of it just like kind of learning as I go, like I was experimenting with creating a dollar cost averaging back test.

[00:05:55] Dylan LeClair: What’s your, how, what’s your portfolio value and your percentage return for Bitcoin, gold, S&P 500 and, and the long bond on X date. And, and you know, you can select that date. And so, you know, I, I instructed the, the prompts, which honestly, I think it sounds a little bit outrageous, but I think prompting, at least in the interim, until the computer gets good enough to, and figures out how to build all these things without even a, a human prompter.

[00:06:19] Dylan LeClair: But prompting itself is almost like a real skill and art, yeah. An art form, especially as the models get better and better, it can do essentially everything fine tuning that that prompt is a, is an extremely useful skill nowadays. But I was just trying to have it build and I have it under apps that probably, you know, will put it out there in the next week or two, but just build a basic site, right, with just a homepage, you know, a couple different menu tabs, you know, HTML, CSS,, Python, JavaScript, and again, like I, I’ve never goed any of this, so I, like, I, I first used my terminal about a month ago saying like, and it was like, you know, paste this into here.

[00:06:56] Dylan LeClair: And I was like, where, where do I paste it? And it was like, you know, entry level questions to now, you know, Having a full site. And I was like, Hey, this site looks very basic. Have it be professionally, you know, have this style, be professional, make it look like an investment website. Make it look like this, this and this.

[00:07:10] Dylan LeClair: Here’s a, here’s a website link. I like the, the look of this header and footer on this website. Copy it. And it did, and it made the formatting look extremely similar. So like, what does this trend look like in one year? Like I, I’m nothing special, right? I’m just building a basic level entry website. I’ve seen people build chrome extensions in, in three hours.

[00:07:29] Dylan LeClair: Yeah. With, with their voice. Like there’s a thing called auto GPT that’s now plug. You can plug it into the Google search API and a couple other APIs with the Open AI API key, and it can access your full computer terminal. And it can auto-correct its code without prompting. Right? So like, this is, we’re reaching a point where it’s going to accelerate it.

[00:07:50] Dylan LeClair: I mean, we’ve already hit an inflection point, I think, but it’s going to get really, really, really crazy. You know, like I, we were just kind of messing around with some, some basic stuff, but like, it’s. I mean, I’ve gone from zero to far from hero, but you know, instead of zero to a hundred from like no experience to being, you know, somewhat competent and, and to no skill of my own right.

[00:08:10] Dylan LeClair: Just telling a computer and, and plain English, it’s really powerful.

[00:08:14] Preston Pysh: So I’ve had conversations with people from my generation that are not bitcoiners, that aren’t like, heavily dialed into tech, and I’ve asked them if they’ve used it, and a lot of them have said I’ve heard about it, but I really haven’t used it yet, has been pretty much the, the consensus response and then the couple that I’ve that I’ve demoed it to, like on my phone or on my computer, they’re literally just, they’re flabbergasted whenever I have it.

[00:08:40] Preston Pysh: Do some of the things I’m curious, your generation, which there’s about a two decade gap between you and me. Are most people your age using this? Like, walk me through like what the, the normy from, from your generation is thinking about this, using this. Is it just pretty standard, like it’s not a big deal, everybody’s just doing it?

[00:09:02] Preston Pysh: Or, or what’s the deal?

[00:09:04] Dylan LeClair: Yeah, I mean, it’s certainly not, it’s, it’s, it’s more standard I think. Like people are like, oh, it’s just a cool, yeah, it’s a very useful tool. I think, you know, from what I’ve experienced, most 99% of people are underutilizing the tool compared to how powerful it is and how, how much value it can provide if you utilize it correctly.

[00:09:20] Dylan LeClair: Like I have, I have beta access to ChatGPT four, and it gives you 25 prompts every three hours, and then it makes you wait for, you know, another three hours or whatever. And I, I hit that, that three hour limit, like three or four times a day. Wow. Yeah. But just like, just building various things, experimenting, whatever.

[00:09:36] Dylan LeClair: But like a lot of college kids, like that’s my social circle currently are using it. And like, there’s the, the academia’s trying to catch up and like prevent it from, you know, being utilized you know, cheating, play driven, all the stuff which is crazy stuff.

[00:09:51] Preston Pysh: Crazy. You’re not stopping nothing.

[00:09:52] Preston Pysh: No. You know, and the other thing that I’ve, I’ve found crazy about it is you can stylize anything into any person or like, you could take a 500 word prompt and you could stylize it into any person that has any type of public profile. So like how in the world would colleges possibly catch people or tell them that they can’t use a tool like this?

[00:10:14] Preston Pysh: Like people just need to adapt because if they’re not using it, they’re going to get steamrolled. Right?

[00:10:19] Dylan LeClair: Yeah. I mean, it’s. And like, you know, ChatGPT, like the, I’m sure everybody and their, their mother and tech is trying to build a, you know, an, an AI model, right? And so like, whether this is the best iteration or Google or Elon, you know, like, I don’t think I think that was more just hype announced than Elon’s recent thing.

[00:10:37] Dylan LeClair: But you know, I think that like this kind of artificial intelligence, general intelligence sort of thing is going to really, really accelerate. And like, this is what the last, the culmination of the last 20 years of the internet and Morris Law and, and all of this is coming together. So, yeah, I, I mean, I think people, people are utilizing it a lot, but not nearly as much as they should.

[00:10:56] Dylan LeClair: I think it’s going to completely dismantle academia and not like, you know, the legacy institutions, the Harvard Seas, the credentials there will remain for some time being. But I remember, like we’ve had some conversations over the last two years about my decision to leave school post Covid and, you know, partially inspired by like the Jeff Booth thesis of like the internet.

[00:11:17] Dylan LeClair: It’s going to dematerialize, it already has dematerialized all of this information. It’s all available. It’s all for free. You can learn anything. You can do anything. And the, and the barrier to that information is zero. There’s, it’s a zero cost. And so like that, you know, contrasts that with going to, you know, a university and the information is no longer physically domiciled at that university.

[00:11:37] Dylan LeClair: Yeah. Like it used to be 50 years ago. Yeah. Paying $50,000 a year for that is quite the, quite the tough task nowadays. Yeah.

[00:11:47] Preston Pysh: The numbers don’t make any sense whatsoever. No. When you look at what’s accessible and more importantly, what you’re able to accomplish, I mean, you can go into this thing and you be like, Hey, give me a business plan.

[00:11:57] Preston Pysh: Or like, what would be a very lucrative business that I could start that requires very little startup capital, blah, blah, blah. Right. It would give you five recommendations. Something that has a competitive moat that wouldn’t be impaired very easily. Like it will consider all that stuff. Right. And then you can just keep drilling deeper with this type of thing.

[00:12:16] Preston Pysh: Like, I agree with you. I don’t think people are understanding the how insanely useful and valuable this is at their fingertips, at literally like next to nothing from a cost standpoint to employ. And I think it’s just a matter of time before it just takes the world by storm where it’s fully embedded with like Microsoft office and all sorts of things that, and I think once that happens, the whole world’s just going to be like, what the heck just happened?

[00:12:46] Preston Pysh: Yeah. And I think it’s coming fast, man. This is a coming fast.

[00:12:49] Dylan LeClair: Like a freight train. Yeah. And like, I mean, I don’t even know if we want go here cause we could probably spend the whole time talking about it, but like the, the bigger idea of we’re kind of at this debt supercycle you were talking about the UBI thing before any of this obviously came into the, the picture.

[00:13:07] Dylan LeClair: I mean, I’m sure you probably could have seen the general trend of technology but like, what if this does what we think it does to all of these, you know, white collar jobs, nevermind the fact that, you know, once everyone went remote post covid, all these tech companies, and they’re still realizing it today.

[00:13:23] Dylan LeClair: Like, okay, why would I pay someone $150,000 a year when they could do it in Asia? For $40,000. And that’s great income in some of these other countries, right? Where, where the people are just as smart and, and just as hungry if not more hungry to do this type of jobs. But like, if this does dismantle hundreds of millions of jobs, or at least make them disposable and not like completely dismantle them, but makes you very, very, very replaceable, then, then what does that mean for the workforce?

[00:13:51] Dylan LeClair: What does that mean for incomes? What does that mean for populace as a whole? Right? Like it’s, these are like big, big, big questions. And, you know, Jeff Booth’s entire thing is like these, these are two kind of immovable forces coming, coming to a head. And like, I don’t think there’s one politician in the world that could come up here with a straight face and say they know what the result is going to be or, or that everything will be fine.

[00:14:14] Dylan LeClair: And if they say that they’re lying, right?

[00:14:16] Preston Pysh: Yeah, no, it is. It really is. The other side of the coin, of all the stuff that we typically talk about when we’re talking macro and all the treasury yields and all that kind of stuff, it’s this and the impact of this. I, I think there’s very few that have not read Jeff’s thesis and understand the implications of these two freight trains like moving at each other.

[00:14:38] Preston Pysh: It’s wild. Hey, I’m going to pull up some charts that you sent me over and these are awesome by the way. I really like the charts. So we’ll just go through them. And for people that are just hearing the audio version of this Dylan, if you can just kind of explain what we’re looking at. I’ll do it for this first one.

[00:14:56] Preston Pysh: So this first one is just, Dylan sent a slide of the 2023 performance of, you know, various indexes against Bitcoin with the sharp ratio and the total return. Go ahead and, and give us your spill on this one, dylan.

[00:15:10] Dylan LeClair: Bitcoin’s obviously had a, a banger start to the year up, 78, 80%, whatever it is at the, at the current recording time.

[00:15:17] Dylan LeClair: And, you know, NASDAQ up 20% equity is broadly up. It’s been kind of a, a broad risk on rally, but the, the impressive thing here, and we also compare it to gold and bonds and oil and there’s, you know, I could have added 10 other kind of indices to this, but the real, like I popper is that not only is Bitcoin, I performed everything, but on a risk adjusted basis it’s also outperformed.

[00:15:39] Dylan LeClair: So it’s sharp ratio, which is, it just takes the realized volatility. The annualized realized vol, the annualized realized volatility of, of, of these assets. It’s outperforming everything, right? So it just benchmarks the return relative to the risk. Right. And like this is a, you know, sharp ratio is, you know, kind of how like Wall Street would define risk, you know, for the average Bitcoin, they might not care about the mark to market exchange rate at every moment of the day.

[00:16:02] Dylan LeClair: In fact, I think most don’t. And we can see that through the data, but nonetheless, that’s impressive. It says something. And you know, anybody that’s worth their salt in in the macro world should be wondering why this is.

[00:16:14] Preston Pysh: I think if I was going to piggyback on your comment, anybody who has a sizable position doesn’t.

[00:16:20] Preston Pysh: Right? Yeah. And even, and those are the ones that matter because they’re the ones that are truly driving the price. And the long term is they don’t care about the hell. They look at the volatility as, as their opportunity. Every long term holder that I’ve ever met that have significant amount of coins, this is in interesting metric for people that would look at this and say, well, you’re not showing last year’s performance.

[00:16:40] Preston Pysh: And it was down hard. Like, what would be your response to a person that would say something like that, Dylan?

[00:16:46] Dylan LeClair: You know, I wish I should have included the 2022 sharp ratio for the full year. And off the top of my head, I don’t know the exact numbers, but I do know that Bitcoin, even though it was what it finished the year down, like 65%.

[00:16:57] Dylan LeClair: From, you know January 1st to December 31st in risk adjusted terms, a sharp ratio, I think it honestly did better than Tech Basket. It did better than the long bond for much of that, you know, so like just this risk free asset class that all the, that all the banks hold that every, you know, pension fund holds on a risk adjusted basis.

[00:17:16] Dylan LeClair: Right. Which is what matters. Because if you, if you can’t handle the risks, then adjust your portfolio size. This is like basic stuff. It did better. So yeah, it declined by 75% . But no one went all in on Bitcoin at 69,000 and then, you know, sold at 15 five. No, no one did that on the planet.

[00:17:33] Dylan LeClair: And if you did, then you’re obviously very, very unskilled. Right? But like, I’ve shared the, this stat a couple times, it’s really, really fascinating. It’s like if you started dollar cost averaging into Bitcoin, and like, you know, some will say dollar doghouse averaging isn’t even the best strategy.

[00:17:46] Dylan LeClair: Like, okay, well you can say that, but if you started dollar cost averaging at Bitcoin at, you know, quote unquote the generational top, as of today, you’re up like 17% and your average cost basis is like 25 K. Right? So like, tell me that and be like, okay, well you’re, you’re outperforming everything despite buying the top, right.

[00:18:04] Dylan LeClair: You’re outperforming, you’re outperforming equities, bonds, and gold. You know, there’s something there.

[00:18:10] Preston Pysh: Yeah. There really is. Let’s talk through this one here. Describe this chart to people listening.

[00:18:15] Dylan LeClair: Yeah. So, you know, this is on chain side of things. And I think this is really, really cool Bitcoin on chain analytics, like people will often say, you know, it’s, you know, pseudoscience or it’s, you know, it’s hopium or whatever, without really understanding, well, like on chain analytics, what the data is actually saying, right?

[00:18:30] Dylan LeClair: Like, we have a transparent ledger that can immutably details every single hold, spend every single transfer on this network. So we can see with perfect accuracy hoddle like, look what the HODs are actually doing. Mm-hmm. Hot behavior with these, these realized prices or these cost basis of short-term holders and long-term holders, which we can just say, just to keep it simple, it’s, you know, a six month cutoff.

[00:18:53] Dylan LeClair: If you held longer than six months, you’re a long-term holder. And there’s, there’s some reasons for that, right? Just like, essentially the longer that you hold statistically, based on what we see with the UTXO set, the more unlikely you are to spend in the future. And that six month threshold is like a pretty significant kind of barrier.

[00:19:09] Dylan LeClair: After you, you hold for six months, you’re not really likely to, to part with that UTXO to part with that bitcoin. So we can see basically with these, it’s essentially like, right, it’s a, it’s a moving average. Think if you could have a moving average of Apple stock or the s and p 500, but instead of just the price and the time series serving as average, it was the price and it was also the amount of shares that were traded or changed hands.

[00:19:30] Dylan LeClair: Right? Like, and you can’t see that obviously with a stock you don’t know. They’re short selling. There’s, you know, people like it’s a black box in, in equity markets for bonds, for fixed income, for, for legacy assets. But Vic, Bitcoin, it’s not, we can see, we can see, you know, okay, 65% of coins haven’t moved in a year.

[00:19:47] Dylan LeClair: Right. And like, yeah, you know, there’s, on finance, there’s a million BTC of trading volume on perpetual futures in a few days. Right. But like, that’s just leverage, that’s just wash rating, like the actual UTXO set. We can see, we can see the data. Those are coins are not moving Right. These haulers don’t really care.

[00:20:03] Dylan LeClair: And what Bitcoin does, really, every bear market and every bull market, every bear market, the exchange rate crashes below really every significant average cost basis. You can see whether it’s the a, the aggregate average cost basis, the the cost basis of short term holders like you can think of like the quick money, the traders, the speculators, the new investors and the long term holders.

[00:20:22] Dylan LeClair: Like the people that come in that step in, in the bear market, that acquire Bitcoin, they don’t care that they’re down 60, 70% from their all time highs. They acquire more of it and real, and, and know they’re not going to part with these coins for years on end. And that’s what sets the bottom every time, right?

[00:20:36] Dylan LeClair: So that’s what we saw at the end of 2022. Obviously like this, this thing is still correlated with the macro tides, but like this cycle and, and what influences it and what leads to these cycles, I think is still surprisingly not even close to broadly understood even in finance circles, right? It’s just like this kind of esoteric thing that is volatile and doesn’t make any sense to the non Bitcoin specific crowd.

[00:20:59] Preston Pysh: Dylan, when you’re looking at the performance and you’re looking at the, this quote unquote four year cycle, do you buy into the four year cycle? Do you, do you think that, and I’m just going to, I guess, let me frame the question as I’m saying this as well. When you take measurements in just days from the having to the tops and the bottoms of the previous cycles, at least the last two cycles, there seems to be just a whole lot of coincidences with respect to the number of days from the having to the top to the bottom, and it seems to continue to persist in this cycle that we’re currently in right now.

[00:21:39] Preston Pysh: It really feels like the bottom’s in, especially when you look at all these on chain metrics and when you look at that bottom and you look at how many days it was from the having event, and you compare that to the previous cycle, they’re eerily similar. So what are your thoughts? Is this just a coincidence? Is it what?

[00:21:59] Dylan LeClair: I think the having plays a role, I think more so and, and you’ve written some great stuff. I remember reading this back in 2019, 2020, about the mechanical aspect of the halving and the difficulty adjustment and the 210,000 block four year cycle, right?

[00:22:13] Dylan LeClair: And how, like, how that interplay works. I think it’s increasingly the, I think the, the cycle remains, and whether it’s four years or three years or five or whatever it may be, I think it’s increasingly, especially as the block subsidy goes from, it’s going to be 6.25 per block to 3.125 per block in 2024.

[00:22:33] Dylan LeClair: I think it’s increasingly human psychology study and market psychology, you know, and fear and greed than it is actually the, and maybe that’s the freezing cold take, but I think that plays a larger role than it, than the actual having of the block subsidy going forward. But the cycles and the, and the timing of it, and I think the having still matters that, that, you know, that reduction in supply, that supply shock, that kicks it off.

[00:22:56] Dylan LeClair: But I think more so the cycle is about, and this was the, the third chart, the more, so the cycle is, is what that, that kind of, that long-term holder money, and I should have overlaid the price on that chart, but you can kind of see every, every top right, the, some amount of those holders that came in at the depths of the bear market down 75, down 80, 85%, some amount of those hobbler after five x, 10 x, 20 x run up, they shaved some coins off.

[00:23:23] Dylan LeClair: And, and the combination of that parabolic rise in the exchange rate. You know, that that new money influx, that hype cycle kind of, you know, maybe running a bit outta steam combined with the confluence of those old holders just shaving a bit off, creates that top, creates that final blow off top.

[00:23:39] Dylan LeClair: You know, it’s that supply demand imbalance that equilibrium is found. And you know, all of a sudden there’s a, there’s just you know, too much supply and the, the exchange rate crashes, right? Mm-hmm. And we see this time and time again, right after the exchange rate falls, 50, 60, 70%, those, those long-term holders.

[00:23:55] Dylan LeClair: And, and oftentimes there’s a whole new cohort of quote unquote long-term holders, smart money, but they scoop up coins and, and you kind of run it back. And so obviously bitcoin’s more of a macro asset than it’s ever been, but it is eerie, right? Like the, the timing of it is certainly fascinating and I’d, I’d love to see what it looks like next cycle.

[00:24:11] Dylan LeClair: You know? Yeah.

[00:24:12] Preston Pysh: Yeah, me too. It’s going to be really interesting to see what happens. Okay. I pulled up this next one. Do you have any other comments on this one? And, and also if you do, just explain what we’re looking at here.

[00:24:23] Dylan LeClair: It’s kind of the same, same cycle visualized, right? It’s just, yeah, it’s, you know, long term holders, are they in profit or not profit or loss?

[00:24:30] Dylan LeClair: They’re spending patterns or average spending price. And really, I think the interesting part about this chart, the, the Bitcoin exchange rate and the long term holders spend price, that’s not their average cost basis. That’s if those long-term holders part with their coins at all. And they, they often don’t near bottoms.

[00:24:45] Dylan LeClair: But if they’re parting with them, what’s their average, what’s their average cost basis? And right now that’s about 30,000. And I think the really interesting thing is after that the Bitcoin exchange rate surpasses from the bear market lows when, you know, long-term holders are on average underwater and, and any long-term holders that are spending are capitulating at a loss, right.

[00:25:04] Dylan LeClair: On average, after the Bitcoin exchange rate surpasses that that level and there’s still you know, a dominant predominant majority of, of those coins are held by people that aren’t giving them up, that aren’t putting them back into the market. That’s when things get really, really interesting and price starts to, to run like crazy because of that supply demand imbalance.

[00:25:22] Dylan LeClair: It’s that simple.

[00:25:23] Preston Pysh: When we look at there, so when we look at the price action and basically not getting that full exuberance like we had in 2017 with this last cycle, do you think that that has any impact on where the coins are currently dwelling in the hands of like really strong hos, or do you think that it really didn’t matter compared to the previous cycle where we did have like a Blowoff top.

[00:25:50] Preston Pysh: And do you attribute that to FTX and some of these other bad actors that were in the space as far as why you didn’t have the, the naturally maybe occurring exuberance at the top?

[00:26:01] Dylan LeClair: Yeah, I think so. because there was, there was like kind of an interesting confluence of signals and we were, we were sharing them back and forth in, in the late stages of 2021, where like these on chain metrics, some of them were, were screaming like, damn, we got some mortar to run here.

[00:26:14] Dylan LeClair: Just compared to like, traditionally how these cycles play out and it’s how inelastic the supply is, right? It’s like, you know, well, geez, 70% of coins like literally aren’t budging and the prices just surpassed 60,000 again and is about to break all time highs again in the, for the first time in like six months right? It’s like, yeah. Double bubble. We haven’t seen it. And you know, in hindsight obviously there was a whole lot of leverage, a whole lot of obfuscated leverage, right? It wasn’t even transparent. It was ftx, you know. Playing with customer money and, you know, being fraudulent among many other actors. But it was definitely, I think like the whole crypto casino played a role and, and I, I mean, as, as we should expect, right?

[00:26:50] Dylan LeClair: That that whole alt coin space kind of being a toxic cancer to the, to the Bitcoin and I think it honestly serves as like kind of a cloak to what’s actually unfolding, right? It’s like, oh, this, this whole casino, right? Like the, the Warren Buffets of the world and you know, anybody that’s taking a look at Bitcoin just naturally groups it in with Dogecoin and Sheba inu and you know, the clown show that is 99.9% of, of, of crypto NFTs, right?

[00:27:16] Dylan LeClair: It’s like, oh yeah, you know, just the speculative bubble. That’s where the excess QE ERT money goes to die as that whole crypto scam. And that causes most of them to miss what’s happening. So I do think that, you know, the FTX is of the world, the derivatives that sort of thing did play a part in kind of the, the false signal, double bubble.

[00:27:34] Dylan LeClair: Honestly, I think really like the, and Checkmate one of the great guys from Class Note who’s like, you know, probably the best in the game with a lot of the on chain analytics stuff. Yeah. He thinks like the, the true top, even though the exchange rate went higher in November than it did in April, he thinks the true top was around February, March timeframe.

[00:27:51] Dylan LeClair: That’s when like, you know, a lot of the on chain stuff started to dwindle in momentum. And I think that’s, that’s a pretty good take.

[00:27:58] Preston Pysh: Now, how about for the setup of this coming cycle? Do you think that because we went through such an abrupt, the head was cut off, that those, those coins are stuffed into stronger hands or not really?

[00:28:12] Dylan LeClair: I think that, yeah, I think we’re seeing something really interesting unfold where, and I, I, you know, it mixed for good sound bites. I was on CNBC briefly for a couple minutes or last call, and it’s like, coins one year, two years, three years, all at all time highs, right? Like 70%, 55% and 40% of coins haven’t moved in three years, two years, one year respectively.

[00:28:32] Dylan LeClair: So those are just like, you know, attention grabbing headlines. But there’s obviously signal there, right? It’s like the, oh yeah. Supply is inelastic. It’s a fixed supply asset where there’s price agnostic buyers and holders of the asset. Mm-hmm. And the supply side is, is dwindling. It’s like, you know, it’s at a certain point you can cut back the, the really, and, and I’m a big chart guy.

[00:28:50] Dylan LeClair: You can cut back the, the good looking charts and visuals and all this other stuff and be like, Hey, it’s supply and demand. It’s pretty easy. Like, this is, this is why it’s going up. And you don’t really have to go any deeper than that.

[00:29:02] Preston Pysh: All right. I’m going to go ahead and throw up the next one here. Okay.

[00:29:07] Preston Pysh: Outside of the Bitcoin conversations that we just had, let’s talk macro a little bit. You provided some macro charts. Before you describe the chart, what are the big chunk things that you’re really paying attention to, Dylan?

[00:29:19] Dylan LeClair: The big chunk things? Well, broadly, I think we are in the late stages of debt supercycle.

[00:29:27] Dylan LeClair: We’re in the maybe third or fourth inning of an unwind of the everything bubble in terms of, you know, a zero interest rate, cost of capital, negative, real cost of capital. And not that I think that we, that the system can even exist or kind of unwind from all that. I think they’re going to have to aggressively reinflate things in, whether it’s the next 6, 9, 12, 18 months.

[00:29:52] Dylan LeClair: But I think the, the, the train does, you know, fall off the tracks here. It’s, it’s honestly taken a little bit longer than I would’ve suspected, say at the beginning of 2022. I will say that I think the economy is a little bit more nominally resilient than I would’ve thought. But just, just looking at historic, like, you know, history as a guide, you don’t see wealth destruction in this magnitude in both absolute terms as the biggest bust ever.

[00:30:17] Dylan LeClair: And in relative terms, it’s still pretty meaningful with, with debt loads where they are globally, you don’t see these things happen and then the, there’d be no second or third order effects. It just doesn’t happen. So, yeah, I think that that asset bubble that, or really, it’s not even a, it’s not a credit cycle, right?

[00:30:33] Dylan LeClair: Like a people comparing it to 2008 and saying, you know, well it’s, you know, look at credit or look at banks. It’s like, well, no, it’s, it’s a duration bubble, right? It’s the duration that long bond went from, from 1% to three 4%. And that’s had to reprice every single asset on the planet. While li while the liability side of things is fixed.

[00:30:51] Dylan LeClair: It’s, it’s like, yeah, yeah. It’s, it’s, you know, it’s a pretty simple equation. And so, you know, now we’re seeing that cost of capital filter in, we’re going to see it filter into the interest expense. We’re going to see it filter into, you know, the fiscal, the fiscal budget. We’re going to see it filter into personal and corporate balance sheets.

[00:31:07] Dylan LeClair: It just takes time. I think we do see a not soft landing. I think it’s whether it’s, you know, hard or a massive recession is you know, to be determined. But I think inflation doesn’t really go away until you, you see this this labor market start to get ugly. I think that’s kind of my thoughts distilled.

[00:31:24] Preston Pysh: It seems like it’s coming this year, this, whatever this is. Yeah. I don’t know what to think, but I know there’s been a lot of just really strange metrics kind of coming through in this past couple months. And I know a lot of the people in, in, in Wall Street are suggesting a third quarter, kind of like strong recession.

[00:31:44] Preston Pysh: I don’t know if if it takes even that long, maybe, maybe it comes sooner. I, I really don’t know, but yeah, I’m with you. I, I thought it was going to come a whole lot sooner than what this has been. It’s been very surprising to me. Very, very surprising to me. I’m going to go ahead and pull up your charts here. Yeah.

[00:32:01] Preston Pysh: Let’s go ahead and walk through this. So you have United States military spending plus entitlements, plus interest expense as a percentage of tax receipts. I love this. Here’s all the costs. Here’s what’s coming through the door. Right. Go ahead and give us what you’re seeing here with this chart.

[00:32:17] Dylan LeClair: Just kind of overlaid, and this is two, two pains, but it shows that’s me 500 in log terms because it’s starting in the sixties.

[00:32:23] Dylan LeClair: So if you showed it in linear terms, it wouldn’t, it wouldn’t make any sense. It wouldn’t even factor in. And then it’s kind of the US fiscal budgets, it’s, it’s the big spending of the federal government as a percent of tax receipts. And, and the important factor here is that the baseline, the, you know, the lowest levels that this, that this you know, upper pain does u us spending the big three spending cohorts as a percent of tax receipts.

[00:32:46] Dylan LeClair: It doesn’t even go below a hundred percent. Right? So what that tells you is that the debts actually never, even, even going down. It’s, it’s always going up because we’re the, the US as a, you know, if you think of it as a person, they’re just living on their credit card. And it doesn’t matter how much money they make, they always f they always borrow more and they always spend more.

[00:33:02] Dylan LeClair: So that’s one. And then the second thing is, and I think this is the key thing to take away from the chart, is that look what happens in recessions, right? So yeah, basically we know where recession’s coming or you know, with a decent amount of certainty, the, the, the data is saying that we’re probably at the very least going to see a mild recession.

[00:33:19] Dylan LeClair: And now, you know, the, the fed’s actually saying it, right? For the, the longest time they were like you know, no, it’s, it’s soft landing. It’s, it’s all good. And now they’re saying, okay, yeah, we’ll get a mild recession. So look what happens in recessions, right? And this is for the first time in 40 years, this is happening in a, with an inflation spike, right?

[00:33:34] Dylan LeClair: So we see core inflation still running very, very hot, right? Like energy inflation on a year over year basis is down like 30%, but the CPI is still left 5%, right? So why is that happening? It’s happening because the, the labor market’s super, super tight. And you still, you know, all those dislocations and all that, that fiscal, that fiscal spending that we stuffed into the economy in, in 2020 and 2021 is still running Its course still piping hot.

[00:33:58] Dylan LeClair: They’re still excess savings and, and those are dwindling, but the consumer’s still, I mean, I wouldn’t say strong, but they still got some month, right. So inflation’s still pretty hot. Core inflation’s still pretty hot. They’re still a ton of job openings, like I think 9 million or so. We got a little bit of ways to go here, but when that recession does come, we know what’s going to happen.

[00:34:18] Dylan LeClair: The government, the Keynesian model, I mean, this is like literally 101, is that they’re going to plug the gap by unleashing the, the fiscal authority of the US government.

[00:34:27] Preston Pysh: And this doesn’t even, this does not even address the fragility that has been pumped into the, the overall global system over these past 40 years as they were doing all these offsets to keep everything under control.

[00:34:42] Preston Pysh: Yeah. Right. So that’s where I’m, I’m looking at everything you just described and then thinking about how fragile supply chains and the consolidation of enterprise and just thinking, oh my God, if, if we start hitting a recession by the end of this year, like I just, I can’t even imagine what it’s going to take from the printer to try to off.

[00:35:02] Preston Pysh: Cause that’s their only tool to really offset this. Dude, it’s crazy. This chart is awesome. I really like this a lot. Did you have anything? I’m sorry, I, I kind of interrupted you there. Did you have anything else on it?

[00:35:12] Dylan LeClair: No.

[00:35:12] Preston Pysh: Okay. Let’s go to this one here. Yeah. So this is global net liquidity. It’s not a perfect measure, but you know, it’s kinda the best we got with some of this public data.

[00:35:21] Dylan LeClair: There’s obviously a lot of kind of the so-called liquidity in like in the global system, you know, maybe contrast to say Bitcoin, which is a very transparent system. A lot of this is very, very it’s a black box, but we do see, we can see, you know, G4 central banks and we can see you know, the, the, the reverse repo facility and the treasury general account as kind of gauges for global liquidity.

[00:35:44] Dylan LeClair: So when the reverse repo facility, which still has I think a trillion or two in there, and the Treasury General account, when those run down, it adds money. It adds liquidity into the system. So, you know, when, when the TGA has, when the treasury has a trillion dollars in their checking account, essentially that’s liquidity that they’ve taken from the system, right?

[00:36:02] Dylan LeClair: If you pay taxes, I think, I think today’s tax day. If you pay taxes, that’s liquidity coming out. And when they, you know, spend that back into the economy, that’s liquidity coming in. So we can just kind of aggregate this and kind of get a gauge for global net liquidity. And there’s a bunch of different ways we can measure this, but essentially kinda just charted this and then the 12 month change, and I think of the next one, I think it’s slide seven.

[00:36:22] Dylan LeClair: I actually overlay this, the s and p 500 with this and it’s, you know, since, and I think if you even go basically to the great financial crisis, it’s, you know, it’s a one-to-one not correlation because it’s not, correlation isn’t causation and you can’t chart two different time series and say that they, they cause each other.

[00:36:38] Dylan LeClair: But essentially this kind of confirms, right, it confirms you the, I test what we all already know that capital markets, as we know them today are, have been zombified that it’s, you know, it’s, it’s a passive zombie that’s completely dependent on global liquidity. Global liquidity is contracting, markets are falling global, liquidity is pumping money’s injecting into the system.

[00:37:00] Dylan LeClair: Capital markets rally. That’s the game. And anybody, I think that’s pretended that’s not the game is is fooling themselves.

[00:37:09] Preston Pysh: I love this chart. This is a great chart. Isn’t it amazing? Like when you’re looking at the S&P 500, just like how it’s, if it was like a signal, you know how it’s just like amplifying as you’re going through time here.

[00:37:20] Preston Pysh: I, I just can’t imagine what this is going to look like in the coming five years, but great chart. Let’s go to this one here.

[00:37:27] Dylan LeClair: Yeah. So this is so I got, I got a bunch going on here in the top chart. The top pan is, is US total debt, public debt to GDP at 120%. There’s some great stats out there about when sovereign nations see their debt rise above 120%.

[00:37:42] Dylan LeClair: There’s basically, I think it was, this stat was in 2020, but it was like 51 or 52 outta 53 of these or 51 outta 53 of the nations had defaulted. The two that hadn’t defaulted. And, and by default, I mean in implicit or explicit terms. Explicit meaning they say, Nope, sorry. You know, sorry, creditors.

[00:38:01] Dylan LeClair: You’re not getting your money back. Implicit default meaning, okay, here’s your money back and like, you know, printing it and the money’s worthless. Yeah. And the, and the two cases that you know, that hasn’t happened is Japan and the United States. Right? So ask yourself, like, as a creditor of the US government, anybody that holds bond or even treasury bills, and I say this is someone that has, you know, a little bit of cash and short end treasury bills at, you know, four and a half, 5%, whatever it is.

[00:38:27] Dylan LeClair: But if you hold long duration debt, right? Like, and you’re getting, you know, three, three and a half percent yield, how’s the US going to pay you back? Because they’re not going to default. You know, like the, the debt ceiling’s coming and everybody’s kind of shaking and quivering about, you know, what happens if they don’t find a resolution to the debt ceiling?

[00:38:42] Dylan LeClair: They will, of course they will. The debt ceiling will be raised, of course. But it’s going to be paid back by debasing the currency. It’s just like, it’s literally just a simple math equation. And anybody that hasn’t kind run these numbers, it’s kind of interesting press. I, I should have included this in the chart.

[00:38:56] Dylan LeClair: I encourage everybody to go to the, the cbo congressional Budget Office website and look at their modeling for the next 10 years and look at the projections for the employment unemployment rate for inflation, and for, and not even just the next 10 years, but they actually map out what they think the next, like 50 years or so looks like, and may have total debt public debt to GDP going from 120%, about like 200% over the next 40, 50 years.

[00:39:23] Dylan LeClair: And that’s just a laughable projection. Like they don’t even hide what they’re, what, what they’re saying, saying that the deads up only in the infl inflation. They, they think it’s going to actually go and, and go back to 2%, but even at 2%, right? That’s still compounding, that money’s still losing value. And then they think, you know, and then they think, you know, unemployment’s just going to have a little blip and then go back to three or 4% forever while, you know, social security, the Ponzi scheme continues to go on.

[00:39:47] Dylan LeClair: It’s like, it’s a pretty, pretty laughing stock projection and system. But it’s, you know, anybody that’s actually looked at these numbers knows it’s completely wrong. It’s done, you know, by academics in a boardroom with no basis in reality. So, yeah, like as a, as a long term oriented thinker, it’s like, why would I hold long duration debt for other than just like, you know, a skimpy trade, right?

[00:40:07] Preston Pysh: Like, there’s no, there’s no reason, and I don’t think there’s anybody coming to the table within the government to raise the flag, because if they do and they say, Hey, start using these numbers at higher inflation rates and, and whatnot, what’s going to happen is everything that they’re trying to do is going to become unaffordable except for maybe three things.

[00:40:26] Preston Pysh: And so, whatever those, all those other things are, are going to be canceled. Or like, if there’s actual real planning taking place. They’re all going to be canceled, they’re all going to be killed. And then the, the couple of priorities, it would still remain inside of that, that budget that a, is actually left would be the only things that would be funded.

[00:40:43] Preston Pysh: And so this doesn’t work from getting votes from your congressional area that maybe has the work being performed for all these things that would be canceled if we start using numbers from reality. There’s this disincentive from all the actors around government to nod their head and say, yeah, it’s 2%.

[00:41:01] Preston Pysh: These are the numbers. So you can see how, how it’s just the incentive structure is just so broke all around these people that are feeding the numbers into this system, they don’t want reality. Okay. Let’s go back to the deck here. If there’s anything else that you wanted to highlight we can go to the next one.

[00:41:21] Dylan LeClair: This one’s more kind of a sh a short term thing. It’s just showing job openings and job openings per person. There’s about 10 million job openings and the job openings per unemployed persons, sorry, which, and also by the way, like after the covid shock, there was a big percentage of the workforce had just essentially retired or, you know, isn’t on the official hunt for, for full-time jobs.

[00:41:41] Dylan LeClair: And there’s actually, like, you know, many people working two jobs, right? Or a bunch of part-time jobs. We can, you can argue whether the actual unemployment rate is three and some change percent, but I think this, this is just kind of a short-term gauge for, we got some we got some pain or some kind of contraction in the labor market first before for this thing really hits the fan and they turn on the printers.

[00:42:03] Preston Pysh: Yeah. And I mean, based on the, the previous cycle, it’s looking like that’s a year and a half kind of process, two year process for the numbers to really kind of fully capitulate down. Yep. Okay. And here we go. This is the… look at that.

[00:42:19] Dylan LeClair: Yeah.

[00:42:19] Preston Pysh: Look at that. Now what, what do you think about the 3.5 Dylan?

[00:42:23] Dylan LeClair: Like what I think about?

[00:42:24] Preston Pysh: Yeah, give the number. Yeah, exactly.

[00:42:27] Dylan LeClair: Yeah. I mean, to be honest, I don’t, I don’t think that the labor market is the strongest it’s been in, in 50 years. But you know, officially in the data, right? It’s saying the labor market is the tightest it’s been in 50 years, right? It’s like the same thing with the inflation rate.

[00:42:42] Dylan LeClair: It’s like, well, is inflation rate right or wrong? CPI, right or wrong? It’s like, well, you know, these, these are the, the numbers are overlords of the Federal Reserve are looking at and referring to. So the, the kind of, the meta is this is what, this is the game, right? So I mean, anybody that’s long-term oriented doesn’t really care.

[00:42:58] Dylan LeClair: Like if you’re thinking about, you know, and buying Bitcoin and holding it for two generations, like, I don’t care what the unemployment rate is now, we’re going to be next year, but I think they tighten until the labor market see some paint.

[00:43:10] Preston Pysh: I would love to see a breakout of highly skilled labor versus, you know, completely unskilled labor and what the metrics look like from, you know, an unemployment standpoint.

[00:43:20] Preston Pysh: Yeah. And that’s something that I haven’t really dug into, but I think you could maybe see some really interesting trends there too. I suspect you would see some interesting trends there. Okay. The M2.

[00:43:32] Dylan LeClair: Yeah. M2 is, I mean, it’s not a perfect measure of money supply, right? There’s bank reserves and everything else in there, but I mean, you can just kind of take a, a left end of the bell curve approach here, right?

[00:43:40] Dylan LeClair: We’re at a, we’re in a, a monetary system that requires perpetual credit expansion to persist and exist when money supply contracts, things, things break, like the, the kind of the, the buzzword or the, the macro thesis in, in 2022 when everybody was referring, including myself to the fed tightening cycle was like, well, they’re going to tighten until things break.

[00:44:00] Dylan LeClair: And like, you know, people would be like, well, that’s a cop out. You know, what’s, what’s going to break? And it was like, well, we don’t know. We don’t know what’s going to break and what broke. At least in the short term. I think it’s kind of the first warning shot of problems underneath the hood was what broke was the, the banks’s unrealized losses on their bond portfolio.

[00:44:16] Dylan LeClair: So that’s what broke, what broke was the collateralized guilts in the pension system and, and the United Kingdom. That’s what broke, right, that the, the duration losses on those bonds as they had to recognize, realize those losses as that collateral got marked to market, that’s what at least temporarily broke.

[00:44:34] Dylan LeClair: And we don’t know. I think there’s more to break as this current cycle plays out.

[00:44:39] Preston Pysh: Everyone’s saying commercial real estate. What, what are your, I know you’ve posted a couple charts online about that. What are your thoughts around that one?

[00:44:46] Dylan LeClair: I think private equity, I mean commercial real estate and like a lot of these illiquid, kind of like Blackstone type investment vehicles the mark to market is, is is laughable.

[00:44:55] Dylan LeClair: Like I, yes. I mean, I don’t hyperfocus on it too much, but like, you know, it’s like private equity as this like magic vehicle where you outperform public equity markets on you know, a lot lower realized levels of volatility is not based in reality actually whatsoever. And if there’s any sort of redemptions, you know, for the Black Rocks or Blackstones of the world on their private portfolios, they’re going to realize that they’re going to have to take quite the impairment loss.

[00:45:22] Preston Pysh: Yeah. No doubt about it. I’m just curious on the timeline for something because it’s so illiquid relative to, you know, publicly traded equity and, and bonds and whatnot. So, but everything I’m reading, that’s where it’s, that’s where the next shoe to drop is, is coming from. And then the, the compound impact to community banks or the smaller banking sector because of their exposure to commercial real estate, I guess is just nuts.

[00:45:47] Preston Pysh: But, hey, let’s transition just a little bit into a different topic. I know you were doing quite a bit of research on Binance and some of their situation, especially coming out of the whole FTX debacle. Where do you think they stand right now? What, what, what kind of research have you done recently? Is this going to be an exchange that kind of gets by through, through the bottom of this cycle and continues to exist and is a key player?

[00:46:15] Preston Pysh: Or do you see more pain on the horizon through them?

[00:46:19] Dylan LeClair: Yeah, it’s kind of interesting because the crypto space is unique where, you know, it’s one of the few spaces where you call a spade a spade and people get mad at you for doing so. And, and maybe, maybe that’s not unique to crypto, but at least that was what I kind of came to realize after the FTX debacle, which, you know, was identifiable at least in the late stages of it, if you were paying attention to the numbers and, and just the math of it and looked at it with an unbiased view, right?

[00:46:44] Dylan LeClair: Like allowed me to balance sheet and all of that. I was like, all right, well let’s take a look at the next guy. Right? We look, look at Binance and you know, I log on to coin market cap, which I rarely ever visit to look at you know, the cesspool that is the crypto market. And, you know, there was BNB. And I, I took a look at the USD chart and it was looking, you know, abnormally strong.

[00:47:04] Dylan LeClair: It was up nine x you know, since the start of 2021. I looked at it in Bitcoin terms, and this is in late November. And BNBBTC was chugging to new all time highs on, on basically every day. And so that was like, for me, it was a really big red flag in the sense that crypto is, I guess you could say maybe in a similar way to like, you know, certain facets of the equity market, right?

[00:47:28] Dylan LeClair: Like if something trades with a high realized volatility, you could talk, you know, maybe think about like a arc invest or, you know, high beta tech stocks, right? Compared to like low volatility value, right? If it trades with a higher volatility to the upside, you know, trades with a high beta, high realized volatility, high implied volatility, it usually, I mean this, it’s, you know, finance is, is similar to kind of physics gravity in a way it’ll trade with a high, higher levels of volatility to the downside, right?

[00:47:56] Dylan LeClair: Like it’s just how it works or how it should work in theory. And, and, you know, buy coin, right? BNB outperformed basically every. Every single crypto, including Bitcoin by a large margin in the bear market, where, you know, it’s served as, as massive beta, just like a lot of pretty garbage illiquid alt coins did in the bull cycle and in the, in the bear cycle, the thing that traded with three times the realized volatility of Bitcoin in the bull market, right?

[00:48:23] Dylan LeClair: So it trade, it traded as a, as a beta to Bitcoin, but massively outperformed Bitcoin on the upside, right? And you can just attribute that to illiquidity and flows and to the downside Binance B and B Binance coin traded with the same level of volatility as Bitcoin to the downside and actually outperformed the, the BNBBTC went up.

[00:48:43] Dylan LeClair: It outperformed Bitcoin to the downside. So for me, that was a big red flag. It was, okay, this, there’s something wrong with this exchange rate, but I don’t see a world where b and b, this token that was spun up from nothing, that Binance and CC gave 50% of the allocation to themselves that only trades really on Binance that started to go parabolic at the same time that FDT did.

[00:49:06] Dylan LeClair: I don’t think that the mark to market exchange rate is real on this. And CZI says that they, you know, he has 99% of his net worth in the thing on Twitter and 1% in Bitcoin. And obviously that could be, like, that probably is a lie, or at least, you know, is a little bit of an exaggeration or hyperbole. But CZI says that they never leverage against it and he never sells it.

[00:49:26] Dylan LeClair: And for me it was just like, it was quite the statement because like, if I think about the two things that you do when you buy an asset, you buy like a, you know, particularly a money, right? You buy, like if you buy Bitcoin, you either buy it to part with it at some point, or you use it as collateral to leverage.

[00:49:42] Dylan LeClair: There’s only two things you can do with Bitcoin. Like, like you either sell it or you leverage against it to borrow capital. That’s it. That’s all you can do. And so he was like, you know, we never sell it and we’ve never used it to collateralize against, so, okay, that’s quite the statement. Considering that BNB was worth a hundred billion dollars at the top of the market, So you, you never did anything with it.

[00:50:05] Dylan LeClair: Okay. I guess. And so, you know, here we are when I first put out the, kind of the tweet thread that was breaking down my concerns with b and b in particular, but it was worth about 3 million Bitcoin. I think it’s worth about 1,000,008 right now in terms of the, the, the b and b market cap in Bitcoin terms.

[00:50:23] Dylan LeClair: And so, like, you know, people were saying like, you were rooting for Binance to fail. You know, you, you thought you were going to, like, you were encouraging a bank run. It’s like, no, you know, they CZI says they hold every asset one to one. I’m saying people should evaluate counterparty risk and they should, you know, assess this considering what happened in the space.

[00:50:38] Dylan LeClair: They have a whole lot of crypto assets. They have, you know, 500,000 Bitcoin. They, you know, they published a proof of reserves. They have all this Ethereum stablecoin. But we see that there’s plenty of question marks, including, of which you’ve published a Proof of Reserves audit that’s like, that’s what they called it.

[00:50:53] Dylan LeClair: There was no proof of reserves, there’s proof of assets. It’s like, here’s my assets guys. And then someone said, show me your liabilities. And they said, ah, well that’s hard to calculate. There’s also instances, right? Like FTX collapsed. CZI puffs out his chest, says, we’re really strong and we’re different.

[00:51:09] Dylan LeClair: You know, everybody come to us. And actually, here’s a billion dollars to, for industry recovery to help the, the industry flourish and to help the cry crypto economy start fresh, right? We’re going to bail out people that need it. Sounds familiar, right? All of a sudden I’m like, okay, like this. Like, let me just take a look here.

[00:51:26] Dylan LeClair: A billion dollars of BUSD. Great CZI. Thank you for being very generous and, and altruistic. And I clicked on ethers scan. I clicked the billion dollar BUSD deposit, which was in a brand new white labeled address on ethers scan, and it came from Binance Wallet at eight. And Binance Wallet eight is a customer funds wallet.

[00:51:44] Dylan LeClair: Right, okay. And in a kind of a slight of hand where like no one really seemed to notice, a couple people called him out on it and Binance releases a blog post the next day and was like, you know, hey, to clarify, like, and they said this in, you know, four paragraphs of jargon and word salad. They said, oh, to clarify, you know, these are not customer funds.

[00:52:03] Dylan LeClair: These are corporate funds that we keep in the same address as customer funds because our security practices are so good. And I was just looking at this and I’m tweeting like, guys, this is a massive red flag. This literally makes no sense. Like this is asinine. It’s crazy. Security practices, like, what are we talking about here?

[00:52:20] Dylan LeClair: At the very least, they’re severely incompetent. And at the very worst, this is, you know, the F word, this is fraud. Yeah, right. Like, and people were like, bud, bud, you, you know, you were rooting for them to crash. And at that point I kind of just decided to leave it alone. I’m like, I’m not going to beat a dead horse here.

[00:52:35] Dylan LeClair: I, I aired out my thoughts. I’m not rooting for anybody to, you know, I’m not rooting for people to lose money. I’m not rooting for innocent people that probably wouldn’t be able to withdraw their funds or know what’s going on to lose everything. I’m just putting it out there and using my public audience and presence to say, Hey, this is what I see.

[00:52:51] Dylan LeClair: It doesn’t add up. There’s a, there’s a real clear history here of actions that we literally just saw this other guy do and, and they collapsed and finance finances in order of magnitude bigger. So, and I think it is a problem. There’s plenty of question marks, and I don’t think there’s many answers, but I don’t think there’s a high probability that those problems get all aired out.

[00:53:12] Dylan LeClair: At least not without some interference from the three letter agencies, which probably might come. And I, and I should clarify that like. I’m in no way a, a, you know, a symp for the you know, the heavy hand of the state. Yeah, yeah. But I think that’s, you know, that’s the five minute rundown of some of the stuff.

[00:53:31] Preston Pysh: From a probability standpoint, as you’re looking at like what comes next from the state, do you see them continuing to ratchet down on Binance or do you think that they’re just so large and lawyered up that they’re just going to be able to d defend themselves against the state? At least in the US it seems like the US is coming down hard on them.

[00:53:52] Dylan LeClair: Yeah, so I mean, it’s interesting, right? Because, so BUSD was their, they tethers existed and persisted and there’s obviously, there was a past question marks of tether and you know, there’s still people that say that that tether is, you know a black box to which, you know, we could probably spend some time talking about that.

[00:54:07] Dylan LeClair: Maybe we go there, maybe we don’t. But BUSD was kind of the Binance, rap stablecoin or the Binance, you know, white labeled stablecoin that Paxos issued and that got up to like 20 billion worth of value. And you know, CZ did this nice cool trick where, you know, they took these assets, not just BUSD, but also bitcoin, ether, all these other crypto assets, put them in a, in a smart contract address, and then issued the same tokens on b and b chain.

[00:54:34] Dylan LeClair: And the, you know, the funny thing was we can see that they they took this, these, this, this collateral, this deposit address that was supposed to, to represent the peg, right? So, hey, I’m going to, I’m going to stick this in a one-way peg, and then I’m going to issue it on another chain. And we can see that they were actually actively changing those addresses.

[00:54:53] Dylan LeClair: They were, sometimes they were over collateralized, sometimes those assets were under collateralized and Paxos and the s e c, basically, not the s e c I think it was the, the New York, it was a New York regulatory body basically. I mean, the data forensics came in there, said, oh wait, you guys were actually issuing this BUSD token under collateralized, you were minting billions of dollars at, at a time of, of, of free money, at least temporarily unres reserved.

[00:55:18] Dylan LeClair: They basically came in and said, okay, you can no longer create BUSD, you have to unwind this, and you got a year’s time to unwind it. So BUSD is gone. Now this dominant, stable coin of choice is TUSD, TUSD being, if you go on the website, the banking partners of TUSD are signature Silver Gate and I forget the other, I forget the other one.

[00:55:40] Dylan LeClair: So I think the TLDR is, the dollar rails are going to, and we’ve already seen this, the dollar rails on Binance, and really any crypto actor that doesn’t have a sterling relationship with regulatory bodies is going to get that. Their dollar rails are going to get beheaded. Maybe they can, you know, stay afloat and, and, you know, figure out, and, you know, maybe they deal with stable coins or crypto assets natively, whatever it may be.

[00:56:03] Dylan LeClair: But a lot of these systems, and not just Binance and not even even referring to Binance, but a lot of these games, FTX. They could persist and exist because they had fresh inflows of, of dollar capital to keep the gig going. And so Binance obviously is a big war chest. They’re customers at least have a big war chest.

[00:56:20] Dylan LeClair: I don’t think they collapse tomorrow. But from a probability perspective, I think at the very, very least, and this was the point at my original thread regarding Binance, was that the exchange rate at b and b btc, the exchange rate of this token is a, is a lie. The mark to market exchange rate is not real.

[00:56:36] Dylan LeClair: And so I would love to short the thing if I could. The problem is the only real place you can trade, the thing is on Binance, right? So like is that, you know, you’re trading against CZ and you’re trading against that, that that team over there. So I mean, you know, I would love to borrow a large sum of this thing if I could find a reliable counterparty.

[00:56:52] Dylan LeClair: But that’s not I don’t think that’s in the cards.

[00:56:56] Preston Pysh: But when you’re playing again, I mean Dylan, when you’re playing against somebody that you think is a bad actor, like sometimes they can per, they can carry that shenanigans out way longer than your, your cost to borrow. So, yep. Yeah, yep. Definitely. want to steer clear of that one?

[00:57:13] Preston Pysh: So, Dylan, when we think about fidelity, you know, huge staple of legacy finance. They’re now, people can go on there, they can buy Bitcoin, they continue to hold the Bitcoin. You can’t withdraw the Bitcoin, which I think is really, so you’re buying a paper receipt of Bitcoin that Fidelity is hopefully holding on your behalf.

[00:57:33] Preston Pysh: When I look at that model, I obviously don’t like that model. I want people to be able to withdraw and take self custody. Is this fidelity dipping their toe in the water to make sure that they don’t piss off regulators and to make sure that they’re doing everything according to regulatory standards so that they’re not pulling a Binance or a Coinbase where they’re just running with scissors and potentially getting themselves in trouble so that they have a dominant position in the space.

[00:58:03] Preston Pysh: Or is this the wall Streeters trying to get all of this under control and never going to offer self custody to their customers to be able to conduct withdrawal so that they can continue to have a paper Bitcoin market and basically turn it into gold, which is highly manipulated. Well, I don’t know that it’s highly manipulated, but, but it could be highly manipulated via a paper derivatives market.

[00:58:29] Dylan LeClair: Yeah, I mean, I, I don’t have any inside info into the Fidelity operations, but I will say that as you know very well that the key difference between Bitcoin and gold is the ability to self custody in a matter of minutes for basically no cost, right? I can move a billion dollars of Bitcoin for five bucks and it can settle on chain in 10 minutes.

[00:58:50] Dylan LeClair: You know, worst case it settles in an hour and, and you can pay up to have it settle in the next block for no marginal cost whatsoever. Because of that, I think that even if Fidelity doesn’t have those withdrawals on now, the market will demand it, and then they won’t be in a dominant position if they don’t give that feature.

[00:59:06] Dylan LeClair: Like, so. It’s obviously a different customer base, but we’ve seen a lot of entrance in this space, like from, like legacy FinTech apps Venmo, PayPal, Robinhood. I’m not sure if Venmo has turned on those withdrawals. I, I think someone will have to, as they’re listening, will have to correct me on this, but I know Robinhood, which was kind of like a, a black box for their crypto operations for a while.

[00:59:28] Dylan LeClair: You could buy Bitcoin and Ether and Dogecoin and whatever else, but you could never withdraw it. The demand was so, was so strong from their customers and they got so much inbound. When can we withdraw? When can we withdraw that they finally enabled it? I’m sure there’s still a lot of people that hold it on, on that site, but I think from an institutional space, there’s not as much of a demand maybe to hold the, the Bitcoin on a cold card, but the ability to do something almost makes the, the Fidelitys of the world have to play, play by the rules.

[00:59:57] Dylan LeClair: Right. And not to say that they wouldn’t play by the rules, but if you, you know, if I’m buying gold on your behalf, Preston, and you never redeem it because you have no ability to redeem it or withdraw it, you know, I may or may not buy the gold if you ask me or may not. Right. Like so, but with Bitcoin, if you can, if you have the ability to do something, Then I have to, I have to put myself in a position where I have to honor that if that request comes.

[01:00:20] Dylan LeClair: I think that’s fundamental difference with the Bitcoin market versus the gold market, which, which a lot of people like seemingly don’t grasp. I’ve had like my mainstream media appearances of the last, you know, six months or so, literally every single one. Not even mainstream, but just, you know, like, like media, whatever.

[01:00:38] Dylan LeClair: Gold is always bought up every single time. Yeah. Well it sounds like you’re describing Gold Dylan, and it’s like, well, no, I’m not. I actually have a smartphone in my hand and I can’t own gold on this smartphone. Yeah. Can’t verify gold from this smartphone. And so it’s, it’s pretty obvious to me. So obviously you where the game is going.

[01:00:54] Dylan LeClair: And that no one’s going to want to take delivery of, you know, five tons of gold. But I can take delivery of a Bitcoin transaction from my smartphone or my laptop.

[01:01:04] Preston Pysh: That’s connected to your node to do a full audit that it’s real.

[01:01:07] Dylan LeClair: Yeah, yeah. It, it audited the entire supply of Bitcoin. Yeah. And all of the, the fancy charts that we showed, you know, at the beginning of the Bitcoin supply and all of these exchange metrics, you can pull that data from that node and it’s only 200 gigabytes of data.

[01:01:23] Dylan LeClair: You can have it on a MacBook, right. Like it’s, it’s a pretty elegant, beautiful system. And obviously seemingly there’s, there’s still a massive education gap about what, what this thing actually is.

[01:01:35] Preston Pysh: What’s the, the status of the mining? I think the last time we talked, the mining industry was looking nasty.

[01:01:41] Preston Pysh: The price was way down, the hash rate was significantly high. It looks like they’ve gotten a little bit of price relief, but how would you describe that right now if you were going to give the status of the, of the mining industry?

[01:01:53] Dylan LeClair: I think we talked in like late November, so it was definitely very bleak. I think hash rates at, it’s still streaming towards all time highs.

[01:02:02] Dylan LeClair: The price bump is obviously given minus a little bit of relief. I think hash price, which is minor revenue per x of hash, kinda standardizes minor revenue in Bitcoin terms or dollar terms relative to hash rate. And that’s about 40% off the highs. They’re off, I’m sorry, 40% off the all time lows. And this thing over time only goes lower as supply insurance drops.

[01:02:21] Dylan LeClair: As hash rate goes up, that hash price metric continues to go lower. So they’ve seen some relief. But I think really when you’re thinking about minors, right, when you, when you’re evaluating the minor investment, and this is for you, you know, it could be public equities, it could be physical asic. Not only like, I mean, if you’re actually deploying physical ASIC or buying public public equity, you have to understand that you have to be a supreme operator to actually outpace this Bitcoin thing over the long term.

[01:02:47] Dylan LeClair: But over the short, intermediate term, regardless of of you know how efficient you are at the margin, it’s really a game of just price outpace hash rate or this hash rate out outpace price. Because if hash rate is outpacing price, you’re going to probably get wrecked. And that’s why, you know, it’s the most competitive business in the world, even though it’s still a very niche small market compared to other industries is because hash rate continues to go up forever.

[01:03:12] Dylan LeClair: And those asics that you bought in two years, in four years are going to not be bottom barrel, but they’re going to be far from the top of the line. And, and you know, and those, those asics don’t get thrown away, they get deployed somewhere else where the marginal cost of energy is cheaper. That’s right.

[01:03:26] Dylan LeClair: So it’s, it’s a brutally competitive business. It’s not very well understood. I, you know, I would love to see a poll of how many people on Wall Street could describe the difficulty adjustment if you asked. Cause I don’t think it’d be very high, but, you know.

[01:03:39] Preston Pysh: Let, let alone have them describe how it’s incentivizing cheap, free energy around the world for where all those rigs are, are being deployed.

[01:03:49] Preston Pysh: Because if you’re a minor and you own one of these rigs and it’s four years old, like you’re, you’re looking to sell it somewhere where somebody’s getting energy for free. Right? Yep. It’s just, it’s really fascinating to see the incentive around that alone and the incentive for setting up shop in an area where you really have a competitive moat with respect to cheap energy.

[01:04:08] Dylan LeClair: Yeah, and I think a lot of the, like, kind of a more long term thesis is that, you know, these big box public, you know, minors, you know, I think some of them will, will do okay, but I think it’s going to be really hard to be a, you know, a massive, massive operation, physically domiciled in one or two locations.

[01:04:27] Dylan LeClair: One, because of regulatory risk and kind of jurisdiction risk. But two, it’s just, it’s, it’s a race to the bottom, right? And even if you’re, you know, located in and not even taking a shot or a jab at, at a specific minor, but even if you’re at like, you know, Rockdale, Texas with cheap power, they’re somewhere with cheaper power probably.

[01:04:44] Dylan LeClair: Yeah. You know, that’s going to be able to mine 24 7 probably for no cost. Right. Nevermind, like, you know, state sponsored actors, because that’s another rabbit hole. But I mean, I think the mins are interesting. I’ll, I’ll probably probably scoop some up in the next year or so. Maybe after the having as a trade.

[01:05:00] Dylan LeClair: But I mean you look, plot any of these things in Bitcoin terms. Take all the miners, you can go in Trading View or another website, take the tickers and then plot them, divide that ticker by BTC USD and then look at a long-term performance. And they all underperform, right? Like that’s the, the signal.

[01:05:16] Dylan LeClair: And it’s not like, you know, it’s not a shot at marathon or riot or clean spark or any of them. It’s, you know, I just listed off three, but it’s just, it’s just the reality that hash rate is going up forever. Yeah. And the supply streams is going down and so on a long timeframe, like cyclically these things will, will outperform Bitcoin by five x 10 X during 36 96.

[01:05:35] Preston Pysh: That’s what I was just going to say. I was going to say, but if you’re looking for something that has a lot of vol and you’re trying to, you know, really get fancy with it, well have fun. because there’s, there’s a lot of vol.

[01:05:47] Dylan LeClair: Yeah, totally. Yeah.

[01:05:48] Preston Pysh: Not recommending that, by the way. And, and one other thing, the, the science is conclusive down there in Rockdale, I hear.

[01:05:55] Dylan LeClair: Yeah. That was, honestly, that was just absolutely magnificent by Pierre, by Pierre and the guys at Riot. That was just great. And it was, it was amazing. How many people missed that? Just a joke that you know.

[01:06:07] Preston Pysh: Oh, yeah, yeah, yeah.

[01:06:08] Dylan LeClair: Completely over their head.

[01:06:09] Preston Pysh: Over their heads. Hilarious.

[01:06:12] Preston Pysh: I actually had a, I have a t-shirt that’s coming that, that is a picture of Pierre holding up the, the monitor, the co2 and it says the science is conclusive.

[01:06:21] Dylan LeClair: Awesome. Yeah. Bitcoin doesn’t emit carbon.

[01:06:25] Preston Pysh: Oh my hilarious. Dude, we could talk all day. I really appreciated this. This was always fun. I always learn a ton from you and because you just have such a beat on what’s happening in this space. Unprecedented. And it is such a delight to sit down and chat with you, Dylan.

[01:06:41] Preston Pysh: So thank you for making time and coming on on the show.

[01:06:45] Dylan LeClair: Appreciate the invite back Preston. And it’s been an honor.

[01:06:48] Preston Pysh: Give people a handoff if they’re, if they’re just hearing you for the first time.

[01:06:52] Dylan LeClair: Cool. Yeah, you can find me on Twitter at Dylan LeClair underscore. Yeah, I publish research with Bitcoin Magazine Pro doing a couple other things.

[01:07:00] Dylan LeClair: I’m also on like Nostr, I don’t even know how to share that. Not on as much as, as you or as much as I should be, but yeah, I got a couple cool things in the works working on some, some Python stuff like we talked about at the beginning. So hopefully we’ll be able to share some more with you guys.

[01:07:14] Dylan LeClair: And I can also share you later tonight some of the links to the, the trading view layouts that I ,that I shared.

[01:07:20] Preston Pysh: Oh, awesome. Yeah, no, that would be fantastic. And we’ll have all that in the show notes. Dylan, thank you for making time and coming on the show.

[01:07:27] Dylan LeClair: Thanks Preston. See you.

[01:07:29] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener if you enjoyed the show or you learned something new or you found it valuable.

[01:07:35] Preston Pysh: If you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

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