Is the Bitcoin Bull Market Over? with James Check

0:00Alex Thorn:Welcome to Galaxy Brains.

0:25Alex Thorn:Welcome back to Galaxy Brains. As always, I'm your host, Alex Thorne, head of firm-wide research at Galaxy Bitcoin Not Zero. We have a great episode for you this week. James Cech from Cech on Chain is back. He's our Bitcoin analyst friend from Down Under. We last had James on the show in the summer to talk to us about Bitcoin on-chain data and what it told us about the state of the bull market. Now we have a very interesting interview with James talking about the state of Bitcoin and the Bitcoin markets following that leverage wipeout on October 10th. Very interesting. James thinks we are at a pivotal moment here to decide whether Bitcoin remains in a structural bull market or at risk of starting a bear market.

1:02Alex Thorn:It's a great interview I know you won't want to miss. We'll also check with our good friend, Bimnet Abibi, dialing in from California to talk to us about markets and macro, the state of risk markets in the short term. And before we get to all of that, I need to remind you to please refer to the link to the disclaimer in the podcast notes. And note that none of the information in this podcast constitutes investment advice or an offer recommendation or solicitation by Galaxy or any of its affiliates to buy or sell any securities. We are at an interesting time in markets. I wrote about this last Friday in our weekly newsletter, wondering whether Uptober could continue.

1:34Alex Thorn:Said it was materially dented. Said that they're a worry about whether or not the AI CapEx spend is in a bubble. I argue it's not. It's not like the dot-com era. Could be in a bubble, but it looks materially different than the dot-com bubble from the late 1990s. A lot of questions here in this market. Gold coming off huge from its all-time high. I mean, down 8%, its biggest drop since 2013. You know, that happens when you go parabolic. A little bit of a retail mania was forming in gold. People lining up in places all over the world to buy gold coins. Never really portends a very good situation for governments or economies when people are piling into gold.

2:12Alex Thorn:Anyway, that's come back a little bit. And we've got much more to talk markets this episode. So let's get right into it with Bimnet Abibi. Let's go now to our friend Bimnet Abibi from Galaxy Trading. As always, Bimnet, welcome to Galaxy Brains. Thanks for having me. So you are in front of a beautiful house. Where are you? Are you in California? I am in San Diego at a conference. Gorgeous. Yeah, for Stockwitz. It's actually been phenomenal. Awesome. So let's get into it. Thank you for joining while traveling. We'll keep it short today. But I guess probably the big immediate story at the moment is that equities have rolled over a bit.

2:50Alex Thorn:Bitcoin's trading as we talk here on Wednesday, October 22nd at 2.45 p.m. Eastern at like 1.08. I mean, it's weak. It feels a bit squishy out there in risk markets. Even gold pulled back a lot yesterday. What's the story from your perspective? Yeah, I think, you know, this was a market that was overextended, particularly in things like, you know, silver, gold, And some of the quantum computing names, some of the rare earth metal names, their performance has just been staggering. And so this feels like a healthy pullback in the trend. But also, I definitely think that there was a little bit of an irrational exuberance around some of these things, like the quantum names, companies that don't make any money.

3:36And so I think this is a very appropriate reaction. And then you've also had, you know, increasing tensions with China. There was a headline out today saying that the U.S. was potentially considering, you know, software-related pullbacks in terms of what you can actually export to China from a software perspective. And so, you know, the market's gotten concerned and there was a lot of, you know, positivity baked into price. There's a lot of leverage in a ton of different names. Same story in crypto. And so, you know, that's why, you know, you've kind of had a pullback because of like one kind of bad thing.

4:13But I don't think it would have taken much to to get things going the other direction.

4:17Alex Thorn:Yeah, that makes sense. And, you know, how much is to get the tariff sort of like, I guess, murmur now what technically, according to Trump's own timeline, we're waiting until November 1st is when he would enact the punitive tariff that he announced on October 10th, 100 percent on China. I mean, surely the market must be discounting that top line number from him, like given the history, right? No, absolutely. Yeah. Yeah, I think if you look at something like, you know, the prediction markets in terms of like what they're pricing in for like these 100 % tariffs like actually being applied, you know, you're talking on the order of like 10, 15 % chance, right?

4:59So the market's definitely pricing in a taco scenario. And I think it's appropriate because, again, both sides have no reason not to find a fair and equitable trade deal. Because it helps both parties. And so I do think that eventually you will see a resolution. The question is, is there going to be some bumps along the way? If you see the tariffs go into effect on November 1st, is that going to create some sort of bad blood that takes a while to resolve? And so, you know, I'm hopeful that something gets done. But in terms of like what's priced into the market, there isn't really that much pessimism baked in.

5:38And so when you get pessimistic, you know, kind of headlines, I think you'll see kind of an overreaction by the market. Yeah.

5:44Alex Thorn:Do you think it's something like, though, let's assume that, like in the best case scenario, that all of this resolves and you end up with like either a no net new tariff or, you know, a 10 or 15 percent or something like that. And we get that headline and we all move on from the China question. Like, does the sort of equity and crypto and sort of risk like staircase grind higher just simply resume? Or is there something more structural here that has you, that gives you pause? There are some structural things. You know, the credit stories you've seen over the past couple of weeks, you know, first brands, you know, some of the other, you know, bankruptcies, you know, and just how the market's kind of positioned.

6:26And so, like, I'll give you an idea. Like, the tails in credit vol are pricing in, like, some material risk, right? But if you look at, like, high-yield spreads, they're still very tight. But in the option space, like, the tails are getting bid up, right? Same thing in the VIX in the U.S. Like even though, you know, S &P is like very close to all-time highs, like you could be at fresh all-time highs like tomorrow, like vol is going bid, right? In crypto, you've had this insane deleveraging moment a couple weeks ago. And that was a function of, you know, some technical things. But it also just is another kind of these, another one of these warning signs that, you know, markets are kind of telling folks.

7:10And so you've got pockets of credit, pockets of equity vault, crypto, right? They're all flashing kind of orange. And then the other story that I don't think people are paying attention to enough is kind of the funding dynamics where, you know, every month that passes, you know, we're net draining liquidity from the market because of just the net treasury issuance, right? And so we're getting to the point where there's a little bit of reserve scarcity in kind of money markets. And that might be a little technical. But at the end of the day, money has to come from somewhere to finance a lot of the debt that we're issuing.

7:44And so there are just a lot of things that are coming together for me that give me cause for concern. But I think ultimately, if you do see a little bit of a correction, the trend's probably still in place. AI isn't going anywhere, right? And that's been a really large driver of equity returns. and it's really tough to bet against that on a consistent basis. And so I think I favor being a little bit more defensively positioned at the moment.

8:14Alex Thorn:All right, there you have it. My friend, Bim Netabibi from Galaxy Trading. Bim, thank you so much. No problem. Let's go now to our guest, James Check from Check on Chain. James, welcome back to Galaxy Brands. Thanks for having me back on, mate. Yeah, I love having you on and congrats on the child. So you're now a dad. I'm proud to say that. Welcome to the dad family. Yeah, Bitcoin debts. Bitcoin is alive. It is, yes. And I wanted to have James on. We had him on, I think it was in July or August, and we talked a lot about the on-chain data and what it showed us then. But obviously, in light of this October 10th, I'm calling it a flash crash or a leverage wipeout or whatever.

8:50Alex Thorn:And I don't want to talk too much about, which has been well-trodden territory, about the market microstructure in the crypto markets that may or may not have led to this actual wipeout. Obviously, it was sort of started in the market by Trump's tariff, you know, tariff tantrum in China 2.0 or whatever, which I think is frankly going to most likely result in some kind of compromise that ends up mostly fine. So not that, but I want to talk about what the data looks like to you, like where we are in this now new Bitcoin regime. I mean, as we record on Wednesday, October 22nd around 4 p.m. Eastern, you know, Bitcoin's trading at like 107.5.

9:26Alex Thorn:We're sort of back. That's kind of the recent support area, sort of the low since the, I guess, technically it wicked a little bit lower maybe on some exchanges on October 10th. But basically, we're at the bottom of the range. We've been in all year pretty much, you know, with the other tariff tantrum sort of as the exception. And then what the data shows you from the leverage. I don't know if there was big changes in like whale behavior or like realized cap must have, you know, like where are we in short-term cost basis? Let's get into all that. But maybe just first, what's your impression following that?

9:59Alex Thorn:It's now been about two weeks since that flash crash. Like how does the market feel to you? Yes. So this is the, I've released two pieces recently. One was from the perspective of check the analysts, trying to be quite objective and just looking at things, how they lie. and whenever I write check the analyst is more for like retirees you don't have the time to go through a bear market you've got to be more cautious you're a professional money manager but then I try to balance that because I'm also a hodler right and I love bitcoin I like stacking stats so I try to balance that with it yeah but hang on a second what if it's actually like not that bad so the first I mean I've been writing the the check and change that is since April mid-April 24 so that was the first edition and I would say that generally speaking I've been And with patches here and there, I've been like, guys, be cautious here or there.

10:42But this is the first time I've been like, it kind of could be a bear market. So just putting out there, you're right, we're testing that support. I've been using this analogy of what I call the hodler's wall. And this goes back to my geotechnical engineering days where I was looking at the supply distribution for Bitcoin, which if you envision a chart on the x-axis, you've got price. And then you've got bars showing you where everybody's on-chain cost basis is. and the shape of it a couple of months ago or a month ago kind of looked like a big gravity retaining wall. And you've got all these short-term holders up the front and you've got a bunch of long-term holders at the back.

11:15And it just kind of looked like this nice stable structure. Now, I was describing that before we went to 126K and trying not like we've come off 124, I think it would have been in August. It started to get a little bit hairy where more and more of these coins were going underwater, but then we bounced back up to 126. And my read was, hey guys, the Hodler's wall has held. Now, what we've now had is that deleveraging event. Now, this is almost a call back to 2021, where we used to have these massive wipeouts of open interest on a regular basis. And really, up until this cycle, and I would even say up until the last like five, six months, futures have been the dominant source of derivatives exposure.

11:55Now, it was up at about 96, I think, billion, which is by far and away an all-time high for Bitcoin futures open interest. options have now taken over. They're now$108,$110 billion. So Ibit options in particular are now 50 % of the market, just exploded since November. So we've kind of got a few different angles here. The first one is that deleveraging event. It is meaningful because it was the second time we tried the all-time high. We got to 124, we got rejected, we got to 126, we got rejected. And let's face it, at 107, 8, wherever we are right now, we haven't exactly recovered yet. And going back to that hodler's wall, when we look at where the supply distribution is, and the reason why this matters, nobody cares when you buy a Bitcoin and you're down 5%.

12:41People kind of care when they're down 20 % or 30%. And you're right, the chart we're looking at here kind of shows all the red zone. This is all the coins that are underwater. If you drop the price down to 105, this is where you enter the, there's every single short-term holder is in loss. So 105 is that line in the sand where we're now talking about the long-term holders, the only ones left who are in profit. So everybody who's bought in the last five months is pretty much underwater. And the most important level, in my opinion, right now is 95K. Because 95K, there's a few things going on. Underneath it is the only area where we've still got a lot of liquidation levels in the futures market.

13:19Now, futures is much less. It was 96 billion before the crash. It's now down to like 64. So a pretty meaningful wipeout. But$95 ,000 is where 60 % of all the dollars ever invested in Bitcoin is underwater. That's a majority and that's a kind of hairy level. So I've been calling that the bull's last stand.

13:38Alex Thorn:Man, that's crazy though. That means so much of the supply has been distributed at these higher levels. I mean, you said 60 % of all dollars would be underwater in Bitcoin at 95k. So the stats are 30 % of the coins, BTC terms, but that's 62, actually 62 % of the dollars. So if you take the realized cap, 62 % of the realized cap as a cost base is above 95k. So it's a sensitive level, right? And the thing is the next major support zone where we've had demand in the past is kind of an 85 kind of, but really it's 75. It's back the 2024 chop. Yeah, which was the post-election high. And it was the April 2025 tariff tan from bottom was also like 74, 575.

14:24Alex Thorn:So yeah, yeah, that starts. I agree. And I don't know what the term for this is. Maybe we should create one. But it's sort of like the around the corner theory of markets. Like to me, it's like, I don't mind 107, but 107 is kind of close to 103. And if we get to 103, like 99 could be in play. And if we get to 99, why not 95? Like, that's sort of how I think Maybe it's the anxiety of the wall of worry or in general, but it's like, oh, 115 is practically 120. And at 120, we're shooting for all time highs again. That's the way I think about it as well. And you've got to hold these two views, right?

14:54Because like of that 62 % of the dollars, that's also 62 % of the demand. So people have clearly bought Bitcoin above 95K. They want to buy this thing. But you're right. That trip from a hunt, because if you go back to 2024 and 2025, there's a few on-chain models. And you can look at like the 200-day moving average, short-term cost basis, and where the long-term average of MVRV is. In 24 and 25, both of those dips, we bottomed the equivalent zone where we bottomed was between 100 and 105 or 107. So we're there. We're at the top of that area where we should dip. And you're right, below 100, right?

15:30That's where we've bottomed in the past. So in theory, we should hold that line. But the trip from 100 to 95 is not much. And then below 95, it's like you could round the corner pretty fast.

15:41Alex Thorn:Like, you know, you could find yourself. I mean, honestly, even we're at 107.5 as we talk and it's about an 11 or 12 percent decline just to get to 95. That's not crazy. That's not a crazy decline. No, not at all. But also I am stunned. And the realized value of the Bitcoin that has, you're saying 60 % of the realized value of Bitcoin that exists traded above 95. That's a stunning stat to your point that people do want to, like, it's not just everyone sitting on realized gains at all. People have been buying this aggressively over 100K. Most of the value ever, most of the money ever spent on Bitcoin, on the current Bitcoin.

16:24The realized cap has crossed a trillion dollars. And that's my favorite stat of this cycle because the realized cap, for folks who aren't familiar, the market cap, you take the whole supply value at the last traded price. The realized cap, you take every coin and you value each one or each UTXO at the price when it last moved on chain. So if you think about when did people actually buy and hold their coin, now there's error bars and stuff around it because not every coin is bought and sold. But when you run even the most advanced filtering techniques that many of these data providers have, you actually account for, oh, that's a Binance internal or that's a self-spend.

16:58Even when you do that, it's plus or minus 5%. And like I'm a ground engineer, plus or minus 5 % is exact in my world. So plus or minus 5 % is fine. A trillion dollars worth of wealth has been allocated and entrusted to Bitcoin as a savings asset, which is incredible. So every time you see a gold bug saying there's no intrinsic value, I'm like, there's a trillion dollars worth of intrinsic value right there because people have trusted that wealth to it.

17:21Alex Thorn:Yeah, it's crazy that people have spent a trillion dollars on Bitcoin is what that says. That's the right way to think about it. They've literally spent a trillion dollars on it. Yep. It's the best way to estimate cost basis, you know, and I think it's a good one. And I actually, and this drives well because, you know, I have this theory that we're not early. You are not early anymore. You're not an early adopter in Bitcoin at this point if you buy Bitcoin. You might not be late. I think you're somewhere in that, I don't know all the stages in that adoption curve graphic people like, but you're not early, right?

17:53Alex Thorn:The cypherpunk mining on his computer in 2012, they were early. And some things, that means some things, like for being not early. One of them means you're not likely to see 10, 100, 1 ,000x, right? You might see 10 over time. Instead, we're transitioning into something that's more widely owned. And if you look at the price of Bitcoin since November 22, it's pretty much a staircase up, a slow grind up, right? And with hiccups here and there. And that's very different than the boom and bust of 17 and 21, which are massive blow-off tops and then massive troughs, right? Like we haven't seen – it doesn't mean we won't see those pullbacks obviously.

18:33Alex Thorn:But like it fundamentally does look a lot different to me. The actual shape of the chart, the price chart looks different. And there's some reasons for that. Morgan Stanley, which is one of the four big wire houses they're called, right? But these wealth management platforms where investment advisors work and they advise, you know, retail and business and clients and manage their portfolios through the platform of the big bank. So it's like Merrill, UBS, you know, two others I'm forgetting that are the huge ones. And Morgan and Morgan Stanley. And Morgan Stanley just said, like, I think last week they announced that their advisors can now recommend, aka, like, just put in and recommend up to a 4 % Bitcoin exposure in their advisees' accounts.

19:14Alex Thorn:That was, like, the unlock that we thought ETFs would bring because that's a cohort that needs the ETF. They can't do, like, spot. and it only is just coming, but it's sort of like, is, I mean, you're not early when Merrill and Morgan Stanley are putting their clients into it, right? Then you're not early. And so we're kind of in a different regime. At the same time. So if you go back and look at the realized cap in earlier cycles, there would have been periods of time where 62 % of the realized cap was above a certain cost basis level. But the difference was we were talking about 50 billion, not 500 billion.

19:46You know what I mean? Like, we're talking about a much, much larger pool here. So I think what's really, I think been really interesting about this cycle is trying to marry the Bitcoin people who've been around for a long time. Where's my high octane maneuvers? And then you've got these other folks, like for example, my old man, I got him in, in 2020 and he rode the wave up. He rode the wave down. I heard all about it. And then on this cycle up, he took his initial cost basis out probably in fact, on the run up in November. And he's now, he messaged me just the other day. he goes, what are your thoughts on reallocating?

20:19So he has come around, like my old man is willing to allocate. And then I've got Bitcoin is going, this is the worst cycle of all time. And I look at that dichotomy. I'm like, it's such an interesting example of where just people aren't used to that height, but where's my volatility? And then you get the people who are going to be allocating 4%. They're like, yeah, this is great. I look at the IBIT chart. It just goes up.

20:40Alex Thorn:Yeah, I agree. And that makes it seem fundamentally like, I don't know. Honestly, this might, I had tweeted this and I think around the Bitcoin conference in Vegas, which was, I guess, in May or June. I can't remember. Like, are we at the end of the beginning or the beginning of the end with Bitcoin? And I think it's, well, you know, it's a play on words. It's usually both at all times, technically. Or the midpoint is the same, I think, for both. But it does feel like this is the end of the beginning. And now we're in the beginning of the end game of global Bitcoin adoption, which might be more orderly and more institutional and into the consternation of some big corners, also more custodial perhaps, and more ingrained in the traditional system.

21:20Alex Thorn:And, you know, that's to me kind of what winning looks like. But regardless of your subjective view of it, it's, I think it's objectively happening, right? And so like, and I would love, you've covered this ad nauseum very well, but whale activity, how does that, you know, these sort of old coins or, you know, really long-term hodler coins, this has been a big distribution year for them, right? For sure. And look, I think there's probably four things that I think are the most important in this cycle. The ETF is the obvious one. The treasury companies are a part of it, but that's mostly strategy, but they're also a key element.

21:55What are those? They're huge sources of demand, like huge sources of demand. The other one is Ibit options, which is a whole nother topic we should probably go over. And then this like transition point that 100K has been. And I see so many people talk about manipulation and suppression and all this stuff. And by the way, manipulation and suppression happens in all markets at all times, all the time. But I personally do not think you need that as the central argument of your thesis to explain why we haven't gone higher. Because when we look in the on-chain space, what we have historically seen is that when the market goes on a bull run, particularly later in the bull run, realized profits go through the roof, revived supplier, which is older coins coming back to life, goes through the roof, coin day destruction goes through the roof, and they all seem to do it.