Why 2024 Could Be Very Exciting for Bitcoin ft. Jamie Coutts & Carri Cee

36:01So once you sort of establish why it's necessary, then what I try to do is look on chain to see how healthy is the Bitcoin economy right so Bitcoin is a it's a monetary network it's a way for you and I to exchange value that is centralized or you know intermediary and to do so relatively quickly and relatively cheaply and so there's that aspect and then there's the aspect of holding this digitally scarce asset with a cap supply and these two forces are what sort of drive the value of the network and so I break it down in as simple as approach as I possibly can there is unbelievable value within on-chain data and creating lots of different custom metrics some of it for trading purposes and for the investment community to look at and to sort of derive alpha from.

36:59But what I'm trying to do is tell the story of just if this was an economy, you know, is it healthy? Is it growing? What are the things that are either concerning or not so concerning or very, very positive? And try to marry that to what the price is doing to say, okay, it's undervalued or overvalued. And so all I've done here is I've broken what I call the adoption drivers. So I look at the number of users and how it's being used. I look at the transactions. So maybe if I just focus on the users here before we go to the other sections, but the number of active addresses or the number of people actively using it.

37:39So transferring value more than once a day. Okay. So then that number is just shy of about a million. If we look over the last 12 months, that active addresses is up about 10%, but it's actually around 13 % below where it was three years ago. So a little bit of stagnation on the network over time, but generally pretty positive performance in the last year. And so the next one I just want to point out is the number of non-zero balances. So you can just think of this as the number of people, the number of addresses that own Bitcoin. And I use the term, I use the word people or person when I describe addresses, but they're not really the same thing.

38:30It's just a proxy. So an address can represent thousands of people, tens of thousands of people, and one person can represent multiple addresses. It's more likely that this is an underestimation of the number of people by many factors, maybe four. So when we look at number of non-zero balance addresses of around 50 million, we're probably looking at a number of about 200 million people that have exposure to Bitcoin. And so that number has, the number's at all-time highs, right? It's in the 100th percentile ranking of its entire history. And it's up about 16 % on the last 12 months. And it's up about 53 % in the last three years.

39:16So what's this telling me? It's that the activity, the high frequency activity on the network for moving value, in terms of the number of addresses, that's actually sort of stagnated over three years. I mean, it's not down by a great deal, 12, 13%. But the number of people who have like, bought it and have created an address, that has just consistently gone up, irrespective of price, irrespective of the 70 % drawdown that we saw in the last year. That just marched higher every month, month after month, month after month. So are we talking about hodlers versus transactors, people actually using it as a medium of exchange?

40:00Is that the difference here? Somewhat, but the other way. So there's a better way to measure that. So there's a term called accumulated addresses. So if anyone follows on-chain data, there's things like long-term supply. So addresses that have held the Bitcoin for more than six months versus the short-term supply. So that's a great way to measure people hodling. And that number is also up and to the right. It's at an all-time high. I use something called accumulation addresses, which is an address that has received Bitcoin twice. not just once, it's received it twice and never sold it. Right. Okay.

40:41That number is pretty much at all-time highs. It's at the 99th percentile. So there's 856 ,000 accumulation addresses. So there's lots of different ways you can look at it, but all those metrics, Caroline, if you're trying to understand what a HODL is doing, they are all at all-time highs. So they were completely price agnostic. they didn't care that bitcoin fell they continued to do what they've been doing for the last five or six years and buy bitcoin add to their bitcoin stack but the number of um so the the economic value which is really captured more so in this next session called transactions that's a slightly different story so the number of transactions on chain is really quite close to all-time highs but so that's about 537 000 each day on the bitcoin network so these are pretty decent numbers for a yeah decentralized grassroots monetary network um it's doing pretty well in terms of transfer volume moves about 2.24 billion every day and that's reasonably high 96 percentile but it is sort of um it is down about 60 percent from

42:022021 yeah okay now i'll explain why these things are different sorry this is all of course on chain so therefore it's not taking into account what's going on on lightning yeah not yet exactly this is all on the base chain absolutely which and you know lightning is having an impact here We can't, it's hard to quantify that, but more value transferring on Lightning is value. That's not transferring on the base chain. So it's starting to impact these numbers. So that's definitely a consideration when you're looking at it. But essentially, I guess the story here is that transactions are up, transfer volumes are down on where they were three years ago.

42:41And the median transfer value, the size of the transfer is actually, you know at rock bottom levels 21 cents and so the reason for this because it doesn't make sense when you first look at it number of transactions are up the transfer volumes are kind of down but then and the medium transfer is like way down at all time lows or thereabouts nearly and that is the impact of um the block space being used a lot more for ordinals oh right that development really screwed up the the on-chain metrics this year because they came out of nowhere a brand new use case for block space people are using the block space for ordinals but the average ordinal transaction is very small and so that's impacted the median transfer value the transfer volumes as well and it's also just coincided with still a year where we're still coming out of the bear market.

43:40So what we'll see in the future, it's very hard to tell, but I think as activity for the primary use case of Bitcoin, which is to transfer value, as that increases and that takes up more of the block space, fees will increase and it will be just a little bit more expensive for the ordinals transactions on the network. And that may decline. And that's just if Bitcoin follows its usual cycle where prices go up, you know, more on-chain activity, fees go up in response, and that just sort of consumes block space. And so these less economically valuable, I'm not saying that they're worthless, like that is a completely subjective term.

44:26Like this network can be used for many different things like storing data. WikiLeaks have put their files up on it. It's a transparent accounting ledger. so there is no right or wrong but economics will come into play when it's advantageous to use it for certain things and so this year because volumes have been and values have been low on the network not as much has been moving ordinals have come out of nowhere and that's been great for miners because it's given them extra fees that they otherwise wouldn't have had but it may change as we get into this bull cycle okay i i'm not going to ask any questions around that because i simply don't understand enough of about ordinals and how they work.

45:06And I'm sure plenty of other people would have a whole bunch of intelligent questions for you. And I just don't. Sorry. Well, yeah, I mean, even it's, I haven't used ordinals and I'm not into NFTs. Not until we start to see NFTs around music a little bit more, because that's my thing. But yeah, but you can see it on channels. Again, like it's just one of the wonderful things about this data set and about this asset class. you don't get the real-time analysis of what's happening on networks like Facebook or Amazon until the quarterly reporting you know of their of their of their earnings numbers whereas you know we've got a global decentralized ledger which is completely open we can see you know with a 10-minute update and that's you know that's wonderful from a data from a research perspective um tell can we tell the um geographics of wallet addresses or not there's been work done on it um so i can't remember the methodology that uh chain chain analysis have applied so chain analysis do a crypto adoption um annual update and it's not so it's not bitcoin specific um but they do look at data which is like your IP address so it's not perfect and it's a little bit creepy yeah but IP addresses if they're public everyone's using it but the IP address doesn't necessarily tell you the accurate underlying story because people use VPNs so it's really hard to tell the other way to sort of analyze it is to look at a look at the UTC timing universal timing and look at when Bitcoin transactions increase and decrease over the course of 24 hours.

47:03And you can map that to the geographies. So I've done this with Tether. Oh, okay, because time zones, because when people are awake. Okay, gotcha. Yeah. So you can sort of see like with Tether on the Ethereum blockchain tends to see its largest surge in activity at the end of the Asian day leading into the Middle East. leading into India, Middle East, Africa, up into the European Open. And so from that, I've just been able to sort of, you know, ascertain. It's not, you know, exactly scientific, but it's a guide that there's a lot of tether usage happening out of Africa and Middle East and, you know, and Asia as well.

47:43So I haven't done it for Bitcoin, but it has been done. Okay. Cool. Cool, cool. All right. Let's talk fees because everybody's... Well, because I actually had a really interesting presentation on the weekend about what we might expect with fees as time goes on. So can you run us through a bit about this? sure so just in terms of what the numbers are saying um we've seen a we've seen a very sizable uptick in fees over the last 12 months which is great because fees are part of the security budget or the the payments that the miners receive to incentivize to secure the network so and some of that is definitely ordinals related um they've just provided a new um a new use case for the for the blockchain at a time when it wasn't being used as much as it has been historically, at least in the first six to nine months of 2023.

48:44So we've seen a real pickup in fees. Some of that is due to the Bitcoin price as well, because it's priced in Bitcoin and the Bitcoin price has gone up over 100%. But you can see that fees have gone up even more than that. And so there has been a general uptick in usage on the network this year and that's been expressed in fees which is great and so we can also see that the hash rate is you know nearly 500 exahash 99th percentile i actually say that the hash rate is the best indicator for bitcoin is the one if there was only if i was left on a stranded island and there was only one metric that i could look at to understand whether Bitcoin was healthy, it would be the hash rate.

49:31So why is that? As someone who really has never deeply understood, I mean, I understand what the hash rate is referring to, but why is it the sign of health? The sign? Because miners have to spend capital in order to participate as a miner on the network. So they can only do that if there is an incentive to do that. So it's a signal that this network is valuable for whatever reason, whether it's just, you know, they believe the price will go up or it's providing a real-world service, and they're prepared to put billions of dollars of capital to secure that network and make it strong. And so if everything else was, if I was not able to look at any other on-chain data, then I would just want to know that that is the, you know, the core underpinning is the proof of work consensus model.

50:32And so that is being supported by real capital moving in and doing the work, that proof of work to process the transactions and keep the whole network running. Because without it, there is no network. Okay, I get that. So it's the health of the network. I suppose what the conflict always is in my mind when I hear people say that and and give a lot of emphasis to the hash rate is we can have a healthy network but unless people are adopting it, you know, unless we're getting demand for the for the end product as it were, then does it matter how healthy? I mean, we always want a healthy network. We always want a a secure decentralized network.

51:22But isn't it more about I'm interested that out of all of these metrics, and you've gone through adoption, but it is the one that matters most to you. Because in my mind, adoption is is more critical at some level. and maybe unless I'm just thinking in terms of number go up or um using it as a medium of exchange across the world yeah I mean it's they're all it's related and it's like it's really hard to disentangle all the metrics and say right this is the one that matters the most like I've actually done like linear regressions so just looking at the relationship with the price to all these different metrics, which one explains the price better.

52:07And you've got some metrics which explain price reasonably well, others that do not. Active addresses is a very strong metric. Hash rate and difficulty are very closely related as well. So just from a statistical standpoint, but then you've always got to step back from the stats and say, what is it actually telling us? And so when you've got the hash rate going up from early adopters now to nation states, they're effectively flagging. They're effectively forward looking and saying, hey, this is serious. We are going to invest capital, private enterprise first, now nation states. We're investing in this because this network has value.

52:55whatever reason they may use to describe it the best signal is capital right that that's essentially your pure signal and capital is flowing in to support the network and so you know I might get a little like you know upset that I don't see active addresses going up as much or transaction values going up as much but I feel a lot more comfortable knowing that billions of dollars are going in to secure the network. oh that was a real penny drop moment for me thank you that's great all right got it all right tell me about this z score because i've seen this before as well and i'm sure i've heard a checkmate talk about it and i um i don't know very much about it yeah it's just another way to sort of represent where the price is relative to the on-chain fundamentals so is a price deviated a long way from what the underlying adoption metric is saying.

53:52So in the same way as we look at when we look at companies or equities, we usually use multiples, a price to earnings multiple, a price to book multiple. They don't necessarily have like an exact correlation to performance, although there is in this case, but those relationships change. It gives you a sense of where the network value is, the price, relative to that adoption rate. And so the Zed scores here are 1.9 and 1.2, which is just saying price to active addresses is about 1.9 standard deviations above the means or above the average. So price is more expensive than, or the network value is more expensive relative to the active addresses when we look at it over sort of a one-year period.

54:40and so is the MVRV, which is you have to break this down a little bit. MVRV, market value to realized value. So the market cap to the value of all the coins last moved. And so that kind of gives us a cost basis. I'm sure James has talked about that. He is definitely the guru on on-chain metrics. So they are trading above their average. but when we look at them historically they get very high in the bull markets and so the color coding here is just an easy way to say hey it's a bit expensive but it's not anywhere near the troubling levels that we've seen every single market peak and I can maybe just help visualize that here on this chart if we look at um this one here so this is mvrv in pink um versus the price and you can see the red line represents six standard deviations and so once we get into those sort of kind of scary levels those eye-watering levels where let's face it when you're at that level most people who own bitcoin are in a profit and so when you've got so much profit-taking potential in the price, you're going to start seeing profit-taking.

56:04It's just a matter of time. There is gravity that exerts itself in all assets, in all prices. And so when you get to those levels, it's time to sort of start. If you're a hodler, maybe it doesn't matter. But certainly if the traditional finance industry looks at assets, they look at you know trading them they'll start looking at these metrics that you know on-chain guys have been looking at for a long time and you know adopting them into their sort of into their mix and so that may change the way the relationship over time that may mean that we don't get to see extended deviations this bull market because profit taking comes in so there's you know none of these things are static but it's a very good way to sort of see where we are in relationship to where we've been in the past have you plotted that against fear and greed as well the fear and greed index no no i'm assuming it's got to be similar it's got to have a high correlation yeah it's just uh yeah there's so many different ways to express fear and greed um yes but yeah i looked at another metric earlier today which was the percent of people who own bitcoin who are now in profit with the price at 38 percent oh yeah because there was so much volume traded in the 20 to well 25 to 30 range over the last two years that 80 percent of people are on their average holdings the average price of all their bitcoin are in profit so unfortunately people that bought at 60 and didn't average in over the last couple of years they're the 20 but the network is starting to get into profitable area but that's not generally a concern from a market sentiment standpoint it needs to go a lot higher before you see you know profit taking obviously the people who believe in this network over the long term over multi-generations they're not going to be selling and the conviction is growing in that in that cohort more than ever how do you know that well the way that the network behaved in 2022 two so we've seen in previous bear markets that actually active addresses will fall a lot and also the um hodlers will also 2017 was this massive capitulation on the network like a lot of people gave up hope and so i wonder if i've got that chart yeah i've got the chart here so this is this is active addresses um i'm gonna sorry flip through i know that's annoying but oh this one here okay so this looks at accumulation addresses so let's just make this a little bit clearer so these are the addresses which i like to use or the proxy i like to use for hodling behavior and so accumulation addresses it's an address that's received some bitcoin not once but twice and never sold.

59:03And so look at the difference between the last two bull markets. In 2017 was this hype cycle. It was way too early for Bitcoin to go mainstream. You had an unbelievable retail frenzy. It peaked with price and it collapsed by about 25%. Then it started to climb in the bear market and started to break out again. and it broke out before the bull market really even sort of started. But what happened in the last bear market of 2022 and 2023, it actually, with the price peaking, what did it do? It just went up. And it continued to go up. It actually went up a lot on the FTX collapse. So the study of price is the study of supply and demand.

1:00:00And so even though price fell, the people that were accumulating maybe weren't whales because they weren't able to influence the price enough for it to have stopped falling during that bear market. But eventually the supply and demand moved more in the favor of the hodlers and a bottom formed because they kept on scooping up coins and not selling it through the bear market. So unlike 2017, 2018, sorry, 2018, when, you know, basically there was capitulation, you know, 25 % of the hodlers went, I'm out and left and probably came back in one year, two years, five years later, who knows. but this was a very different market and so with each cycle you're seeing a solidification of the or the resolve of the bitcoin network to continue to buy and take supply and hold it for a longer time now some of those holders are going to sell in this bull market it's inevitable whether it's you know for personal reasons because they need they need the cash or whether they lose faith in the network but the characteristics of the last bear market tell me that you know we've got a very strong network at least from the perspective of this is a scarce digital asset and I want to hold it because I think we are going to be debased and debased at ever-increasing rates.

1:01:24So many questions going on still so we talked just before we hit the record button about ETFs and BlackRock in particular and their$8 trillion of funds under management and asset ownership and the fact that they could, you know, to what degree can they huddle and hoard really or the available Bitcoin supply. And related is the idea that I don't know if you know, do you know Peter Dunworth? Yes. You're in Australia? I thought you did. So one of the things he talked about on my show was the idea that anyone with a printer, so the central banks, if and when they do decide to add 1 % Bitcoin to their treasuries, could just print money, buy Bitcoin.

1:02:24So you've got the potential for people like ETFs, so private and public, to just come in and mop up. What are your thoughts around that, please? Well, we're going to see, you know, we are going to see the start of this next year will be the start of serious traditional capital moving into the space, traditional finance. traditional investment institutions moving in. So it's inevitable that they are going to become far more prevalent in the network. And that's going to change the relationships of certain metrics in the way that we need to analyse it. But, you know, ETF, you know, we don't have, it will increase the opacity, I think, of the owners of the network as well.

1:03:19but I mean it's the jury's out as to how if they're able to do the same sort of things that they're able to do in traditional finance so we pretty much know at this stage that gold is manipulated that most commodities are manipulated by the cartel of banks that run those commodities like you know there's certain um banks that sort of are the um the primary banks or institutions which house certain base metals there's the gold bullion banks there's about five of them that sort of control the um selling the institutional um selling of um gold within the financial system and of course you know they're all private ledgers we have that we have no way of verifying or there's no authenticity in what they print as their reserves or print as their inventory versus what there actually is and we know for a fact that in many cases it's not always what it is and plus you've got the you know that the the frequency of the updates as well so you know another example of that is like we kind of we kind of have an idea of how much gold China has, but we don't really know exactly.

1:04:40Because they'll only provide updates on what the central bank has actually bought like every couple of years. So there isn't the transparency in the traditional markets as there is in Bitcoin. So I'm not sure or convinced yet, although I'm open to persuasion, that there could be the same kind of shenanigans in the Bitcoin market because of the transparency that it provides and also the type of network that it is. Like we demand proof, right? The exchanges have had their day in the sun of being basically co-mingling client funds with their funds and trading off the back of it. And the regulations are going to come in and sort out those centralized exchanges pretty quick.

1:05:24So that's going to clear things up. But in terms of the ETF providers, they'll have to disclose their holdings as well. But again, we're trusting those centralized intermediaries to do the right thing. So it's very unclear to me as to how this sort of impacts the market. On one hand, it's wonderful from a flows perspective and for legitimizing it. I'm not sure if the same kind of shenanigans will be conducted by BlackRock that an FTX did. Of course, that may sound ridiculous because BlackRock is a respected institution. but we just don't have the same level of transparency in the traditional financial markets as we do on Bitcoin.

1:06:07But we're going to see a marriage of the two and you've got a very hypersensitive community of Bitcoiners which will be watching everything that happens on chain to see if there's any kind of funny business. Yeah, okay. That's very true. I'm going to have to move us towards two things. I'm going to ask for a price prediction for the medium term and then for the longer term. And so let me just frame up the question around the medium term. So what I mean by the medium term is the current cycle. So, you know, through the halving for the kind of 18 months to two years beyond the halving. So really in effect when we're expecting the next peak.

1:06:56So I'm going to ask for a price prediction for the all-time high in this cycle with two thoughts in common. One is on the one side you've got the Ben Cohens talking about, you know, diminishing returns. On the other side you've got people talking about this is the last time before institutions get in and we, you know, we see crazy movement. So you've got a couple of different schools of thought going on out there at the moment where do you sit so I did the price projections in June I said it would be 39 ,000 by November it got to 38 and then I projected a range of 150 to 180 I actually had a base case or a sort of bear case of around 92 ,000 but the moderate to bull case is around 150 to 180 if I remember correctly.

1:07:57So that's just and that is really not a very scientific approach. You look at what Ben Cohen talks about in diminishing returns. I sympathize with that understanding as assets get larger in value then in theory the price moves become less on each new bull market because there's just so much more capital that it takes to move at one percent when you're a three trillion dollar asset versus a 500 billion dollar asset um but you know it doesn't matter too much whether I'm right or wrong because you know I want to I know that it's going to outperform other assets so that's the most important thing so I've only really looked out to the the latest cycle and said right this is the return in the last cycle it it did about I can't remember the numbers but it was you know substantially less in the 2020 so from the 13-14 cycle into 16-17 into 2020

1:09:062021 and just looked at that moderation of returns. That's how I got to my numbers, but I used sort of different sort of scales to get from sort of 90 ,000 to 180 ,000. And look, that's really non-scientific. Another way to look at it is what would active addresses need to be given the correlation of active addresses to the price be for Bitcoin to get to 180 ,000 in price. and we'd have to see active addresses get to about 1.5 million. It's at 1 million today. So that's a lot. That's a lot of new users to justify the price increase. But the thing that sort of makes that really hard to gauge the cycle is because you've got all this investment capital coming in that's not using the network, but is using an ETF investment vehicle, which could just basically soak up supply.

1:09:54So you'll get, you know, maybe not the sort of usage increase that you would normally think based on historical correlations because people like, you know, our parents are buying it through some sort of ETF product. They have no intention of using Bitcoin. They won't show up on chain, but they'll show up in the BlackRock wallet for the ETF or whatever. So I just feel strongly that this is the asset to protect yourself against debasement. and debasement is certainly the one thing that's constant. So. Yeah, that's right. That's the thing, isn't it? We don't know what price Bitcoin is going to, but we do know the price that our current fiat is going to.

1:10:40I will ask, just for the fun of it, if we were to look out three cycles to sort of 2035 to 40, which for some people if we're talking you know 12 to 15 years ahead maybe some people are starting to look towards or hope towards retirement what are your thoughts around have you have you thought that kind of distance and beyond um I I actually try not to listen to Peter Dunworth when it comes to this absolutely understandable he's got to be in the top three bulls in the in the space I've never heard of price prediction as high as this I think he's oh I think breed love I think breed love oh really okay yeah but I hope they're right maybe I'm wrong maybe I'm wrong sorry yeah yeah look I mean I sent out a tweet the other day it was like um I think what we really want to hope for because what does it actually mean if Bitcoin is a million dollars in 10 years time?

1:11:44Unfortunately, it means a lot of pain, a lot of anguish, and maybe a lot of deaths. Right. Because this system is killing us. And it is creating a massive divide in the populations around the world during the haves and the have nots, which comes back to the underlying principles of Keynesian economics, fiat fractional reserve banking. And so there's a part of me that, you know, I would say more so than the get wealthy phase is like, you know, Bitcoin is trying to keep them honest. They're not listening at this point. Hopefully at some point they do. And we get some moderation of the insanity. So, you know, hopefully it doesn't get to a million in many respects because at that stage it just means a system like they've lost control we have lost control um so yeah there's it's important because that's why you know a lot of us are here um but yeah i think in the meantime because people in power don't recognize well they firstly they hardly ever admit fault when they do they'll never apologize which is fine i don't want apologies per se i just want them to i just want better policy i want a better society and so between now and that recognition by our policy leaders and it'll take you me and everyone else to vote the right people in or get involved and be proactive bitcoin will be a lot higher in that time and we will hopefully not see you know complete chaos because of it but i hope there's an inflection point where price goes up a lot things start to change because it's a signal, well, they, you know, who knows.

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