In this episode of the Fed Watch podcast, Christian and I sit down with Dylan LeClair, Head of Market Research at Bitcoin Magazine Pro. Each week, he and Sam Rule, write nearly daily updates for subscribers, and once a month they release a large bitcoin market report. That is what we are covering for the most part in today’s episode, Bitcoin Magazine Pro’s May 2022 Report.
You can find the slide deck we use for this episode here, or you can see all the charts at the end of this post.
Fed Watch is the macro podcast for bitcoiners. Each episode we discuss current events in macro from across the globe, with an emphasis on central banks and currency matters.
Market Cycle Before we get into the awesome charts brought by Dylan, I want to get an idea of where he sees bitcoin in its market cycle timing. I ask, somewhat facetiously, if we are in a bear market, because we are definitely not in a typical 80-90% drawdown.
Dylan responds by saying we are in a classic bear market, not necessarily a classic bitcoin bear market. He points out that the upswing of this cycle didn’t have the classic parabolic blow-off top we’ve seen previously in bitcoin, as well as there being more technical and fundamental support in the mid-$20k’s up to $30,000, so drawdown pressure will also likely be limited. LeClair also adds that the Average User Cost Basis was hit by the wick to the recent lows. All in all, there is significant support under the price, and it remains to be seen if there is enough bear momentum to break to new lows.
Lastly, on the market cycle timing questions, Dylan points out a very underappreciated market development, that being the collateral type on exchanges has mostly switched from bitcoin in previous cycles, to now being stablecoins like Tether and USDC. In other words, the dominant trading pairs and cash deposits on exchanges have changed from bitcoin to stablecoins. In the past, the most important trading pair for any altcoin was versus BTC, that has changed to being versus a stablecoin like USDT. This is a monumental shift in market dynamics and will likely lead to much more stable prices for bitcoin, because less bitcoin will be forced to liquidate in the hyper-speculative shitcoin bubbles.
Bitcoin Magazine Pro Charts “This is Coinbase spot volume, being the dominant American exchange, and the Perp [perpetual futures] volume aggregated over a bunch of different derivatives exchanges. What we can see is various volume spikes. Historically, when bitcoin is trading hands in that size, signals some sort of market top or bottom, some significant change in market structure.” - Dylan LeClair
The next chart shows the difference in market structure due to stablecoins. Back in the summer of 2021 sell off, Dylan says that 70% of the derivative market was still collateralized by bitcoin, today, it is much much smaller than that. Therefore, we should expect there to be fewer liquidations in bitcoin when shitcoin bubbles pop, and that’s exactly what we see.
What is great about the Bitcoin Magazine Pro newsletters is they not only look at the bitcoin market but also how macro could be affecting bitcoin. The next two charts are about CPI and interest rates. Dylan does a great job breaking these down during the podcast.
I ask Dylan the required question about his thinking on Fed monetary policy, and he focuses his analysis around real interest rates. He says real rates will have to say negative in order to erode the massive global debt burden. Therefore, if the Federal Reserve hikes even to 3.5%, real rates will have to stay negative, meaning the CPI will have to stay above that.
Next up is CK’s favorite indicator, the Mayer Multiple, or the 200-day moving average price divided by current price. When the price is below the 200-day, this ratio is below 1, and has historically been a good way to time the market.
One of the most dense informational charts on Bitcoin Magazine Pro is up next, and that is Reserve