{ "episodeId": "SLP64", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "tuur_demeester": { "name": "Tuur Demeester", "role": "guest", "tag": "TUUR" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 8.8, "text": "Welcome to the Stefan Livera podcast focused on Bitcoin and Austrian economics. Learn the economics and technology of Bitcoin by listening to interviews with Bitcoin's best. For episode 64 today, my guest is Tuur Demeester. He's one of the long-standing Bitcoin investment writers, traders, and analysts, having written about Bitcoin investment in 2012. Tuur is highly influential, ranking 11th globally as a crypto influencer, and he's the founding partner of Adamant Capital. Here's the interview. It's a great pleasure to welcome you to the show, Tuur. I've been obviously reading a lot of your work and listening to some of your speeches over the years, so thanks for coming on the show." }, { "speaker": "tuur_demeester", "time": "00:50", "start": 50.41, "text": "Hi, Stefan. Pleasure to be here." }, { "speaker": "stephan", "time": "00:53", "start": 53.37, "text": "Yeah, so Tuur, I think, I think you've been writing some fantastic stuff recently. you've obviously written many influential pieces on Bitcoin, and some of your most recent work is around essentially a, a primer on Bitcoin investment sentiment and changes in saving behavior. But I suppose before we get into some of those, it might be good to just talk a little bit about your overall approach and kind of your guiding philosophy. There are, there are different ways and aspects in which we- Can view Bitcoin. Can you comment a little on some of those?" }, { "speaker": "tuur_demeester", "time": "01:26", "start": 86.23, "text": "Yeah, I mean, how I encountered Bitcoin, the background to that was in 2005, I was studying, business cycle theory and the history of money and banking, and so I was just- Just kind of thinking about these cycles, where regular recessions and even depressions, the way you defend yourself against that is you just, you know, make sure that you have a lot of cash, and then you can buy when everything's cheap. But that changes if there's an inflationary depression, because then the cash isn't safe either. So you need some kind of different answer. and in a depression, nobody wants to buy anything, so the only place to hide really is to find a liquid asset That and also everything defaults in a depression or, or at least many, many institutions do. So you have to find a liquid asset that has low third party risk, low counterparty risk. and so that's why I was drawn to gold and, and a lot of other people that, started investing in Bitcoin pretty early on originally had a, a gold background. and that's kind of how I, I, I learned about Bitcoin, that, that to me it made sense as like a digital answer to gold, because it did make sense to me That, you know, in the twenty-first century, we want digital money, like logging, sorry, lugging gold bars around is just not very efficient, And so, that is kind of how I ran into Bitcoin, and, and so it, it, it made sense to me as, a collateral asset eventually. I think that's what we're heading towards, as, A reserve asset, as a savings instrument, and I think down the road it's also gonna become a financial benchmark, a basis for lending, really a, a standard in, in many different ways, similar to how, you know, over the centuries we started talking about a gold standard, I think Bitcoin is also gonna become a, a standard." }, { "speaker": "stephan", "time": "03:27", "start": 206.72, "text": "Fantastic. And I, I suppose we can already see the beginnings of some of this today, right? There are already some Bitcoin backed- Lending products available." }, { "speaker": "tuur_demeester", "time": "03:39", "start": 218.71, "text": "Yeah, true that. yeah, and, and if you look at how, crypto traders think, often case What they'll do is, they'll kind of measure their performance in Bitcoin terms, 'cause, you know, why, why would you do a lot of trading if you can just hold on to Bitcoin? But of course, if with your trading you can enhance your performance above Bitcoin, then that makes sense. and so I think that's gonna develop more and more. And, I mean, we have a significant pool of Bitcoin savers right now. I mean, probably between sixty to eighty billion dollars worth of bitcoins that are, that are out there. And so there are There are people, and more and more people who, who own Bitcoin, but who would like to, to be rewarded for their patience to some extent, and the way you do that is that you, you lend them out in some way, and then, the interest rates that you get back, that is your reward for, for, relinquishing access to, to your capital for a while, and of course, you also incur risk to some extent, so, so it's also your reward for, for taking some risk, but that's essentially how- How, the gold market worked for many, many centuries is that if you had, a certain amount of gold, at some point you would diversify, by investing into loans that would, give you claim to a little bit more gold, and then you could kind of-- ideally, you would be able to live off your interest." }, { "speaker": "stephan", "time": "05:07", "start": 306.71, "text": "Precisely, and I suppose that may contrast a little bit with what some within kind of the Bitcoin world may, let's call it the \"quote-unquote\" hardcore hodler position, who believe in the fully \"not your keys, not your coins\" model, but perhaps that model is I guess I can sort of see two different arguments here. One argument would be, \"Look, Bitcoin is going through this massive price appreciation. Why do you need to take on the risk of keeping your bitcoins at some custodian when you can simply hold them yourself?\" But then on the other hand, it's, it's-- there is an argument there around \"no return without risk.\" What do you think on that?" }, { "speaker": "tuur_demeester", "time": "05:45", "start": 345.33, "text": "Yeah, I think it's not either or. It's really like, you know, you see most clearly if you kind of, imagine different use cases, different profiles of an- investors, different needs, I think that it's, it's, it's a very, profound insight that, it, you know, not your keys, not your coins, that the, it is true, like if you, if you don't control your keys, then you are trusting a third party, and then the question is, are you comfortable with that? we have to also take into account that The, the current state of Bitcoin doesn't or hasn't really allowed for insurance yet. Like only now with like, players like Fidelity coming into, into play, are we seeing like significant Bitcoin insurance? Basically, insurance against loss of funds, against hacks and things like that. and then, and, and so- You know, a lot of, a lot of bitcoiners got scarred from, Mt. Gox, and before that there was, there were several, custodians that basically either did an exit scam or got hacked. so I think it's, this paranoia is very, very understandable, productive, important, but at the same time we are seeing the custody ecosystem mature, and so I think as a, as a means of diversification, it does make sense to, to kind of look for a return on your Bitcoin. taking into account the volatility and, you know, you have to think about a lot of things before doing that, and you have to, you know, put your, just like how you diversify a traditional portfolio, y-y-you have to think about it in that way as well for your Bitcoin portfolio, I think. and I think that, you know, there are arguments, why you might want to trust All or part of your bitcoins to a third party, like if you have very limited technical ability, maybe the third party is gonna be able to secure it in a better way than you do, and there's no reason to be restricted to just, to just one. Like you can have multiple third parties that, take care of parts of your bitcoin. You can engage in multi-sig, storage where, you know, you only store one out of three keys with a third party so that they can kind of have a backup for you in case you lose, one of your keys. keys yourself. And so I'm talking about a multisig setup, that is gonna become, I think, more and more popular where, rather than trusting a custodian to hold all of your Bitcoin, you trust them to hold one of your keys and say that your setup is, for example, three out of five multisig, you can give one key to three different custodians so they store three keys, between them, and then you have two. And then of course, you have to trust that they're not gonna collude, but you could, you know, there, All kinds of schemes possible there. it's just, it's, it's going to be really, really interesting, and I think to some extent people underestimate how creative these, multi-sig schemes can become, to really cover a lot of edge cases where you might lose your Bitcoin. even, you know, the time locks are super interesting as well, where you, For example, you have a two out of two multisig, and, if, if, you know, between you and the custodian, and if everything's normal, you just, you just sign transactions, and then if, if you don't sign a transaction for, let's say, six months, it's, it's possible to create a contract that will then revert control, to you, as a single signatory, and then, and so that would basically mean That you can, take away the power from your counterparty, if, for example, you don't trust them anymore, you can say, \"Alright, I'm just not gonna sign for six months,\" the power then goes back to me. But then there's another case where maybe you just lost that key. So then, from what I hear, it w- it should even be possible to, To have another, mechanism that then over time reverts the power back to the third party, so that after, I, I'm, I'm, you know, we can talk a lot of detail here, but basically just to illustrate how flexible these, these, these signature structures can become to really get the best of, of both worlds of, of third party custody and then also control of your own keys." }, { "speaker": "stephan", "time": "10:09", "start": 609.28, "text": "Exactly, and I think you, you make a very good point there that in the early days, these sorts of multi-signature easy to use solutions weren't available, and that as Bitcoin proceeds through these different phases, some of these more advanced techniques Are becoming available, we're seeing more financialization. I think these are just some of the different phases of Bitcoin. So I, I noticed on your website you listed some different phases. So you talked about this concept of discovery from two thousand and eight to two thousand and thirteen, infrastructure two thousand and thirteen to twenty twenty, and then deployment twenty twenty to twenty twenty-five. Do you wanna just elaborate a little on those phases?" }, { "speaker": "tuur_demeester", "time": "10:53", "start": 652.8, "text": "Yeah, sure, sure. So in my mind, Bitcoin is slowly maturing to becoming a full fledged reserve asset, a full fledged digital gold, a full fledged money, and that just doesn't happen in, in one day. It just, it goes in phases. historically also, there's like money, money never just appeared, it, it always evolved. and so the way I see the first phase in Bitcoin is really discovery, it, it's how- hackers and coders who just found this interesting project. And I think that phase was roughly speaking from two thousand eight to twenty thirteen, where, we saw extreme volatility, just very poor tools available, like you-- e-everything was command line based, not a lot for investors or, or kind of, you know, lay people that was available. and then I think that changed in twenty thirteen with the price increasing and, and some VCs getting involved involved and some startups that were really trying to increase the appeal for Bitcoin to the, to the, the general public. we saw the first hardware wallets appear in twenty thirteen, also the first ASIC mining rigs, so, so mining became more and more professionalized. some improvements in custody, like twenty thirteen is when Mt. Gox started seeing some very serious competition, and, and it was also that you could see the decline in market share of, of Mt. Gox, which to me was the epitome Of the discovery phase, like just an incredibly poorly run, exchange. and then, and I see this infrastructure phase going on even today, like, the financialization of Bitcoin is part of that, where, you know, we just get Bitcoin futures, Bitcoin derivatives, m-more advanced, ways to store Bitcoin, the first instances of serious, Bitcoin, insurance. I, I see that continuing You still maybe in twenty twenty, that you could call that the end of the infrastructure phase and the start of what I call the deployment phase, is really, you know, let's call it the Windows nineteen ninety five moment when, we can really go mainstream, and so that's when I see Bitcoin starting to be held by large hedge funds, sovereign wealth funds, where we have really a mature custody and insurance system, which doesn't mean that, you know, nobody's ever gonna go bankrupt any- More, but at least there's, you know, more significant maturity, enough for mass adoption. So, so that's kind of also where you probably could see the adoption rate go from five, six percent, today to, to really pass that inflection point of maybe ten percent. if you look at internet adoption, I believe in, in nineteen ninety-five in the US, nine percent of households had internet, and of course, we all know today it's, it's well above eighty percent. So, so I- I think we could see that in twenty twenty, twenty twenty-one is, is really that we would move past that inflection point and, and get mainstream adoption of, of Bitcoin." }, { "speaker": "stephan", "time": "14:03", "start": 842.81, "text": "Precisely. And the other thing with this, if you're thinking as an investor, as a trader Then it's a question of how do you deploy your capital, and I think one of the difficult problems that many people have faced is the difficulty of simply generating a return over and above Bitcoin. And so when they're thinking about investing in a company, they have to now worry, well, hang on In fact, very few companies in this space have done better than simply holding Bitcoin. So do you have any thoughts on, you know, thought, on how achievable that is and ways to think about that?" }, { "speaker": "tuur_demeester", "time": "14:43", "start": 882.62, "text": "Yeah, it's, it's a complex question. there are several things to take into account. Like one is obviously taxation, usually for, you know, if capital gains are taxed, basically the more you move, the more you trade, the more likely you're going to be, facing higher taxes. So that's one thing to take into account is that longer term strategies are, are, gonna yield better results on average. when you- You think about lending Bitcoin, you have to think about, again, how it's, how is it gonna be taxed? there's some, i-it's actually unclear how that is in the US, for example, and in other places, How Bitcoin loans exactly are taxed, and of course, you're dealing with counterparty risk, if you're talking about lending. and I think also another challenge, well, and, and I mean, I'm listing the challenges here, but I do think that Bitcoin lending is going to become huge. I think it's going to be a huge, huge market, over time, and, and Bitcoin is going to basically be a, a, a very sought-after source of capital in the long run, But it'll take time to mature. one of the challenges in the short term with lending out Bitcoin is that, in a bull market, when the price goes up a lot, then, These counterparties, potentially have more and more trouble to repay the loan because, you know, what was initially, let's say a hundred thousand dollar loan becomes five hundred thousand or a million if, if Bitcoin really is in one of those big, big rallies. so that's something to take into account. there is also the strategy of, switching, converting your Bitcoin into mining gear and, and deciding to switch to, to Bitcoin mining, I think, that is very difficult to do well. I think it is possible to enhance your Bitcoin returns by doing that, and I think historically, like we did some work on this, and it looks like if you can time the top in a good way, then, you will likely be able, even after taxes, you will likely be able to, generate a return above and beyond Bitcoin. But there's a lot of You know, there's a lot of caveats there, and by the way, this isn't financial advice, this is just, you know, me thinking out loud and, and, and having thought about some of these general strategies. But, the challenge there is that there's operational risk, obviously. So, so you need to make sure that if you sell your Bitcoin and then you buy the equipment, that the equipment arrives, that it's in good quality, that your electricity costs are, are low, low enough, 'cause that's the trap of, of bull markets, is that you see mining pop up everywhere, even at, you know, electricity costs of, you know, seven cents a kilowatt, eight, nine, and that's all doable in, in a raging bull market But as soon as the price drops, then it becomes extremely competitive. Like right now, it's, it's very hard to be competitive if you have, five cents electricity costs or higher, you really have to go lower than that. So, so generally speaking, you know, in terms of timing, you have to be at the top of the market when you decide to convert into mining. so that's a timing challenge and an operational challenge, 'cause yeah, there's just very, very, you, you know, you're competing with the entire- Our world basically, miners could be anywhere. and then another strategy is to, is to basically use your Bitcoin as collateral and, and in, in a bear market, borrow, s-borrow somewhat against that, basically lever up slightly and, and acquire some more Bitcoin, and then as the, the market goes up, you'll be able to repay that loan and, and whatever's left is basically your alpha. That's another- Strategy, and I think that's, that's probably the most promising strategy because it's, it's tax efficient, you have to, you know, obviously have to know what you're doing, have to time the market well, but, i-i-in general terms, I think that is a, that's a viable long-term strategy." }, { "speaker": "stephan", "time": "19:01", "start": 1141.23, "text": "Right, and I think I'm curious actually, that brings up the question, this whole concept of can we time the market, and obviously there are debates around whether TA is a thing and so on. My view is essentially that it's sort of like poker, right? There might be the top five percent who can, who actually can make money, but then probably that bottom ninety-five percent, many of those people are either breaking even or losing money, right? And In this analogy, maybe a person who's good at poker is because they sort of know the game better and they can kind of, you know, they play their chips better, they play their cards better. I suppose a person who is good at- let's say timing the market, is it then, in your view, is it that they are better at kind of uh-perceiving the emotional bias or-perceiving the the thoughts of the other people in the market better?" }, { "speaker": "tuur_demeester", "time": "19:55", "start": 1194.96, "text": "Well, there's, there's a number of things to that. I think nobody can exactly time the market, like that is just impossible. Like calling the exact bottom, calling the exact top," }, { "speaker": "tuur_demeester", "time": "20:08", "start": 1208.15, "text": "that's not possible. And I think the, you know, the good news is that it's not necessary. if you can If you can roughly get it right and you have appropriate risk management, then, you can outperform the market, and I think that's been proven time and time again. And I think one of the biggest challenge for traders is just to get, to, to accept that and have the humility that you can't get it right, and so that you're, you have to really manage risk in, in a, in a significant way and, and just be aware that you can, you can You can get it wrong and, and then have contingency plans for if it goes wrong, how to, how to unwind your position and things like that, and really kind of also emotionally and, and practically prepare for scenarios where you get it wrong. I think that's really what, differentiates successful, speculators from unsuccessful speculators. And then I, what you're, what you get at, I think is, is also true that, You know, having a feel for the market, for the emotions that are alive in the market, I think is, is very valuable, and that's where, I think experience comes into play, where you, obviously, you know, no, no two markets are the same, and no, no two different phases in the same market will ever be exactly the same. But, but getting an emotional feel for, for markets, I do think you can develop, somebody who's been studying oil, the oil markets for, for a decade It is going to have, a significant advantage over somebody who's new to them and, and understand better what, you know, what drives them, in, in terms of price And I think the same goes for Bitcoin, where you, you know, I, I mean, for example, me, I've been in this market for seven years, and I've made, I've made some mistakes and I've paid, I've paid my, my dues, to some extent, 'cause I always traded with a very, very small amounts, 'cause I knew I was kind of Putting myself through Bitcoin Trading University, which, you know, nobody had ever done, but, I think that's-- you just have to be aware that you're, you're a novice, if you start in a new market. so I always trade it with very small amounts to kind of learn the ropes. and, and, and the interesting thing with Bitcoin is that there are some quantitative- Sources of information available that are very hard, if not impossible, to acquire in other asset classes, and I think that's really-- it's fascinating and, and, and very valuable, and, and it can allow you to get an edge over, other people. And also of course, the choice of your, of those quantitative measures is vital, right? If, if you-- it, it, it's not enough to see a pattern, because patterns can be broken. It's, it's very important to understand why a certain pattern might matter. Or might not matter. So I think those are some of the things, some of the ways to think about how to time the market, how, how to work on your skills in that regard. one of, one of the ways for-- that's been helpful for me is to be active on social media, especially on Twitter, 'cause it's almost like you just have your finger on the pulse every day. You see what traders are saying, what people are doing, the kind of calls that they're making. That's been really valuable for me to, to kind of" }, { "speaker": "stephan", "time": "23:34", "start": 1413.84, "text": "About some of the historical approaches to assessing Bitcoin, because some of these, you mentioned in your article and obviously, you know, just having been around the space, there have been different approaches. So I think one very popular one was Trace Mayer's two hundred day moving average, which kind of also became known as the Mayer multiple. Do you wanna comment a little on that one?" }, { "speaker": "tuur_demeester", "time": "23:54", "start": 1434.38, "text": "Sure, sure, yeah. So, so it's true, like how to value Bitcoin, it's just been- It's been a mystery to people and, and, and something that people really have been thinking about since 2010, like how, how do you value Bitcoin? It's not a stock, it's not It's, it's not a company, it's, it's, it's a probably commodity, but it's very scarce, so you, you can't just look at supply and demand in the way that you can with, with maybe wheat or oil or something like that. and so yeah, early on, people came up with these different approaches, and, I think what Trace saw in 2012 was that," }, { "speaker": "tuur_demeester", "time": "24:33", "start": 1473.05, "text": "Basically, his, his core observation is Bitcoin is in a long term secular uptrend, and it's very, very volatile. So what can we do to smoothen out that volatility to then decide whether or not Bitcoin is kind of deviating from the general trend? And that's how he came up with the, I think other people named it the \"the mayor multiple.\" But yeah, he suggested that two hundred-day, two hundred daily moving average, of, of the market cap of Bitcoin, And so I think, yeah, that, that's an absolutely valid way to, to look at, at Bitcoin. I do think there's, the danger there can be that it's kind of self-referential, 'cause you only look at, you know, you try to predict the price based on price information, which is, you know, not bad in itself, but I think you always wanna find sources, Of, of data and, and, and measures that will independently confirm or, or, you know, potentially contradict, what, what your, moving average says." }, { "speaker": "stephan", "time": "25:35", "start": 1534.64, "text": "Right. Yeah. it's a good point there around needing some form of external data input rather than just simply just looking at the price trend. but then, then there were other aspects there that do build on aspects around that. So another example is NVT. So how do you view NVT? NVT then." }, { "speaker": "tuur_demeester", "time": "25:56", "start": 1555.92, "text": "Yeah, this, this first was suggested in, in early 2014, it was somebody on, I think on Bitcoin Talk who suggested, This thing called network value, like, he, he said basically, let's look at how, how fast Bitcoin addresses are growing and, Map that out against its market capitalization. And so there will be times when you have relatively more as-address growth and a relatively low market cap, maybe that's when Bitcoin is undervalued. and, and, and it's kind of similar to, It, it, it's, it's the idea is that the address growth is a proxy for user growth, and so it, it, it, it goes back to how a lot of internet startups are often valued at, at, in Facebook, for example, is valued at, either market cap or revenue per user. monthly user, monthly active users, for example, is a very popular metric for these kind of internet companies. I think the challenge is that, You know, Bitcoin's address space is limited. Like, there's only, you know, what is it now? Three, four megabytes available per ten minutes to add to, the Bitcoin, blockchain. So, so there's a limit there. and, the other challenge is that in periods of low, low transaction fees, anyone can just spam the blockchain and add more transactions and create more addresses. That doesn't mean that we're seeing meaningful- Activity. So that's always been the kind of, you know, where, where I was uncomfortable with network value or NVT as a way to really value Bitcoin is that, yes, it measures activity, but doesn't measure meaningful activity. that's, that's something that I'm-- So, so I, I prefer to not use that measure to decide whether or not Bitcoin is, is, is, is at fair value. Even though so far it has, you know, to be fair, the signals have been fairly reliable, but I think that especially as we run into these capacity limits, it might just really lose, lose, potency." }, { "speaker": "stephan", "time": "28:12", "start": 1691.82, "text": "Right. And I think Willy Wu himself came out and said, \"Well, look, now with, Blockstream Liquid, it might actually lose some of its predictive power because some of that might now, some of that larger volume might now be going across using...\" Liquid." }, { "speaker": "tuur_demeester", "time": "28:28", "start": 1707.57, "text": "True that, yes." }, { "speaker": "stephan", "time": "28:29", "start": 1709.17, "text": "Yeah. and then, so I suppose some of the next work, kind of, I think that was sort of a landmark in, in, in this kind of idea of blockchain data analysis, I think is Drew Bamsel's HODL Waves. Do you wanna comment a little on, you know, what are your thoughts on HODL Waves?" }, { "speaker": "tuur_demeester", "time": "28:46", "start": 1725.92, "text": "Yeah, fascinating research. And, and I, and this was twenty eighteen, but really to, I think to appreciate HODL waves, you probably need to go back to twenty eleven when, some, some early Bitcoiners came up with this idea of Bitcoin days destroyed, and the idea is that, you, You every time, so the idea is that every time one Bitcoin isn't spent for an entire day, that's one Bitcoin day. And so if I have one Bitcoin and that one Bitcoin is a thousand days old Basically, it hasn't been spent in a thousand days, and then I decide to spend it, then I'm destroying a thousand Bitcoin days. So you can aggregate that across the entire blockchain and, and look at how many days are there destroyed every day. and that's, that's fascinating because it really-- it, it communicates that there's meaningful activity there. there's something, you know, if a lot of days are destroyed, that means a lot of old coins are moving, that must have some significance. So that was all the way back in two- 2011. And then for a long time, nothing really happened with that. You could, you could see the measure on, Blockchain.info and, and their chart pack. And then eventually in, 2014, John Ratcliff, he, published this analysis of the blockchain where he also looked at the age of coins, the age of bitcoins, based on when they were last used, and, and it was just this kind of elegant graph that showed like, oh, yeah, look, this many coins are, today, this many coins are, six months old or younger, and this many coins are between one and two years old, and so on and so forth. So, so he- We did that in twenty fourteen, and then, in twenty eighteen recently, Drew, who is CISO at Unchained Capital, he took that idea a bit further and, and, presented it in a more elegant way and updated the work, 'cause it hadn't really been done since twenty fourteen, and, suggested this concept of hodl waves, where you could literally see how, the age of the coins varies over time, and, and in particular, what you can see is that, when Bitcoin ral- is a lot in price, we see a decline in old coins, which basically means that, there are liquidations happening, value realization is happening. When, a lot of retail money flows into Bitcoin, the, you know, quote-unquote, original gangsters, often decide to sell some coins or to move them around. and so that's, I think, just really fascinating and interesting, and, and I, I can I don't know if, if, if, if you allow me, I can expand a little on how, how you can, how you can develop some measures from that." }, { "speaker": "stephan", "time": "31:45", "start": 1904.79, "text": "Okay, so that's a little bit of detail and a little bit of context around this idea of HODL waves and, you know, Bitcoin days destroyed. And I think maybe the next idea that was significant in my mind was this concept of realized cap, and that was, sort of valuing the aggregate value of the UTXOs priced by their value when they last moved. So do you have any reflections on that, Tuur?" }, { "speaker": "tuur_demeester", "time": "32:11", "start": 1931.0, "text": "Yeah, I think that's, that's really interesting, 'cause it's kind of, it really, it's, it starts going into like, well, is this, is this blockchain meaningfully used? because if you and I create a new coin and, it has like a supply of a, a billion, let's say, and, And then you and I decide to move a thousand coins back and forth all the time, we can seemingly generate a lot of meaning, a lot of activity. But, but what realized cap allows you to do is that it, it allows you to debunk that and allows to prove that, look, you guys only moved a few coins, the realized cap of your blockchain is very low. So I think this is, this was an important step, And then if you, the, if you, subtract the market cap from the realized cap, what you then get is the unrealized profit and loss. So that's really interesting, where you can start aggregating, and, and, and looking whether the average Bitcoin investor is either underwater in dollar terms or is in the green where he has unrealized profits. And that, that re- Ratio is, is super interesting. You can also then divide it again by the market cap to like see it on a relative basis. So then you get the relative unrealized profit and loss, and that really is, I think, a very powerful sentiment indicator. If you can estimate whether the market as a whole has, large reali-unrealized profits then maybe that says something about how, people are very confident, how, maybe at some point there's exuberance, and then on the downside, if, if on, on average, sorry, in the aggregate, if people are facing losses, well, then that probably means that, the sentiment is, is much more negative and that you can start talking about undervaluation." }, { "speaker": "stephan", "time": "34:12", "start": 2051.88, "text": "Right, and then I guess if I understand you correctly, then you would use that to try and perceive where the market is sitting, like emotionally, where are most of the people collectively feeling, and also Based on that, understand, well, okay, if everyone, if there's a lot of people who are kind of have lost hope and a feeling, you know, capitulation, so to speak, then that is Theoretically, a good time to start purchasing more bitcoins. Is that how you would think about it?" }, { "speaker": "tuur_demeester", "time": "34:42", "start": 2082.34, "text": "Yeah, that's what we've seen through, yeah, that's what we've seen through these Bitcoin cycles is that, especially, you know, the retail public, that didn't really have a long-term game plan, like they get involved, they're very excited, they have this idea that, you know, they're gonna multiply their, their, their investments, and then when it goes, you know, when it goes up a lot, it's great, when the value melts away, As they start to get underwater, where they, they really are facing dollar-based losses, that's when sentiment really quickly goes, you know, ice cold, and, and, and eventually people just walk away and they feel disgusted, they don't wanna have anything to do with it. And that's, yeah, like you say, that's, that's when using the word capitulation is, is, appropriate, I think." }, { "speaker": "stephan", "time": "35:30", "start": 2130.11, "text": "Let's, let's talk then about, I think, your, some of the new suggested valuation tools and one of the key measures that you- suggest to explain is this concept of liveliness. Can you go into that?" }, { "speaker": "tuur_demeester", "time": "35:42", "start": 2141.68, "text": "Yeah, so, so we were talking earlier about these hollow waves where you can see like, oh, you know, the, the coins between age two and three, two years old, to three years old, these coins are, diminishing in quantity, for example, and we see more recently moved coins and things like that. but the challenge with that is that, you, you, you don't get a clear signal or, or unambiguous utility. Like you see an interesting graph, but, but, but then what do you do with it? And so, what our advisor, Thomas Bloomer, came up with, several months ago, is this idea of liveliness, is one single measure that focuses on the coins that move relative to how long they were previously dormant. and, and the way you calculate l-liveliness Is by, adding together all the Bitcoin days destroyed and then dividing that by the sum of all the Bitcoin days that were ever created. And so basically, the more meaningful activity we see, the more coins are destroyed, the higher the liveliness is going to be. It's a percentage, it goes from zero to hundred. and so that gives you just one single data point, a single, measure that- That evolves over time, that gives you an idea of whether a particular blockchain has a lot of meaningful use. Are there a lot of, days destroyed? And then also it indicates, it, it'll be lower, for example, if there's a high inflation rate in the coin, then the liveliness is gonna, be lower than in a case of a currency with a capped supply. So, so it's, it's a very powerful tool, and you can imagine, for example, a lot of people use, market cap these days to value, to kind Kind of look at how valuable a, a, a, a, a cryptocurrency is. So for example, with Litecoin, you would just say, \"What is the total supply of Litecoin? What, what are all the Litecoins that were ever mined?\" And then you multiply that by the price, and there you have it, the market cap. But the challenge with-- we already discussed it a little bit earlier, the challenge with that is that it, it doesn't, it doesn't say anything about meaningful use. And so what you could do is you could multiply the market cap by liveliness. And then you get a corrected, market cap that in the case of, you know, some kind of scam coin, all of a sudden you get a very low value, and in the case of Bitcoin, where the liveliness is close to sixty percent, you would get a very high number. So, so I think that's some work to be done where, liveliness is used a-as a way to kind of adjust for meaningful use of, of blockchains. And in the case of Bitcoin, the really cool thing is that It allows you to start estimating, how many coins are being meaningfully held by Bitcoin savers, and then from that you can derive, whether people are accumulating more coins or whether in the aggregate they're actually dis-hoarding and, and selling more coins, and that is kind of the equivalent of insider buying and selling. So, so, you know, these are-- that's the, what we call the hodler position change, where you can start estimating, for example, on a- On a monthly basis, are in the aggregate Bitcoin holders, are they selling coins or are they accumulating more coins? And that's of course very interesting, you know, knowing what-- if you could know, if you had a way to know what long-term gold holders are doing at any given time in the market, you would wanna know that, if you, if you're a gold investor, to decide whether or not gold is, is, undervalued or, or overvalued at any given time." }, { "speaker": "stephan", "time": "39:28", "start": 2368.0, "text": "It's a fantastic point you make around, it's, this is an unprecedented thing. We could never have done this in the market for gold, but we can do this in the market for Bitcoin to some extent. Obviously, it's not a perfect science, but it is an interesting idea, and I, I, I like that it, it, in, in some sense, it's trying to help understand what are the whales doing, what are the sort of people who were around for a long time, what are they doing with their coins? And I suppose just to- Kind of articulate how they might have thought or how they might, hey, how they might have gone through this. They might have bought some coins early and then, you know, the crazy, you know, November and December 2017 run-up happens, and then some of them would have thought, well, hey, this is a pretty good price, I might as well, you know, take some of that out and buy a house, buy a car, whatever, and then go back to hodling for the, you know, for the rest of their position. so in some Through using data science and the blockchain to try and perceive that." }, { "speaker": "tuur_demeester", "time": "40:30", "start": 2429.58, "text": "Yeah, the, like, one interesting observation, for example, is that what we've seen, like looking at the blockchain starting from twenty twelve, is that every time a previous all-time high is reached, so for example, that would be in, let's see, early twenty thirteen, in, late twenty thirteen, and then again in late twenty, sorry, in early twenty seventeen, for example, in early twenty seventeen 2019, that's when the thousand dollar was achieved again after, after the, the two year bear market. we saw a really significant dis-hoarding. So, Bitcoin holders, they, they had been waiting for two years and psychologically it was really important to them that, That the previous all-time high was reached, and so they felt the thing that they wished they had done in early twenty fourteen, like basically sell some more coins, finally they allowed themselves to do that in early twenty seventeen, like the old all-time high is there, let's sell some coins. And so we see this dis-hoarding happen, just all the way through early twenty eighteen, and that's kind of when the, you could say the whale selling started to become exhausted, and you saw accumulation again." }, { "speaker": "stephan", "time": "41:41", "start": 2501.34, "text": "Fantastic. And I, I get I guess we're, we're, we're speculating here obviously, Tuur, but do you believe that some of those people who were-- who maybe they had bought during twenty thirteen, and then they were selling at the start of twenty seventeen, as you mentioned, do you think that they were selling in a-- because, you know, in their mind, like to try and s-- in, get into their head in terms of investor sentiment, were they thinking, \"I want to try and, you know, maybe I bought at like eight hundred dollars and, oh, now I can sell for thousand so I can sort of take out, you know, some of my, in-initial money, or do you think it was more like they had maybe bought it like two hundred and they wanted to sort of sell it one thousand just to try and sort of, quote unquote, lock in some of their gains?" }, { "speaker": "tuur_demeester", "time": "42:27", "start": 2546.58, "text": "Yeah, I feel like it's more about locking in. I, I, that's kind of my hunch. It's like locking in some gains and, and to kind of, you know, maybe it's, you know, the bear market was rough, especially for people that had significant exposure, they're, they saw a, a downturn of eighty-five percent, like massive decline in value of their, you know, at least psychologically of their portfolio. So to kind of have some relief, to, to at least psychologically, like, \"Oh, yes, I, I I, I, I made some actual profits off my Bitcoin. It's like I can tell my wife, like, \"Look, we did a three X on Bitcoin, \" or, \"Or, or, or we doubled our money with Bitcoin.\" and that doesn't mean that they sold everything, of course, you know, in the aggregate they didn't. yeah, I, I would say that's, that's probably the strongest, motivation for people, or, you know, it's more diversification, right? They may, maybe they sold some Bitcoin to, to invest They want to diversify in, in some altcoins as well, 'cause they, you know, that was the start of the ICO boom." }, { "speaker": "stephan", "time": "43:32", "start": 2611.59, "text": "Right. Yeah. So they could have thought, \"Oh, hey, I, I can gamble a bit on these other coins because whatever, right?\"" }, { "speaker": "tuur_demeester", "time": "43:39", "start": 2618.88, "text": "Maybe they, maybe they were like, \"Damn, I missed out on Ethereum, and now there's all these other coins coming up. Let's, you know, let's try to hitch a ride with those.\"" }, { "speaker": "stephan", "time": "43:47", "start": 2626.66, "text": "Oh, precisely, yeah, people may well have done that, I guess. Okay, another concept I was keen to just get your thoughts on. Do you, are you a believer in this whole halving, Bitcoin block halving, you know, every four years the subsidy drops in half? are you a believer that that is a supply shock that then drives the next bubble, or do" }, { "speaker": "tuur_demeester", "time": "44:10", "start": 2650.12, "text": "We're doing some research into this, like currently. my hunch is that, my belief is that value investors who invest in Bitcoin, they look at the twenty-one million number, and they basically just take into account that this supply is going to increase. So, so basically they price in the supply, This, this diminishing supply factor over time. I do think to some extent it, it can be a catalyst of, of a, an already existing trend where it's like, you know, there's, there's this, the, the miners are gonna get less coins and, and, it's gonna be less supply that comes into the market. and, and also miners anticipate the halving, and so they decide to hold on to some more coins, they hoard more coins as the halving approaches because they know that they'll only get fifty percent of those rewards. Awards anyway after, after the halving. so, so if anything, I think it's a catalyst, I don't think it's a fundamental trend driver. So I think it's very dangerous to think, you know, it's guaranteed that we're gonna have this massive rally before, the next halving. And also you have to keep into, you know, keep in mind that, annual inflation, and I mean the definition of inflation that I use here would be just increase in supply. it, it originally was, I think, Something like that, and then with the, the halving, it went to about five percent, and then now it'll be like two and a half percent after the next halving. So every time the effect becomes less and less. I think like right now And in the gold mining world, for example, gold miners only, manage to add about one percent of additional supply to the existing above ground supply, just because there's already so much mine, gold mine, the easy, the low hanging fruit is gone. It'll be similar with Bitcoin, where, yeah, I just, I think you have to be careful to like, to think about it as like this season, like I've seen it often in seasonality, where people are like, \"Oh, you know, gold is in season,\" like, the- Summer doldrums and then there's like a rally and at that point, like, I think it's dangerous to just assume that it'll come back because it's happened in the past. Like, Bitcoin has only seen what now three happenings, am I right? No, it went from fifty to twenty-five and then to twelve and a half. So yeah, only two. I think that's, that's not a big data set. So, so I, I'm ca-- I, I wanna be careful to, you know, to, to throw that in there as, as a, a" }, { "speaker": "stephan", "time": "46:46", "start": 2806.42, "text": "Point that would be made is just that, you know, knowledge isn't given to everyone, and many kind of newbie investors who buy into Bitcoin, they may not sort of be aware of the dynamics around the halving. so that, that may be one point to consider. But, but also I would recognize that perhaps we're seeing this phenomenon of the cycles elongating. Do you have any con-- Do you have any thoughts on that concept?" }, { "speaker": "tuur_demeester", "time": "47:10", "start": 2829.82, "text": "Yeah, I think it's, it just fits, it just fits together so nicely, it always kind of makes me, makes me skeptical of the theory, because it's so elegant to think like, you know, Bitcoin has these cycles and, it's a commodity, and so it's maturing into, into really a full-fledged mature commodity like oil or like wheat or gold, and so just like in the commodities market, eventually we'll have these twenty-year cycles, and so the way to get there would be that grow- Gradually, the Bitcoin cycles are gonna lengthen more and more until we get to that lower volatility long term cycle, situation of, of other commodities. you know, but, but even though I'm, you know, trying to be my own devil's advocate, I haven't really found strong counter arguments, as to, you know, this happening. It's, it's, Bitcoin is ten years old, and we are actually seeing, you know, the volatilities slowly declining over time, the, the cycles are lengthening, so I think- I think it's a, it's a very valid and, and important, kind of piece to the puzzle if you want to understand Bitcoin's price dynamics." }, { "speaker": "stephan", "time": "48:18", "start": 2898.04, "text": "Precisely. And also just wanted to get your thoughts around the potential for some of these blockchain analytics and data science potential to be diminished by coming changes, so let's say increased use of Lightning Network, or if, let's say, someday confidential transactions were to come to- Bitcoin, would they reduce the ability to actually do this kind of blockchain data analysis?" }, { "speaker": "tuur_demeester", "time": "48:47", "start": 2927.43, "text": "Well, that's interesting, and I, we've thought about this quite a lot." }, { "speaker": "tuur_demeester", "time": "48:54", "start": 2933.52, "text": "I, so for one, obviously de-anonymization would be, you know, a lot harder if Schnorr were to be merged into Bitcoin and, and some other things like where we actually get a lot of use of confidential transactions. but you would still be able to, determine the age of, of Bitcoin transactions, of meaningful Bitcoin transactions. And so the, the idea of liveliness, all the measures that we, we talked about would still be, you would still We'll be able to, calculate those. At least that's my understanding. I'm, I'm happy to be corrected. and then when you think about maybe liquid, the liquid side chain, or if you look at Lightning, like these are other ways in which bitcoins will be moved around. That is true, but the blockchain is still going to be the ultimate, settlement, system. So it's kind of like, you know, looking at, large scale gold settlement transactions. I think it's, it's fair to say that those are more meaningful than, how the gold ETF is moving, 'cause I think a gold ETF is much more gonna reflect retail markets, whereas, you know, moving tons of physical gold around the world, that is more likely to be the long-term savers of gold that, that are starting to speak. And I think it's similar for Bitcoin, I think that, almost by definition, because of how this, you know, how this protocol stack is is built up where the most secure layer is the bottom layer, the most meaningful Bitcoin transactions will always happen on the blockchain." }, { "speaker": "stephan", "time": "50:30", "start": 3029.5, "text": "Fantastic insights, I hundred percent agree. I think ultimately we have to view each Bitcoin transaction as kind of gaining weight over time, that right now it could just be, like in the early days, people didn't use it for coffee, but over time it will become, very large, you know, m- many, many transactions will be sort of contained within one Bitcoin transaction, if that makes sense." }, { "speaker": "tuur_demeester", "time": "50:52", "start": 3052.05, "text": "Yeah, like one, one, one way to look at, or to compare, if you will, to the gold world would be to look at the London Bullion Market Association, which is, the, the, the place where, wholesale settlement of physical gold transactions happen. and, I, I need to look up the exact number, but the daily amount of transactions that are settled on that platform is extremely low. And I remember calculating that the average transaction size of the LBMA is seven million dollars worth of gold. and so of course, if you, if you project forward and, and, and think about the Bitcoin blockchain being such a, such a, a, a core, wholesale transaction settlement. system and, and the average, say that the average size of a Bitcoin transaction goes up to maybe thousands and thousands of dollars, it could be a hundred thousand dollars worth of coins on average for every transaction, then of course you can imagine much higher fees, and of course with that, a much bigger and beefier firewall, you know, the, the Bitcoin mining security would then have all those transaction fees as, as, fuel to, to make sure that Bitcoin stays safe." }, { "speaker": "stephan", "time": "52:05", "start": 3124.83, "text": "Fantastic. And last, kind of area I was keen to touch on with you, Tuur, actually we're sort of calling back, I just, it just occurred to me as now as well, one of your earlier articles, and this is now what, five years old, Bitcoin as the new petroleum. So I think it's a, it's a, it was a great article, very, forward-looking. And in, in this article, you talk a little bit about some of these ideas around how customers will demand certain things, right? They will want kind of deposit banking, they Fidable reserve audits, they might want lending and borrowing brokerage as a separate service. So I'm just curious, do you see a future where we have Bitcoin full reserve banking?" }, { "speaker": "tuur_demeester", "time": "52:47", "start": 3166.61, "text": "Yeah, and I think there's gonna be this incredible, it's just gonna be so fascinating, this incredible tension between, you know, on the one hand full reserve banking and on the other hand, the, the, the desire to go fractional, fractional reserve banking. and it's understandable if you think of it, right? I mean, people entrust you as an entity with thousands of bitcoins, and the only thing you can do is just sit and stare at them and, and charge them a little fee for holding it, maybe like half percent or one percent. For holding on to those coins, even though it's such an incredibly liquid asset, it becomes very tempting to say, \"Well, you know, what are the chances that we get a bank run where people are gonna withdraw eighty percent of the coins? You know, that's very low. Let's just start lending out, some of these coins and make an extra return, and then maybe we can even start paying our depositors an interest rate.\" but the challenge with that is that, you know, in absence of a central bank that's ready to be the Lender of last resort and, and bail out the banks, you have a risk of failure and, and, and, and these things can escalate very quickly. Like, you know, the, the Trace Mayor suggested proof of keys event, if people really start doing that and, and withdrawing, you know, large amounts of coins from these exchanges, then, you know, that'll be making it clear who is swimming naked, so to speak, if, if the tide recedes. and so I think that's why really trying to, trying to emphasize audits of, Bitcoin exchanges and trying to build tools that make it easier for exchanges to, audit reserves in a way that still preserves, their, their, customer confidentiality, 'cause that's always the challenge if you, if you try and audit, how do you audit without de-anonymizing your customers and revealing to the world, who is banking with you? But so yeah, I mean, absolutely, I think that full reserve banking is, is already the case, right? I mean, at least in In theory, all the Bitcoin exchanges are what you could call full reserve banks, especially the, the shops like Zapo, you could really, I mean, that's a full reserve bank right there, places like Gemini that do cold storage, that's a full reserve bank. I think the, the interesting, you know, time is coming where people want a return on their Bitcoin, and then there's these shops that say, \"Hey, you can do it here.\" and, and, and the risk is that they'll start making these impossible promises of like, \"Oh, we can make you a return, but also your bitcoins are always available to you,\" which isn't possible, right? It's a, it's a dance of chairs. It's only a matter of time until you're the, you're the marginal customer that can no longer withdraw, because of the problem of maturity mismatch." }, { "speaker": "stephan", "time": "55:36", "start": 3336.31, "text": "Fantastic insights as well. And I can see, again, the parallels between the Austrian- Full reserve and fractional reserve banking debate coming up again, and so there would be some who believe that, well, that could be a good thing because customers can earn more, but then on the sort of more full reserve argument side, it's more like, well, you know, why would that such a thing be necessary? Speaking in a macro sense, why would such a thing be necessary? That could also create the business cycle, as you, as I'm sure you're aware." }, { "speaker": "tuur_demeester", "time": "56:07", "start": 3367.02, "text": "Exactly, exa-- and it's, it's exactly the cause of, I mean, it's, it's one of my, you know, pet peeves is that the, the, the ultimate cause of business cycles isn't just a natural phenomenon like the weather, where it's like, \"Oh, storms, they come and go.\" It's really the credit expansion of fractional reserve banks that cause, very serious capital misallocation, and then the crisis is just correcting for that. and so I think that, having a, an, an economy with Many more full reserve banks would basically, allow credits to be priced accurately and to not be artificially cheap, and then we would avoid a lot of these bubbles. I think it would really allow-- you know, look at the 19th century, especially second half 19th century, one of the most prosperous periods in, in world history, and, and, and it was all built on, on gold standard banking, this, this very solid, basis to, to, to have sustainable growth on." }, { "speaker": "stephan", "time": "57:06", "start": 3425.9, "text": "Fantastic, I think we're, we're in 100% agreement there, Tuur. so look, I think it, we're unfortunately coming to the end of our time. So, Tuur, I'll just give you an opportunity if you've got any, perhaps if you've got any closing thoughts on where you see the Bitcoin ecosystem, you know, out of, projecting out over the next few years. And lastly, then just finish up with how the listeners can find you and sign up for updates." }, { "speaker": "tuur_demeester", "time": "57:29", "start": 3448.54, "text": "Yeah, so, you probably have show notes, so, so I'll probably have a link for that. Like, we have, investment research that we share, or general market research actually. And, and then people can find me on Twitter, just Google my name, and the first link is my Twitter account. I'm, I'm there pretty much every day. and then in terms of where I see the market going, we're putting out a piece, soon. That'll be out. I wanna say next week, but it'll be, you know, within the next two weeks we're putting that out. and, and so I'll, I'll refrain from summarizing it. It's, it's, it's, it's gonna be in there. I guess the, the, the, the basic idea is that we are currently in the accumulation phase, as this is where the retail public isn't interested, but it is at the same time the phase where value investors are accumulating Bitcoin, and it'll form the base for the next bull market." }, { "speaker": "stephan", "time": "58:22", "start": 3502.44, "text": "Fantastic. Look, that's all been really, great discussion, and I'm sure the listeners will love to hear this. So, thank you so much for coming on the show, Tuur." }, { "speaker": "tuur_demeester", "time": "58:32", "start": 3512.49, "text": "Happy to be here, Stefan. It was great, thank you." }, { "speaker": "stephan", "time": "58:35", "start": 3515.01, "text": "Alright, there you go. What did you think of that? I think Tuur has a lot of really cool insights that has-- that have been won through years and years in the space, and he's particularly good with using parallels to other markets to try and help explain what's happening. Another cool factor was this whole concept of full reserve Bitcoin banking Which I'm quite keen to see how that evolves and how that plays out over time. So make sure you're, you are subscribed to the podcast. You can find it on Apple, Google, Spotify by searching Stephan Livera podcast. And lastly, if you enjoyed it, make sure you help share the episode, post it on Twitter, post it on Reddit, Telegram, wherever else. Thanks very much, guys. Chat next time." } ] }