Hello Amsterdam, my name is Root, the Rational Root, and uh today I'm going to take you on a journey through on-chain and cycle analysis. Uh we're going to look at Bitcoin's market cycle and we're going to use the on-chain toolbox to look at

some of the supply dynamics and to look at the psychology of the market cycle. Now, this is me last year speaking here. Um unfortunately last night they wanted to cancel my presentation because I am masked. Um I prefer to remain private, anonymous, and um so we had to

come up with some solutions. So I was, I wasn't able to wear a mask and so uh I hope uh you don't mind that I'm not turning my back on you. It's uh it's the only way to not wear a mask and uh

remain private. Now, it's an easier route to sacrifice uh security or to sacrifice privacy for security and um uh I actually value privacy because um there there are several reasons, but uh one of the the main reasons is that if we think of Bitcoin uh in in fiat currency, if we

measure Bitcoin in fiat currency, Bitcoin's price will go to infinity and so if if Bitcoin's price will go to infinity, will you still want to remain public uh you know in the future? So for my personal security and for the security of my family and my future family, I

prefer to not reveal myself. Um now uh I'm u i i it's not that I don't um reveal myself to anyone, so maybe at this conference I might be sitting next to you crunching some carrots, but um uh in this presentation we're going

to crunch some numbers, so let's get right to it. So if we look at the Bitcoin blockchain, uh and here we have a view, we look we started at block 99 and we go all the way till today, uh to block 800,000

800,000. Now, if I held a coin since block 100, nobody actually knows that I held that coin for 800,000 blocks. But um, now, as soon as I sell or if I transfer that coin, there's actually a sign of life to that coin and it reveals

that that block was held for 800,000 blocks. Now this is also true if I only held a coin for for two, uh, if I only held a coin for two blocks. So, and the cumulative sum of these blocks that are held and that are actually, uh

that that show this sign of life, this is an on-chain metric that is called liveliness. Now liveliness, a high value of liveliness means that a lot of old coins come back to life or a lot of coins come back to life, and in particularly the

high value means a lot of old coins come back to life and the low value of liveliness means that the the the coins on chain are not really moving. Now we're going to look at some of the supply dynamics here, and so imagine the

circulating supply of Bitcoin. So if we plot the circulating supply of Bitcoin, we can see that we currently have 19.5 million coins in circulation. Now we know that there is a hard cap of 21 million coins, so the remaining million and a half coins will be mined over the next

100 years now with each having the supply issuance gets cut in half, so this curve that you can see is flattening out. And so pre-having one, 50% of Bitcoin Supply was mined, and between having one and two, uh, it's 25% of Bitcoin Supply

that that was mined and another 12 and a half percent between having two and having three, and so and it keeps on going, and so it flattens out. Um, now let's use our metric liveliness on this circulating Supply. You can see that each having, by

the way is uh each having takes 210,000 blocks, so at the x-axis you can see the years and uh the time in block time. Um, now let's plot our liveliness metric into this circulating Supply. Now we can divide the supply into two categories.

Now one is the active Supply and the other one is the non-participating Supply. Well, why is it non-participating? It's because those coins, they they don't move on chain, and so many of these coins from this non-participating Supply uh come

from this 2009, 2010 era where Bitcoin didn't really have a price yet, so a lot of these coins are lost, and this also includes the the million coins that belong to Satoshi, who are very unlikely to move. So this nonparticipating Supply

does not actively take part in Bitcoin's price discovery. So the active Supply on the other hand is the supply that's responsible for Bitcoin's price discovery. So we're going to zoom in to that active Supply, because that nonparticipating Supply we can kind of

Ignore more now the active supply, uh, from instead of having 19.5 million coins previously, we now are down to 12 million coins that are kind of in circulation, that are actively responsible for Bitcoin's price discovery. Now, this active supply is

built, built up from all kinds of liquidity levels, so from very illiquid supply to very liquid supply. So we're going to try and divide this active supply further by, um, looking at hodler behavior. Now, if we think of the hodlers of Bitcoin, we can actually divide that

active supply further into the following two categories. There's, there's actually two ways to, to measure hodler behavior on-chain, or two main ways to measure hodler behavior on-chain, and one is through time, so by looking at the age of coins. So in particular, if coins are, uh, old,

they, they are likely to belong to these long-term, uh, long-term holders. They, they belong to those, the group of hodlers. Another way is to look at spending behavior. So we can identify, uh, the entities that are, uh, on-chain, and those entities, those entities have a, a

spending behavior. So if, if, uh, if an entity spends less than 25% of their holdings, they are classified as a liquid and they are very likely, uh, a person or an entity that is a, a hodler. Now, so we can divide this supply further into the

two categories: a liquid supply and the, the, the supply that is available for trade that remains. Now, um, to let's discuss a little further this liquid supply. So for that, we're going to now plot the price information of Bitcoin, and, uh, we see those black dots in the

Price line, those are the all-time highs that are being made now. Let's zoom in on those black dots on those all-time highs, uh, when Bitcoin's price goes exponential. Because when Bitcoin's price goes exponential, there is actually the max incentive to spend coins on-chain.

Because, uh, you know, price just made an all-time high, and uh, there's no other moment in time where you could have made more profit by selling. So, um, we can actually see that those uh green zones that I highlighted here, they correlate with these spikes in illiquid supply.

Now, actually the group of holders, they they in general, they only stack sats, but only during such moments of exponential price increases, they tend to sell off some of their coins. Now, uh, why is illiquid supply jumping instead of going down during those phases? It's because

during these green zones, during this hype phase of Bitcoin, uh, a lot of uh a lot of new demand is coming in. And so, initially, uh, that that uh supply that is being bought up, this is classified as illiquid. So, there's a lot of new entities

coming into the space. They are classified as illiquid, so we see an initial spike in illiquid supply. Now, after the the bull run is over and we go into a bear market, these uh these new people that came into the space, they are very sensitive to price action and they

sell some coins and and those coins become more liquid. But during that whole phase, we can see that the the trend of illiquid supply is actually a a linear trend. We kind of keep on going, we move up up in illiquid supply in a linear

fashion and during such a bull market we see a short spike in the liquid supply, but then kind of fall back to that baseline of uh of hodlers that are kind of stacking sats and and make the supply less liquid now. Um all this to say that a

liquid supply is actually uh in a linear trend as you just saw, and the new supply issuance which we showed before as well is diminishing with every halving. So let's now look at this available supply for trade that's left, and we can actually see that since the third halving

the uh the available supply for trade that remains, that is shrinking now. Uh this is kind of logical because the the growth rate of illiquid supply has been outpacing new supply issuance due to the fact that illiquid supply grows in a linear fashion, and the new supply

issuance gets cut in half with every halving, and we're actually not far away from the next halving, um which is at block 840,000 now. Um why did we not see a supply shock of any sort? And uh there's actually three reasons for this, and the first

reason is that we're still relatively high, as we can see that the the the maximum available supply for trade was around that 5 million coins, uh and we're not far off from that uh to begin with. Uh the the second reason is that since

2020, and with Bitcoin being adopted as an institutional-grade asset, we also got a bit of the fiat malpractices on top of Bitcoin. So if we plot the the future volume uh that is traded on top of Bitcoin, uh we actually get the following

graph and so this is actually paper Bitcoin that is on top of the actual supply of Bitcoin that is being traded and so this is the derivatives markets I only showed the volume of Futures here and these Futures are dollar denominated so these future contracts they uh they

don't need any underlying Bitcoin to speculate on bitcoin's price and so we can see that uh the the trend here is that we after the third halving we still kept on moving up a little bit in terms of the amount of Bitcoin that was traded

but since this year since 2023 we have been moving down nonetheless now this paper Bitcoin doesn't include things like uh FTX for example which uh where people thought that they actually bought the underlying asset but they only had an IOU that was not backed so um that is

not so the paper Bitcoin that I show here is even kind of um a conservative uh way of showing this this paper Bitcoin um now the last reason why I think we haven't really seen a supply shock is because uh Supply only gets tested really uh

once every cycle where we have a phase of true hype in the market and so we had that in 2021 uh and we saw those uh exponential price increases uh it was still a bit of a a disappointing cycle and we just uh explained a bit why

because the available supply for trade seems to be very high and there was uh paper Bitcoin trading on top of Bitcoin during that cycle but we're moving back down and that's a positive thing now um when the next uh hype phase that Bitcoin uh will undergo is uh is probably in in

the next cycle after the Ford having and uh that will really be a true test for this decreasing supply again so I I wonder what we will see there now um the next question then becomes when will we when can we expect a new hype phase

in Bitcoin and for that we we're going to have to look at the psychology of the market cycle and uh you might all know this graph this is the Wall Street sheet sheet it covers all the faces that uh one goes through in a market cycle and

uh we can see that the price is colorcoded as well so there's these green colors for Euphoria and these red colors for capitulation or depression and U so we're going to apply this chart to bitcoin and so we're going to think

about what is the best way to apply this chart to bitcoin and what is the best way to apply these different faces to the Bitcoin Market cycle and so that's the next uh topic that we will discuss and for that we need to open up our onchain onchain toolbox once more and uh

we're going to use an onchain metric and uh I just explained that if a coin gets spent we can actually see the age of a coin so we know that this is an old coin uh similarly we can identify the young coins now young coins or people that

have been in the market for a short time they are much more susceptible to price action uh because you know they might buy some Bitcoin and they might be immediately at a loss and then so they're sensitive to any price action that is going on now uh we can also look

at the purchase price of this coin and the the and the the the sell price of that coin and this allows us to actually look at the average purchase price for these short-term holders and now we have our metric the short-term holder cost basis or the short-term holder average

purchase price and this is a very useful metric because if we look at the price chart once more uh and we plot our short-term holder average purchase price in there we can see that during a bull market we uh actually get we are we find ourselves above the average purchase

price meaning that the short-term holders are in a profit and during a bear market we are below the average purchase price of these short-term holders and that means that we are uh that they are at a loss now um the distance that we find ourselves above or below the short-term

holder cost basis is also interesting because it shows uh how much these short-term holders are in profit or at a loss and so imagine we flatten out this short-term holder cost basis and we actually look at the distance of price above or below that short-term holder

cost basis and we can look at that distance in terms of standard deviations and this allows us to actually color code or price info and we can see those dark green colors which identify that uh price is substantially above the short-term holder cost basis and those

dark red colors when we are severely below the short-term holder cost basis and this allows us to now have a color-coded price uh info based on this on-chain metric now we're going to use this color-coded price in the following chart because Bitcoin moves in a 4-year

cycle and what chart is better than a circular chart to show Bitcoin's cycle so uh each rotation in this circular chart is a uh time period of four years because Bitcoin moves in a 4-year period and so we start in the top at 2009 we

move to 2010 11 12 13 and we keep on going all the way to today uh and the price info on this chart is actually shown by each ring in this chart so we start at a cent in the very center and then we move uh with a 10-fold increase

uh every ring from a dollar to $10 to $100 and the most outer ring is $10 million now um let's plot our price info so we start at January 3rd 2009 when Bitcoin launched at the Genesis block and we're going to uh plot the Bitcoin's

price into this chart and you can see no price info yet because in 2009 Bitcoin didn't have a price yet uh we're in the first cycle now uh and it was actually not until the late 2010 here you can see see Bitcoin price start moving from the

center and immediately jump uh above that $10 after which we have a severe drop and uh we make a a bottom for that cycle uh we're now already in the year 2012 and we get there that blue dot that you just that

just showing is the halving which causes this supply shock and it causes an increase in price uh now we are in the year 2014 already we had we had a peak at the end of 2013 and we make a bottom now there at the beginning of

2015, and so we keep on rotating, and we now see actually some more neutral price action. Uh, and we now are having that blue dot again, and we move into the third cycle. Now we are in the year 2017, and we make a peak at the end of

2017 there. Now, uh, let's pause the chart for a second, and we can actually see that we have uh two peaks around that same area, uh at the end of the year, uh every four years. And so we could identify this as the Euphoria phase, so

um, here we see the the uh the Euphoria phase that we added. And when if this is the Euphoria phase, then we can also actually start uh identifying the other phases. And so after Euphoria actually comes complacency, uh where people think

that we just need to cool off a little bit. And so let's start adding in these other phases, so we can actually now see that we move to complacency to denial, and uh people start then panicking, why is everyone selling? And uh then we move

into the capitulation phase where uh people cannot afford any more losses and they capitulate, and we make a bottom at that phase. And then we move into the depression where people become a bit angry, and then we move into stagnation. So the price is kind of going sideways,

we're stagnating. We get that's the disbelief phase where people start also doubting soon after, and then uh there is actually some hope because the having happens, and we move into the next phase where people become a little more calm because the price went up a little bit.

and they become more optimistic and then they really start believing again in Bitcoin and they they really think like it's time to invest and then we we get a small interim intermission which is followed by FOMO uh where everyone thinks I got to tell everyone to buy this

is amazing and then we feel like a genius and we make a cycle Peak at 69k there and we move back into complacency and it starts all over denial and we move again back into the Panic why is everyone selling and where we felt like

a genius in the Euphoria phase we now feel like an idiot at the depression phase and uh we move back again we have to endure and we move again in that into that stagnation phase uh where price kind of choppy and sideways and we're

actually now in the end kind of at the end of that stagnation phase we're kind of moving into that disbelief phase which is followed by a phase of doubt and then the next halving will actually be uh at this blue line that you can see here so uh the halving moves back uh a

bit with every cycle because the halving is just slightly less than four years so that's why these blue blue dots are kind of moving backwards with with every cycle now the the next halving is less than 6 months away and so uh in the up leading up to the halving we actually

have the face of disbelief and doubt and so uh we cannot expect price to do much impressive things until the halving but after the halving uh we get this spark of hope and so uh I think people will become a little more calm and optimistic and start believing once again and then

we get our next Euphoria phase uh towards the end of 2025 if the cycle keeps moving in a similar fashion now so if we look at all the bottoms uh here in this red circle you can see that all the bottoms are kind of in a similar

position and as for the Bitcoin cycle Peaks which are all in a similar position and so far we are exactly on track in the four-year cycle and uh we are also in a phase of stagnation and choppy price behavior which is normal for this stage of the cycle so uh we

will see if the next Euphoria phase will uh do something to the limited supply that is available for Bitcoin and uh it's I I want to mention one uh note of caution uh to be a little cautious about the current macro

environment because we are in insane times in the world I think the world is more volatile than it has been in in the last 10 years of bitcoin's existence and so uh the macroeconomic landscape is uh a bit crazy at the moment and so uh we

will have to look at all the indicators if we keep on track in the four-year cycle but so far uh there is no deviation yet and we are actually exactly on track in that four-year cycle so I I hope you found this analysis useful uh you can find my chart at uh

live charts at the Bitcoin strategy platform.com and you can find me asdal on noer and on axe so I want to thank you uh and sorry I can't show my face thank you Miami for the last 3 years in this amazing city the whole world shut down but Miami

welcomed us with open arms We want to show Bitcoin to the whole world We are taking the conference on the road to set the stage for Bitcoin in a new [Music] city Nashville Bitcoin 2024 is coming to Nashville in Tennessee a city that is

known as a music and freedom city Bitcoin 2024 in Nashville from July 25th to 27th

Bitcoin On-Chain and Cycle Analysis: The Rational Root

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