G’day Folks,Today I have a real treat for you. With all the turmoil in markets this week, I wanted to jump on the phone with someone who has done serious proof-of-work understanding the wider macro landscape.This is the inaugural episode of Rough Consensus, which is a set of ad-hoc conversations I plan to have with analysts that I really respect. Few analysts fit the bill as well as TXMC, who is one of my very good friends, and a man who has developed an incredibly deep, data-driven, and long-term thesis on where the US economy is going.We dive into so many important topics including:* Interest rates and Fed policy* How debt, deficit, and debasement have trapped central banks* How this time is measurably different* Why classic cycle analysis likely breaks down* Our expectations for asset performanceI really hope you enjoy this conversation as much as I did, and if so, please consider sharing the episode, as it helps more folks find our work. Be sure to give TXMC a follow if you haven’t already.Other ways to listen:Watch on YouTube.Listen on Spotify.Listen on Apple Podcasts.Disclaimer: This podcast is general in nature, and is for informational, and entertainment purposes only, and it shall not be relied upon for any investment or financial decisions. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit newsletter.checkonchain.com/subscribe

This is a free preview of a paid episode. To hear more, visit newsletter.checkonchain.comOne of the most requested topics I receive, and at no surprise, is to cover how I think about finding Bitcoin cycle tops. You will often hear me saying that I don’t anchor to a specific price, nor date target, as these are ultimately completely arbitrary guesses.Instead, I want to watch out for the market mechanics that precipitate a bear, and then I will make the assessment that a top might be in. There are a few important ideas I keep in mind when tackling this problem:* Bear markets start when too many people, buy too many coins, at too high of a price.* HODLers are the ones that establish tops, after they distribute a sufficient volume of coins to oversaturate demand.* Demand is the ultimate unknowable variable in a bull market, as we never know who will, or won’t end up allocating to the asset.* The day after the best day of the bull market, is often the first day of the bear.So with all that said, let’s run some numbers and see if we can establish whether a Bitcoin cycle top is likely to be in place today.Disclaimer: This article is general in nature, and is for informational, and entertainment purposes only, and it shall not be relied upon for any investment or financial decisions.Cycle Top HuntingThe tool below is a new one, and is designed to assess confluence across many sectors of the Bitcoin market. It helps me compare the current market conditions to those I would expect to see around cycle tops and bottoms, in the shortest possible time. As we run through the tool in this post and video, I will provide my assessment for whether I’m Concerned, Cautious, or Optimistic about what I see.Importantly, this is an unlisted chart, and it will only be available for Paid subscribers to access.The chart is constructed as follows:* I have computed a Z-Score for a wide variety of metrics, each of which describe a particular sector or category of the Bitcoin economy. These Z-Scores are tailored for the characteristics of how each metric behaves.* The Box and Whisker plots show the distribution (population) of those Z-scores.* The thick candles represent the middle 50% of observations, and the whisker tails are the upper and lower 25% of values.* The thick black line shows the current Z-Score value for each metric so we can assess where we currently are.In sports terminology, this tool helps us visualise how deep into the four innings we are.The further we deviate from the centre line, the more extreme the market conditions are (and thus the less likely they are to persist).

This is a free preview of a paid episode. To hear more, visit newsletter.checkonchain.comBitcoin rarely goes to sleep like this, and low volatility is certainly not something the asset has a reputation for. Volatility is of course a dynamic beast, and it ebbs and flows throughout the cycle. However there is a simple principle that markets tend to adhere to over time, and Bitcoin is no exception:* Range expansion lead to range contraction - this means that trending rallies or sell-offs are followed by a period of consolidation to digest the move.* Range contraction leads to range expansion - once the market has consolidated long enough, it eventually breaks into a trend in some direction.The interpretation of this framework related to today, is that low volatility (range contraction) is an indicator that higher volatility (range expansion) is very likely on the horizon.The last time I recall volatility compressing like this was in August 2023, and I prepared/edited two reports for Glassnode covering how derivatives markets and onchain data were pricing this in.The takeaway of that study was that a big Bitcoin move was well overdue, and downside was poorly priced in. The market the proceeded to sell-off from $29k to $26k in short order. There are many of the same conditions in play today.Disclaimer: This article is general in nature, and is for informational, and entertainment purposes only, and it shall not be relied upon for any investment or financial decisions.Keeping One Eye on MacroWith this as context, I want to set the scene with a couple of macro charts that caught my eye this week. I promise not to not add to our boredom, however I sense we’re nearing a key decision point in global markets. Whether we like it or not, the US Dollar, US treasuries, and oil remain the three most important markets, as they heavily govern the tightness of financial conditions.* The US Dollar is the global reserve currency, and when it gets expensive, countries and corporations have a harder time servicing their debts.* Treasury bonds are the global reserve asset which act as the worlds default savings vehicle, and form the foundation collateral supporting financial markets.* Oil is the energy lubricant which keeps the world turning. More expensive oil prices directly affect the bottom line as a primary input cost for productivity. For the time being, oil prices are range-bound, and I sense are a lesser part of the current story. The US Dollar is at a decision point. If it were to break lower, it would ease financial conditions overall, likely to the net benefit of assets like Bitcoin. However, should it continue higher within the established 2024 uptrend, it could portend signs of stress, and tighter financial conditions in the near-term.My instinct is that the dollar is going to be managed lower over the medium to long term, but this weakening may require near-term dollar strength and stress as the catalyst.The big one however is the US treasury market. Many analysts interpret Powell’s ‘higher for longer’ to mean the Fed Funds rate, but I believe it includes the following:* Inflation is structurally sticky, and will be higher for longer.* US bond yields may be mis-priced and will also be higher for longer.The US 10y Treasury is the de-facto global reserve asset, and yields have continued to grind higher within an established uptrend all year. When bond yields trade higher, it also means bond prices have traded lower. Since the US-10y sits at the foundation of the global financial system, higher yields mean tighter conditions, less valuable collateral, and a reduced overall risk tolerance.I’ve flagged in red the severe sell-off we saw in bonds between August and October 2023 on the chart below. During this time, US-10y yields approached 5.0%, equities sold off by -10%, and Bitcoin sold off -12% in one day. That said, BTC then consolidated for two months, and ripped +30% higher.10y Yields trading up towards 5% is where the Fed and Treasury have previously become concerned about treasury market dysfunction, and stepped in to arrest the fall in prices. This is a reasonable argument for why Bitcoin sold off initially, but then rallied higher afterwards.The bond market is the one that gets to ‘call time’ on risk assets and financial stability. Should yields accelerate higher from here, it starts getting close to the territory where things could get hairy, and fast.The setup here is that we should keep one full eye on the possibility for near-term down-side volatility across all markets. The medium to long term result will be the same, they will print the money, and fill any gaps that open up. But on a shorter time horizon, these charts have me just a little bit cautious.Expecting chop-solidation remains my base case for now, however the probability that we are approaching another range expansion is rising quickly.Pricing VolatilitySimilar to the Glassnode reports I referenced earlier, let’s step through the story being told by both price, derivatives, and onchain datasets.Realised volatility over a 1-week window has dropped to just 21%, which is about as low as it gets. We can see examples of similar low volatility periods over the last cycle, which usually precede a bigger macro move in either direction.Note August 2023, which is the most relevant example, where BTC traded -12% lower, consolidated, and then went on a tear higher (partly driven by news of ETF approvals).The Bollinger Bands are also relatively compressed, with the upper and lower bands separated by just 12.6%. This chart highlights periods with tighter bollinger bands in orange, and two distinct market regimes jump out:* Early Bull markets like 2016 and 2020, which were both Quiet and Trending market structures like we have today.* Late Bear Markets like 2018-19 and the tail of 2022, where seller exhaustion and extreme apathy are on the menu.Near identical zones stand out when we compare the 30-day price range that the market is trading within.All things being equal, it is more likely that Bitcoin is still within a Quiet and Trending uptrend on the macro scale. If we were to get any kind of sell-off in the short term, August 2023 may give us a roadmap for what to expect (i.e. it didn’t break the bulls).From the onchain front, this is where the Sell-side Risk Ratio is my go to metric. This fancy looking oscillator is a personal favourite of mine, and it is constructed and interpreted as follows:When price is consolidating, traders and investors eventually take all the profit and loss they were going to take in this price range. Once they reach this point of sell-side exhaustion, the remaining holders are signalling that they need the market to move somewhere else to motivate spending. If the market rallies, they take profits again. If it sells off, some will panic and take the loss.* High Values mean the market is NOT at equilibrium, and significant magnitudes of profit and/or loss are being locked in relative to the market size. Investors believe the price is too high (profits) or fear it’s heading lower (loss).* Low Values mean the market has reached a state of equilibrium, and all the profit and loss that was going to be taken, has been. It is time to move to a new price range to motivate the next wave of spending.The short-term holder Sell-side Risk Ratio is dropping rapidly (in log scale), suggesting the market has exhausted its sell-side. This is an indicator that equilibrium is close to being reached, and signals we should expect a bigger price move is incoming.

This is a free preview of a paid episode. To hear more, visit newsletter.checkonchain.comOnchain analysis is a relatively young discipline, and the early golden years of innovation kicked off in late 2018 when Coin Metrics released the Realised Cap. For several months after, there was a mad rush by analysts posting research papers and exploring new ways to slice, dice and interpret the incredible world contained within Bitcoin’s database.It is very natural for analysts and investors to seek price models as a first port of call, as these tools are easily understood by the widest cross section of people. Price is a central point of focus for any asset, and this makes it an attractive avenue for traders and investors alike.In today’s session, we will explore some of the key onchain pricing models which have been developed over the years, which I affectionately refer to as the Onchain Originals. They broadly fall into three categories:* Floor Models which are intersected during the later stages of bear markets.* Mean Reversion Models, which price tends to oscillate around over time.* Euphoria models which indicate prices are becoming attractive enough for HODLers to start taking profits.The goal of this exploration is to establish WHY I pay attention to these models specifically, and the market dynamics they are describing. It is important to remember that these price models reflect approximate zones where a specific investor behaviour is likely to occur, or shift gears.In reality, it is these change sin investor behaviour which establish tops and bottoms, not the strict intersection between spot price and a model.

This is a free preview of a paid episode. To hear more, visit newsletter.checkonchain.comOnchain analysis is a little bit like having partial x-ray vision at the poker table. You can’t see every card, but if you can make a handful of cards transparent, it can improve your odds..if you know what you’re looking at of course.There are two powerful areas of onchain data which TradFi analysts can only wish they had transparency for:* Profit/Loss Metrics describing how in or out of the money the hands held by the other players are. This helps us read when they are likely to fold, or when they about to cash in a big winning hand.* Cohorts which give us a read on the character of our opponents, and we can distinguish between seasoned veterans, and players who are so new to the game they look at their clothes when someone asks ‘what suit?’.In today’s post, we’re going to dive deep into the Long and Short-Term Holder cohorts, and specifically assess the profitability of their Bitcoin holdings. In particular, we want to understand a few elements related to the current rally:* Are Long-Term Holders still taking profits, creating sell-side headwinds?* Are Long-Term Holders net distributing, accumulating, or just HODLing?* Are Short-Term Holders holding a profitable hand, or still on the edge?Ultimately, what we’re trying to ascertain is whether this Bitcoin rally back to $66k is for real, or just another fake out to temp the bulls?