Was That the Top? Bitcoin, ETH, & Q4 Setup | Michael Nadeau's DeFi Report #6

TRANSCRIPT

Ryan Sean Adams:
[0:03] Bankless Nation, we have a Crypto Fundamentals episode for you today. I've got Michael Nadeau on today's episode. We're going to talk about the big question that's in my mind, your mind, Mike, I think in a lot of crypto investors' mind, is the top in? Is the top in is the question. We got this pullback in September and it didn't feel good. I know September is downtember, but still, it's like not fun to get that kind of a pullback. Bitcoin has seemed stuck in the 110s for the longest time. Momentum seems to be slowing with some of our majors. We had this altcoin rally and it kind of petered out. And now we're going the other direction. We've got crypto influencers calling the cycle top. And there's just some general anxiety in the space right now. So, Mike, I'm hoping you can guide us through it today.

Michael Nadeau:
[0:58] Yeah, no, thanks for having me, Ryan. I think sentiment is, I think people are a little nervous going into this kind of recent sell-off. It seems like there's a lot of people out there that are sort of looking for the top, which typically doesn't coincide with tops.

Michael Nadeau:
[1:12] But I do see a lot of sort of people a little antsy out there. So hopefully we can kind of go through some data, hopefully maybe put some people at ease as we move through the episode today.

Ryan Sean Adams:
[1:22] That's what you and I do, Mike, on these monthly episodes. So as a reminder for folks that are new to this, Mike and I put out a crypto fundamentals episode where we look at a lot of the on-chain data to guide analysis. It could be a particular project. Oftentimes, it's just where we are in the cycle. And today we're going to talk about the big question, is the top in or do we still have some more time? All right, Mike, as we're looking at the prices right now, we're recording this on September 29th. so it's Monday, had kind of a bad Friday, and then a not great weekend. We have had some recovery right now. So at the time of recording, Bitcoin is 114k almost. So that's up from the 110 it was. And Ethereum is above 4k, which feels kind of nice. Can we just recap where we've been over the summer? So in your post, the top is in, you talk about a mini altcoin season that just played out. What just happened to us over the summer? Was that the altcoin season that we were all waiting for? You called it a mini one. Hopefully there's a bigger one in the future, but what just happened to us?

Michael Nadeau:
[2:29] Yeah. So maybe a good, just to start there and kind of quick recap of sort of what's played out, I think, over the summer.

Michael Nadeau:
[2:36] We really saw the rotation into ETH and we've seen Bitcoin's dominance. So this is the Bitcoin dominance chart here, just showing really that moving down from 65% or so down to the 57% range, As that played out, we saw a big rotation into ETH and sort of like an ETH season, I think we can call it. And this is sort of the other side of that, showing the ETH-BTC ratio rising as Bitcoin dominance fell. And sort of as this played out, ETH got to all-time highs, then it bounced off of that. So we never really broke through firmly through that $5,000 range. And then we saw some of the other large cap alts start to move over the last few weeks. So a lot of the other companies that have treasuries, various narratives playing out, hype outperformed for a period. We've seen BNB do very well. We saw sort of a rotation to Sol and some of the Sol treasury companies coming to market.

Michael Nadeau:
[3:40] And so we've seen kind of like the move from BTC to ETH. And then we saw them move sort of into some of these other larger altcoin networks and even some of the other like longer tail stuff like Pump and Ina did well as well. So we've seen sort of like I'm calling it a mini alt season because there was outperformance in a lot of these tokens relative to Bitcoin.

Michael Nadeau:
[4:04] And, you know, where we've kind of landed here over the last few weeks is sort of a little bit of a gap, I would say, in liquidity, which I think a lot of this has to do with the TGA, the Treasury General Account, essentially, which is the checking account at the Treasury, essentially being refilled up to $800 billion. There's a chart, I think, at the bottom of this report, Ryan, that just shows that liquidity gap. Here we go.

Michael Nadeau:
[4:31] And so this is pulling liquidity from the banking sector back to the treasury's checking account. And I think as that played out, we finally saw a bit of a capitulation in the altcoin market. A lot of that had to do with, I think, just the perps, dex kind of meta that's been playing out. Hype has been doing very well, rising open interest on a lot of altcoins, especially ETH and Solana. And we saw that basically get cleansed over the last few weeks. So there was over 480 million of futures long liquidations just for ETH. And really the last time we saw that many longs being liquidated was in April of 21. So on the way to all time highs. So a massive liquidation event to kind of reset things a little bit. And really where my head is at is just sort of like, okay, this is what has played out. The market sort of front ran all these debts. We got a little bit out of our skis. We've seen, you know, this sort of leverage get wiped out. We've seen funding rates actually reset and go negative, which is what I want to see. And from here, it's just making sure that the market structure is still intact, which to me, it is. And so this, to me, is just sort of like a reset on our way to all-time highs. That's how I'm seeing it. Certainly could be wrong.

Michael Nadeau:
[5:58] But this, to me, this chart really says it all right here. You know, if this was, you know, on the downswing where we thought we had already peaked, let's say ETH had run up to 8K or so, and then we saw something like this. Then I would be a little bit more concerned that like the market's actually actually rolling over

Michael Nadeau:
[6:16] As this plays out everybody's a little skittish out there and so I can I understand why we've sort of reset on a lot of the sentiment metrics we have you know some well-known influencers out there that have been calling you know the top as well and so I think a lot of people are a little bit nervous but to be you know when I look at the economic conditions and the setup as we move into like what is typically a more bullish quarter, Q4, I still feel pretty good about the overall direction that we're heading here.

Ryan Sean Adams:
[6:46] So we'll talk about some more metrics that maybe support some of your conclusions, but the answer to the question is the top end. What's your answer to that question?

Michael Nadeau:
[6:55] I say no. I don't see that. I certainly pay attention to what other people are saying. I always want to understand where blind spots could potentially be. But I don't see anything that makes me nervous that the top is actually in. There's certainly some data we could look at in terms of what long-term holders are doing.

Ryan Sean Adams:
[7:20] Yeah. Before we get there, actually, Mike, I want to ask you a question. So you called this a mini alt season, the thing that unfolded over the summer months, right? So starting maybe June and July, and that was led by Ether. And then it kind of in more recent weeks has switched to other assets aside from Ether as Ether kind of bounced off its all time high and took a rest itself. And Bitcoin has been pretty much flat. And so that caused Bitcoin dominance to drop from 65% to 57%. So I guess when you say mini alt season, it did feel like a mini alt season compared to the big alt seasons of the past that felt much more euphoric, much more exciting, like much greater price appreciation. So it's mini as far as the size, I guess, of the swing to alt season. Also, I'm curious about this number. So in a bigger alt season or in alt seasons past, what has the Bitcoin dominance tended to do?

Ryan Sean Adams:
[8:27] So if it went from 65% to 57%, to my mind, 57% is still kind of high for any type of an alt season. Is that right? What do we typically see as far as Bitcoin dominance during previous alt seasons?

Michael Nadeau:
[8:42] Yeah, so in the prior two cycles when Bitcoin has topped, its dominance has been closer to 40%. So you can see the orange line there on the left side dropped precipitously as the price ran up in early 21.

Ryan Sean Adams:
[9:01] Yeah, so we're looking at this orange line from early 21 and look at a drop. So it dropped in early 21 from like 60%, actually above 70% in a few short months, all the way to 40%. And so all of this energy, kinetic power went into Ether and other non-Bitcoin assets, alternative assets. So that happened in a hurry, right? And to compare what we saw in 21 to what we just saw, I guess, this summer, it does feel much smaller, right? I mean, we're only going to 57%, not 40%. Does this imply that if you think the top, you think the top is not in, but does this also imply that you think we'll actually get a real alt season, something that drops Bitcoin dominance down into the 40s percentage points? or even further?

Michael Nadeau:
[9:56] Possibly. I'm sort of targeting the 50. I think it's going to be harder for us to go all the way down to 40% in this cycle just because of sort of the maturity of the markets and the strength that we've seen from Bitcoin so far in this cycle. But I do think that we have a ways to go here. And, you know, the thing that is interesting here is as Bitcoin sort of dropped off there from 65% to 57%. We saw, you know, the move from ETH and some of the other altcoins. We have not seen like an actual influx of new money really into the crypto markets. So the total crypto market cap has been sort of, you know, kind of hovering around $4 trillion or so. Um, and yeah, so this chart here, so even as we've seen kind of capital rotating within the crypto markets, we have not seen, uh, an influx of, of new capital in. And I think that is part of what is required to get, you know, new money coming in and the majority of that new money going to things other than, other than BTC. And so, um, that is kind of what I'm, what I'm looking for. The other thing is, you know, 21 was just an interesting cycle just from the perspective of the amount of capital that was printed during COVID. We saw an altcoin season that we'll probably never see again in terms of just rising tide, just really lifting all boats.

Ryan Sean Adams:
[11:23] Like everything pumped during that altseason. You just had to not be Bitcoin and then not be Ether and then your token was pumping.

Michael Nadeau:
[11:31] You could just throw stuff at the wall and basically everything was going up. NFTs were going up. I mean, it was just kind of insane. So this, what we're seeing now is more dispersion. We're seeing asset selection being absolutely critical, I would say, in these markets. You want to be in things that have a fundamental story, that have momentum, that have narratives. Token economics, we've seen a lot of innovation around token economics and buybacks. Those coins tend to be the ones that are outperforming. And of course, we have treasury companies in this cycle. Those tend to be the coins that have been outperforming as the market sort of front runs the actual buying of the assets for these firms. And so, yeah, I just, I view it as like, you know, 21 was kind of an anomaly. This cycle, asset selection is definitely more key, but I still think, you know, we are in a part of the cycle where I expect Bitcoin dominance to, we may see that sort of rise up and it is kind of coming up a little bit as Bitcoin leads. I expect Bitcoin to lead the next sort of phase of the cycle here. So we could see dominance rise before it actually falls back again.

Ryan Sean Adams:
[12:39] Oh, I do want to ask you about that then. So the next part of the cycle, right?

Ryan Sean Adams:
[12:44] So ETH has cooled off a little bit. Other altcoins have cooled off a little bit. You think that if we get another leg to the cycle. Again, assuming the top is not in, which you emphatically said, no, it's not in. It's all probabilistic, of course. But what pumps next? Do we get another Bitcoin cycle before it kind of rotates back into ETH and other alts?

Michael Nadeau:
[13:07] That's what I'm expecting to see. So Bitcoin all-time high is around 124 or so. So I think the healthiest way that this would play out is to see Bitcoin move back towards its all-time high, $124, $125K or so, hopefully kind of break out of that and start pushing towards $130K. And then ETH, Solana, some of these other coins actually start rising with it. So Bitcoin dominance isn't really accelerating, but Bitcoin is moving up. And then you sort of get the wealth effects created by not only Bitcoin rising, but some of these other large networks rising together. And then you start to see that rotation. And that's typically how cycles play out. There's a number of factors that play into that. But I think people that have been in crypto know that we're at this part of the cycle where Bitcoin is probably not going to give you those outsized returns that you may have gotten earlier in the cycle. And so people push out on the risk curve into smaller, riskier assets that could outperform Bitcoin.

Ryan Sean Adams:
[14:09] Is there a ticking time bomb or is there a ticking clock on that? So does Bitcoin basically have to make a move sometime in October and show that strength above all-time highs, 124K, and if not October, then say the first half of November? Because you've got some moving averages here in your analysis that you've been looking at. Of course, those moving averages will catch up to the current price if things stay flat. And so we need to see some breakout. So what does that imply? Maybe talk about these moving average and what that implies with respect to how much time we actually have for Bitcoin. If it's going to make a move, it has to make a move in Q4 for sure, right?

Michael Nadeau:
[14:54] Yes. Yeah. And this is all dependent on Bitcoin making that move. I don't think we're going to see an outperformance of altcoins before Bitcoin makes a move. So I do think this is all dependent on Bitcoin. This chart we're looking at here is... We're trying to get a feel for, is there new money coming into the market? This is just spot volumes, 30-day moving average. And we can see that we've trended down since really Q1 of this year when we kind of hit our first all-time highs. And yeah, we're looking for new money to come into these markets that can come via the ETFs. It can come via on-chain data as well. And that's the key thing I'm looking for is new capital coming in rather than just sort of hot ball of money rotating within the crypto ecosystem.

Ryan Sean Adams:
[15:42] So you said at the time of writing, you wrote this on last Friday, I believe, so Bitcoin is currently trading at $109K below both its 50-day moving average, which is $114K, which is basically where we are right now in the 100-day moving average of $113K. It's interesting that those numbers are so similar. It shows how flat Bitcoin has been recently. And it still trades above its 200-day simple moving average of $103K. That's good. But you do say that we've lost some momentum with the September moves. However, a key indicator for you is the 50-week moving average. And here's a chart of the 50-week moving average from 2013 on down. That's, of course, the white line and Bitcoin price is in purple. This is a log chart, of course. And we are above the 50-week moving average, which is a good sign right now. That 50-week moving average, that's about 99K, right? So talk about that. Why do you like the 50-week moving average? And what are the implications of this?

Michael Nadeau:
[16:48] Yeah. So as we were selling off last week, the big question is like, okay, did something break in the market structure? Or is this more just sort of a cleanse, people getting way out over their skis with leverage? So what I'm looking at here is the 50-week moving hours for Bitcoin tends to be when Bitcoin breaks this on a weekly close, it tends to mark the end of the cycles. That's what those white arrows are showing there after the initial peaks. And so if we saw Bitcoin have a weekly close under that $99k range, I would be more concerned that the probability actually is starting to point towards bear market cycle, at least the local top is in, potentially the cycle top is in. And that, you know, so to me, this is like the more longer term view of market structure. Did that break last week? In my view, it did not. We still remain in, you know, the bull market structure is still healthy. And we've seen a little bit of a bounce from Bitcoin off of, I think it got down to 109, 108K or so last week. Now we're bouncing back up into the 114 or so range. So to me, you know, that was a cleanse. That was, you know, liquidations. And that's.

Michael Nadeau:
[18:02] The bull market structure to me is still intact.

Ryan Sean Adams:
[18:06] So the reason this is important is because all of these arrows indicate that the 50-week moving average in previous cycles was broken. And when it's broken in the fourth year, then that signals kind of the end of the bull market, right? And like a new cycle, right? So enter the bear market. And so that number, the number to watch right now, of course, this number will change as the weeks progress, but it's 99K Bitcoin. So if you saw Bitcoin drop below $99k, given that it's in the fourth year of this cycle, you would start to, I mean, would that cause you to be like, okay, bear market is coming? I guess it's a single indicator, one of many, but it seems like it's a pretty important indicator.

Michael Nadeau:
[18:47] Definitely an important indicator. If I saw this breaking down last week, definitely would be more concerned about where we're ultimately heading. It is one indicator, so it's not everything. But yeah, for me, this looks healthy. And my expectation is that we're going to stay above that for a while here. We're heading into Q4. Downtember, excuse me, September, which is usually a week month, is almost over here. We're recording this on Monday. Midweek will be into Q4. and yeah, expecting things to improve. This chart you just pulled up here is long-term holders. So we wrote a piece a few weeks back, just kind of looking at different wallet cohorts. We pay a lot of attention to what long-term holders are doing, what short-term holders are doing to get a feel for profit-taking. And sort of how that's playing into price discovery. And long-term holders started taking profits for the third time. This was back in July or so. That line is now leveling off a little bit. We've seen some new entrants coming in from short-term holders as well. We also look at the ETF data to get a gauge of this. And so that to me, I think most of the selling from long-term holders that we saw over the summer months is mostly over now.

Ryan Sean Adams:
[20:07] Yeah, it's interesting that you can see it right in the charts. It looks like over the summer, Bitcoin long-term holders were selling some of their assets and now they've switched into a hold type phase. So they're not necessarily accumulating, but they're not selling. And that seems to be the indication from the ETFs as well. So the inflows for the Bitcoin ETF have slowed down, they've waned, but also the outflows have waned as well. So it looks like there's some kind of holding type of activity that's happening.

Ryan Sean Adams:
[20:38] There's not panic selling for sure. Let's turn to the um eth and altcoin market so this is the alt season index and this is a metric we did enter kind of alt alt season according to this the coin glass metric here we entered that in i guess september so we're squarely in alt season did not spike up to the top it did not last very long but we did kind of touch it what's uh what's your take on this chart.

Michael Nadeau:
[21:06] Yeah, so this is picking up, you know, that move that the rotation of a Bitcoin to ETH. And then, you know, we saw Solana move and we saw some of the longer tail assets move as well. And that's really what this is picking up right here. It's not the explosive alt season that I think people sort of have in mind when they think about alt season. But we did see a number of coins like significantly outperform Bitcoin over the summer months. And so the question here is like, if we do sort of have this setup, like we're talking about where Bitcoin starts to lead again, and then we sort of get the liquidity rotation, is it going to be a stronger one like this? In this sort of summer month alt season that we saw, we didn't see like the crazy outperformance from like the long, long tail of coins, like particularly in like the meme coin space. Like it was really the sort of majors that have treasury companies and strong fundamentals that moved. And so to me, like a much sort of like more euphoric alt season would include the longer tail of assets, which I would say we haven't really seen And over the summer months, maybe that's coming potentially in Q4.

Ryan Sean Adams:
[22:18] But if you do think that there's going to be another alt season and it's going to be stronger next time, do you still sort of weight towards alt assets with strong fundamentals? That means like kind of revenue types of metrics generally. Something like hype, for instance, which is printing money. You could see it on chain. Token economics are good. So some of those shares, there's a story for how some of that revenue and profit actually gets back to token holders. It's not just held in a treasury somewhere. It's actually giving it a dividend or a buyback or something to the token holder. And maybe, ideally, there's some mindshare around it. So, I mean, if something has a DAT, it's at least graduated to enough mindshare for some entity to try to do the DAT play and list it in the public markets as well. Those are some of the indicators. So do you think it'll be disproportionately those types of alt assets and not just everything?

Michael Nadeau:
[23:14] I think so. I still think that's going to be the case. I do think we're going to see more of the long-tail assets. things like meme coins, which even when we allocate to meme coins, we do like study data and there's wallet cohorts that we're looking for. And so, yeah, and I think, you know, something I think a little bit about as well is like, which of these dats have like the most sort of, which of them have the best fundamentals story? And then which ones are the hardest to actually acquire? So I think hype is sort of interesting in this regard in that It's got a really interesting story. It's got quite a bit of mindshare. It has really strong token economics, really strong fundamentals. But if you want to buy hype, it's kind of challenging to actually bridge your assets over there, use a new L1 that most people are unfamiliar with to acquire that asset. So actually, the treasury companies are pretty interesting from that perspective in that you don't need to do anything with crypto. You're just buying something in your brokerage account. So I think hype is interesting and the treasury companies

Michael Nadeau:
[24:21] around hype are somewhat interesting for this reason.

Ryan Sean Adams:
[24:24] Let's talk about Ether. So it had a very strong summer and then toward the end of August and into September has been kind of flat and then down, right? So about $1,000 off its all time highs. What are you seeing on Ether price?

Michael Nadeau:
[24:38] Yeah, so market front ran a lot of these, you know, treasury companies, I think Bitmine is over, I think they're at least 40% of the, they're on the way to their target of 5%,

Ryan Sean Adams:
[24:50] I think about 2% of the supply. Wow, so it's 2.65 million right now with, yeah, 2.2% of all Ether supply.

Michael Nadeau:
[24:57] So almost half of the way to their 5% target. So a lot of their purchases are in. And I'd have to kind of check in on sort of how much cash some of these larger debts still have on the sideline for purchases. But we sort of saw that rotation. ETH has showed, I think, some pretty good strength here to get back above 4K. We saw it dip below last week in the sell-off. It's now regained that, like, critical 4,000 or so line. And yeah, I think to me, we're going to see another. We're still at like 0.037 in terms of the ETH BTC ratio, which is still historically low. And so I'm looking for ETH to make another move. Once the market sort of steadies itself, I still think ETH has another thrust ahead in Q4.

Ryan Sean Adams:
[25:46] Do you have a kind of a breakdown number for Ether in the same way you do with, you know, 99K for Bitcoin?

Michael Nadeau:
[25:54] So for ETH, I'm mostly focusing on that 4,000 line just because it has historically had so much trouble staying above that line. And so typically when you see something that's serving as resistance... Once we punch through that, it can start to serve as support. And so that 4K line is very important. The 100-day moving average or so, I believe, is like 3.7K. And we kind of like touched down to that. But I'm mostly focusing on that 4K line because that was a period of resistance that we've then pushed through. And I'm hoping that becomes sort of a line of support moving forward for ETH.

Ryan Sean Adams:
[26:34] Can we talk about the ETH futures and PERP's funding rates? So you said the ideal setup from here is further bearish positioning among traders before a shift in sentiment and a short squeeze to reignite the bulls, and that's in the ETH futures PERP funding rates. What are you seeing in the PERP rates here?

Michael Nadeau:
[26:54] Yeah, so this is sort of the aftermath of the liquidation that we saw last week. So over 480 million of liquidations on centralized exchanges, over a billion on decentralized exchanges. So massive liquidation event.

Ryan Sean Adams:
[27:09] How massive, by the way, like in the scope of liquidations we've seen? Because we see these like from time to time in crypto, right? I mean, how big was this one?

Michael Nadeau:
[27:18] Fairly common in a bull market. This one was big. I mean, this was, from what I could tell, was the largest one we've seen since basically in the middle of the bull market of 21. So this was a massive liquidation event. A lot of that has to do with just the rise of perp taxes and how many people are trading on those perp taxes now as well. But yeah, this is just showing like, okay, we've sort of moved through that now. And when you see the funding rates actually reset and go negative, it's basically telling you that traders are now bearish. And so you kind of want to see this happen. Like they're getting bearish at the precise moment that all of the bearish activity already had played out. And so then to me, I want to see that continue for a little bit before we get like a shift in market, which we've already seen. And sort of a short squeeze to kind of flip that in the other direction.

Ryan Sean Adams:
[28:12] Can you say a bit more about sort of global liquidity as well? So you mentioned at the top of the episode that part of this was a liquidity story. So basically what's happened is we had a mini altcoin season, but then we got some actual liquidity pullback. And when I say liquidity, I mean kind of the dollar liquidity.

Ryan Sean Adams:
[28:32] I mean global M2. I mean global macro liquidity. And there was a pullback there. and it caught some of these alt positions off sides and then led to that cascade of liquidations. What is this chart? I'm not super familiar with what this is, the liabilities capital for, I guess this is the TGA, right? So you said roughly, there's something happened with the TGA. Can you describe what that is? And then has that been corrected? Like what's the story with the TGA now?

Michael Nadeau:
[29:04] Yeah, so as the markets were kind of getting out over their skis. We had this like kind of thing happening under the hood where the treasury is essentially refilling its checking account. It got down to, I think, $150 billion, $200 billion or so. That needed to be refilled back up to an $800 billion target.

Ryan Sean Adams:
[29:24] And what do you mean when you say refilled? Like who refills it and like, what is this for? Is Is this just more of a, I guess, like operational detail for how the Treasury provides liquidity to the banks?

Michael Nadeau:
[29:38] So the checking, the TGA is essentially the checking account of the Treasury so that they can pay the bills of the government. And so when that number is rising, it means that liquidity is coming from the banking sector back to basically outside the public market back into the government finances. And so you're pulling liquidity from the markets as that plays out. And it was about $500 billion or so. This is kind of like under the hood, kind of monetary plumbing. But that was happening sort of under the hood as the crypto markets were sort of getting out over their skis. And we sort of had this little reset. I think this played into just the overall liquidity conditions. This is going to impact stuff that's like, you know, further out on the risk curve. And so I think this played into, you know, why we saw that. Liquidation event. It has been now, this is like in the past. So we have fully refilled the TGA account. And so I'm, I think this is in the past, it's behind us. And we've sort of, we sort of moved through it. And to me, it's, that's the bullish thing is like, we saw the liquidations, we've kind of cleansed the market. This little liquidity gap has now, we've now moved past this. And so to me, like the setup looks pretty good moving forward.

Ryan Sean Adams:
[30:58] Can we talk about the macro setup as well? Because something could still throw a monkey wrench in things if macro goes poorly. But you said actually from a macro economic and business cycle perspective, you also think that we have a positive setup here. earnings are on the rise. This is, I suppose, corporate earnings. Banks are lending. I think we looked at some of this in our last fundamentals episode.

Ryan Sean Adams:
[31:24] The Fed is cutting rates. So that just happened in September. And is there now still two more rate cuts scheduled, hopefully for this year or expected by the market this year? Capital is still shifting out on the risk curve. So small cap equities are now outperforming. Actually, I didn't know that. Long-end yields are rising moderately. Initial unemployment claims data that came in yesterday, this would be last week, suggested that layoffs are still low. So we're good on unemployment. And the ISM appears poised to break into expansion territory. So highlight this for us. Are you feeling basically like our business cycle and macro setup is good too, and there's nothing that looks worrying on the near-term horizon?

Michael Nadeau:
[32:05] There's always risks out there. But, you know, we spend a lot of time just studying the economic setup, looking for, you know, signs of dark clouds out there. We're just not seeing it. And so I know a lot of people are looking at valuations and just like trying to find ways to be bearish. But we're just not seeing it. Even when you look at earnings and valuations, the forward outlook for earnings continues to increase. Like the Atlanta Fed just updated its GDP expectations from 3.0. It just continues to rise. The last time I looked, it was 3.9% now.

Ryan Sean Adams:
[32:45] Why? Why is that happening, by the way? I've been seeing this.

Michael Nadeau:
[32:48] There's just still a ton of capital. This is really driven by AI, but there's just still a ton of capital that is being basically capital spending, CapEx spending that's being pushed into AI. And that is really fueling the economy. I believe it's like 75% of what's driving GDP currently. And so, yes, that is sort of like a centralization risk of just if that goes away, then the economy could roll over pretty quickly. But we're just not seeing any signs of that happening. And what we're actually seeing is capital like moving towards smaller caps now. So I'm looking for like the Russell 2000, which is tracking the smaller cap index starting to outperform, which is kind of a natural thing where it almost looks like the equity markets are trading a little bit like the crypto markets where you have like the mag seven.

Michael Nadeau:
[33:41] Which has significantly outperformed the rest of the S&P 500. And so now we're starting to see almost like the small caps or the altcoins and like capital starting to push out to the kind of riskier equities in the market. So to me, this just looks like the cycle continues to extend. And, you know, we're going to get some more labor market data this week. We'll get non-farm payrolls on Friday. We're going to get the JOLTS report tomorrow. And I think we'll have some inflation data in a few weeks. But to me, I'm trying to find ways to be bearish. And I'm just not seeing it. I think most of the bearishness is just mostly people just looking how far we've come, looking at valuations, and just trying to talk themselves into being bearish when the data just doesn't really support it, in my opinion.

Ryan Sean Adams:
[34:31] What about the Fed cutting rates? So, I mean, there was the first rate cut in almost a year happened in September and kind of the Fed pivoting to dovish. I think a lot of investors looked at this, crypto investors looked at this and said, okay, well, there it is. Now we're cutting rates. So now crypto can go on a full run. And of course, the weeks following that have seen a sell-off in crypto.

Ryan Sean Adams:
[34:56] Why is that? Did the rate cuts actually not matter? Does it take some time for it to work its way in? Why do we think rate cuts are just magically going to increase the price of crypto assets? And why didn't they this time?

Michael Nadeau:
[35:10] So I think it's playing out sort of similar to what we saw last year. So last September, a similar setup where the Fed had just started cutting rates. They did actually 50 basis points in their first cut last September. And the markets responded positively to that. And then we actually had like a pretty good sell-off at the end of September. So kind of similar to what we're seeing here. And, you know, to me, I think the markets are still worried that rate cuts can be insurance cuts or they can sort of be emergency cuts. And if they're insurance cuts, it basically means the Fed is kind of cutting into an economy that's still expanding. And it's just, they're trying to sort of save, you know, paper over the labor market, get people spending a little bit more. And I think that's the variety that we have. I think the market's still digesting this a little bit. Whereas emergency cuts are when growth is stalling. They need to cut rates to get the economy moving. And typically when they do that, there's usually a sell-off that comes as they cut rates. I don't think that's the variety that we are in.

Michael Nadeau:
[36:12] We did just cut once. The chances of a cut, I think I looked at the CME FedWatch this morning, it was still at 90% for October. I think we're in the 65-70% range for a December cut. So to me, you know, this still looks good to me and if there is something in the economic data that made me think that the economy was truly stalling, then my view on the rate cuts would probably be different. But I think these are more of the insurance variety.

Ryan Sean Adams:
[36:43] Now, you wrote on Friday, you were looking for two kind of key confirmations looking forward. And that was Bitcoin to hold its prior highs in the 105 to 107K range, and for it not to drop below that 99K number that we talked about earlier, and for ETH to bounce and regain the 4K level. And you said if it breaks below 4k we're looking for a bounce around the 100 day moving average of 3.7k and we've seen both those things at least so far who knows what tomorrow will bring but we've seen ETH bounce regain 4k trading up above it today we've seen bitcoin not only hold 105 107 it was above that and has kind of bounced so this seems to be good and yet generally speaking you said you felt like you see some of the sentiment here and you think some investors are going to be caught off guard by this. They are believing that this was the top. The altcoin season is behind us. That was it, right? The mini altcoin season was it. Now we have the top and it's kind of over and we're back for another four years. But in your opinion, this is just trauma. You said this is trauma from things

Ryan Sean Adams:
[37:57] that have happened in previous cycles. But it was really interesting that in September, we did switch over in the Bitcoin Fear and Greed Index towards fear, not extreme fear, but definitely fear.

Ryan Sean Adams:
[38:10] Is this all normal during bull markets for us to feel these things and for sentiment to play out like this and for people to be anxious and thinking it's over?

Michael Nadeau:
[38:21] I think so. I mean, this factors into a lot of kind of the work that I do is obviously a lot of data-driven work, but we're also just monitoring sentiment and sort of paying attention to what others are, sort of how others are interpreting things out there. And I do think there's a lot of trauma. If you go back to last cycle, everybody was calling for, and maybe this can help people think through what they're seeing today, but I mean, everybody was calling for 150 to 300,000 Bitcoin, you know, in September of 21. And it just never really, you know, played out. And I think a lot of people round tripped a lot of their gains, not just on Bitcoin, but on, you know, altcoins and other things. And so that, you know, creates sort of, that's somewhat of a traumatic experience to go through. And now people have been waiting, you know, four plus years for the next bull market. And I think a lot of people are wondering, are they going to make the same mistake? And just having that trauma almost can force you into another mistake if you're not actually paying attention to to the data. And you're just going off of what some other influencers are saying. And I think there's a lot of people sort of getting twisted up right now, wondering if we're really, really late cycle or if we're more in like the seventh inning of the cycle.

Ryan Sean Adams:
[39:41] One last question I have for you, Mike, before we wrap all this for folks, which is, you mentioned earlier in the episode that we still haven't seen the influx of new capital, right? And so we're just curious because we have seen, it seems like some institutional flows. This cycle. So we've definitely seen some impressive volume into ETFs and our treasury companies as well. But it hasn't looked like the new capital that we saw in previous bull cycles. So I guess my simple question is, if we need new capital in order to continue this and to get a new top later, if this wasn't the top, where is that capital going to come from?

Ryan Sean Adams:
[40:17] Who's going to be the net buyers of our crypto assets?

Michael Nadeau:
[40:21] It can come from a number of areas. So So, you know, it helps that the rest of the economy is doing quite well. The stock market has been doing very well. Gold has been doing very well. We saw, you know, we did a report last week just looking at the kind of the correlations between gold and Bitcoin. And what was interesting in last cycle, gold actually was performing somewhat similarly to this cycle where it actually led the market in 2020 before Bitcoin had a big move. Gold has been outperforming Bitcoin again in this cycle. So it could be a rotation from some of these larger asset classes into the smaller crypto markets. It could be, you know, retail investors, you know, coming back into crypto. I think it's probably somewhat of a combination of the two. We do have like the crypto market structure bill that went through the House. That is, you know, that needs to get through the Senate as well. That could be, you know, potentially a catalyst for the crypto markets. And the other thing is just like the markets are forward looking and there's we're expecting that, you know, Powell's term is going to be up in May. And so the markets are starting to look at the Fed and what is the structure of the Fed going to look like moving forward? What does that mean for markets? And so there's there's different ways that that this this can play out. Some of the work that we've done over the last month or so is trying to determine,

Michael Nadeau:
[41:49] Has the most money actually come into the crypto market so far in this cycle? And what did that look like in the last cycle?

Michael Nadeau:
[41:58] And it does look like the majority of the capital came in in sort of the Q4 period of last year into January, kind of looked similar to the period we saw in the first market cycle top back in 21. And so that is a concern of mine. I think this is something that we're definitely watching because for this to really take off the way people want it to, it has to be new money coming into the market. We need to see that $4 trillion total crypto market cap for the entire space start to move up rather than just sort of this hot ball of money kind of swinging around within the crypto markets like we've seen kind of over the summer months.

Ryan Sean Adams:
[42:40] All right, so Mike, your current stance is this was not the top. That's what you're thinking, at least. You've got a plan in place to monitor some key price points for Ether and Bitcoin, and I'm sure you're updating your cadence. One thing we talked about last time was the market cycle, how long it would be. And we pointed out that if this plays out the way other Bitcoin four-year cycles played out previously, the top would be sometime in November or December, right? That matches the previous four-year cycles. You made the case for an extended cycle that it would go into 2026, maybe Q1, 2026, maybe even to Q2. Do you still believe that given the data that you're seeing right now?

Michael Nadeau:
[43:24] I think it's definitely possible. I'm also thinking it could just end in Q4 because that's sort of, you know, there is like a psychological element to this and sort of just the way that people position for this. Yeah. When I look at the economic data and the strength of kind of the economy, that tells me we could be moving to a sort of an extended cycle. One thing that still has not sort of taken off is the ISM. It's still in contraction. And so Bitcoin and crypto assets tend to follow the ISM and that's still in contraction. So that's something I'm looking for. If we start to see that move into expansion as crypto is moving, that would give me more confidence that the cycle can extend into Q1 of next year. But something I'm monitoring on sort of a daily, weekly, monthly basis. And my base case is we probably end in Q4.

Ryan Sean Adams:
[44:18] Okay. Your base case is we end in Q4, but you're monitoring macro conditions like the ISM. And if we see a very healthy, bullish market outside of crypto, then you think that this could extend into 2026?

Michael Nadeau:
[44:30] That's the thinking currently, yep.

Ryan Sean Adams:
[44:32] How have you adjusted your portfolio? So did you make any big trades this summer? Did you take any off the top? What does that look like?

Michael Nadeau:
[44:38] So yes, so we had a couple assets in the portfolio that ran pretty nicely over the summer months. We trimmed profits on some of those. Our Bitcoin holdings are, the percentage of the portfolio on Bitcoin is at like the lowest that it's been all cycle. And we've kind of, we sort of caught the move into ETH and we've got some ETH beta plays as well. And at this point, I'm mostly, you know, we actually reallocated a little bit into some stuff that we liked from earlier, has some momentum. We share, you know, weekly updates with our TDR Pro members on exactly what we're doing in terms of what we're buying, what we're selling. And yeah, excited for Q4. And like I said, probability points to some more strength in the markets, in my opinion.

Ryan Sean Adams:
[45:27] That's great. And a big plus one for TDR Pro, where you can see what Mike is doing inside of his portfolio and get some of those trades and some of the exchanges he's making in real time. Well, this has been great. Good touch point in the cycle. I agree with you. I still don't think we have seen the top. I think we got a road ahead and I think it's going to be a good year, good year end. But we will see. Of course, none of this has been financial advice. You guys know crypto is risky. You could lose what you put in, but we're headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.

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[46:10] Music