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Our weekly show is hosted by Michael Nadeau (The DeFi Report) and Ryan Sean Adams (Bankless). Each week, we discuss how we approach managing our own portfolio and the data, research, and analytical frameworks that inform those decisions — for educational and informational purposes.
Ryan Sean Adams:
[0:10] Welcome to the report. The question today, it's an important question. Has Bitcoin entered the buy zone? That's what we're going to try to answer today. Is it time to buy Bitcoin? Mike, I'm going straight to your opening note for this because I think that sets up the context and background just about perfectly. I'm reading now. On Friday, June 5th, that was last Friday, Bitcoin fell to 58.9K. That's 53% off the 10,626 high. That's the third 25% plus drawdown of this crypto winter. We're eight months into the bear market. The Nasdaq rolled over as well, down 5.2%. The war in Iran drags on. The market started to weigh rate hikes later this year. The sentiment is back at extreme fear. Almost every ETF holder is now underwater. The no-coiners are dancing in the streets. Mike, have you actually seen no-coiners dancing in the streets?
Michael Nadeau:
[1:02] That's a key indicator. That's a key indicator right there.
Ryan Sean Adams:
[1:04] My God. So I got to say, first of all, the last time I was here was not last week. And we were talking about some recent bull market sentiment. And the question was, was that a false flag? Is that a false bull market? I got to say, you said that it was at the time. It certainly looks like it was a false bull market now. I got to say, congrats on calling this dip again. You've had a pretty good track record here. This is another notch on the belt. What did you get right about the false bull flag cycle?
Michael Nadeau:
[1:39] Yeah, I think what I got right, I mean, it was not easy, I think, to navigate that period, primarily after we extended past two months of that rally. So we kind of had a quick capitulation early February. We sort of V bounced out of that. And then Saylor started buying and we started slowly seeing the ETF position start to accumulate again.
Ryan Sean Adams:
[2:05] And like people were saying it's over. A lot of people. That was sort of the sentiment turn on crypto Twitter.
Michael Nadeau:
[2:10] People were going after Ben Cowan for right. Still calling for weakness.
Ryan Sean Adams:
[2:17] Were they coming after you too?
Michael Nadeau:
[2:18] A little bit. I think I think some people started to question some of what we were what we were looking at. And, you know, we kept saying, hey, just be patient. Right. We're following the market structure. We're following how coins are rotating out there. We're following all these like high level KPIs that that we're tracking. And, you know, it's kind of hard to see like what's going to be the catalyst to sort of force like this new sentiment to the market. And that tends to be what then causes, you know, the behavioral side of things and, you know, panic and fear and things like that, that force the selling. So I think we just went through basically the third, you know, phase of kind of fear based forced selling like of this bear market. And I think the question moving forward now is like, are we, you know, comfortably in that zone where... You know, the people that were patient for the first eight months or so of this bear market, where now the ball's in their court, they have the kind of ability to sort of buy up coins at really depressed levels, get into good positions. You know, if you've got a long time frame, a long time horizon, I think it's a pretty good environment to be investing as a liquid investor right now. So excited to get into it. It was only eight months ago that we were kind of shifting risk off. So now we're starting to shift into more of a risk-on stance.
Ryan Sean Adams:
[3:40] It's certainly a more exciting environment if you have cash. And if you follow the TDR advice to be patient, I think a lot of listeners and readers are glad they did. Before we get into this, and by the way, I should mention at the end, we're going to dig a little bit into your portfolio and try to find out how you're playing it. Did you buy Bitcoin yet? Are you waiting for a little more of a pullback? What's happening there? And if you're waiting, what are you waiting on? But before we get in, we got to thank our friends and sponsors over at Galaxy. And this one will be for the institutions listening, a lot of institutional interest in crypto. If you are an institution, you're looking at the future of finance, or if you're looking at AI, the next industrial revolution, these are the two technologies, of course, that are leading the way. Galaxy is the name you need to know in both of these. For crypto, they do full stack trading and custody for institutions. That's tokenization, trading, custody, the full gamut. Also on the AI side, they have a massive data center, an HBC ready data center, including their Heliosite. That's a staggering 1.6 gigawatts of approved power. They are publicly traded. The ticker is GLXY. You know it. If you want to see Galaxy, how they help institutions invest, build and transform and doing all of this relentlessly, go check them out.
Ryan Sean Adams:
[5:02] There's a link in the show notes. All right, Mike, so you're positioned, you've still got some cash, but you did make some deployments. I came back this week to a slew of TDR Pro alerts. Portfolio alert, portfolio alert. There are about five or six of those. Let's wait and talk about what you did with your portfolio to the end. And can we start with where the heck we are in the cycle? I feel like this bears
Ryan Sean Adams:
[5:26] a recap. Where are we with respect to the fair value KPIs that we've been tracking on a weekly basis?
Michael Nadeau:
[5:32] Yeah. So, you know, as I was saying, you know, we've had, we've now had three plus 25%, you know, drawdowns, and that is pretty consistent with kind of where you would be, you know, eight months into the bear market. And when we look at kind of these high-level KPIs and compare what we see today relative to the lows that we saw back in 2022, and then also back in 2018, you know, for the most part,
Michael Nadeau:
[6:00] These KPIs we track are telling us that, you know, we're pretty close to, you know, at least we're within fair value and like we're getting closer to like what you would call deep value because these metrics that we're showing for 2018 and 2022, those numbers that we're showing, those are the deep value numbers. Those are the lows of the cycle. So on the right side, you know, we're getting close. So MVRV, that's the one that's a little bit elevated relative to the prior cycles. And that's the measuring the market value to the realized value. Realized price is kind of a proxy for cost basis of coins and circulation. That's about 54K right now. So that's the one that we haven't quite reached. But across like supply and profit, long-term holder supply and profit, 12-month RSI, you You know, we've now touched and dipped below the 200-week moving average. So I think, you know, from a high-level perspective, I think you can kind of comfortably say that coins have rotated, top buyers have sold, you know, the market has had eight months to digest this. We've had three, you know, 25% or more sell-offs. And I think the way I sort of think about like who's in the market and what does the market structure look like, it's to me, we're now resetting that base. You know, we're resetting the base of stronger holders, the people that,
Michael Nadeau:
[7:24] You know, if you're a Bitcoin investor today and you're buying and you're looking around and you're, you know, who are you buying with? You're buying with people like you that have a five-year, you know, horizon that are, that are long-term holders of the, of the token. You know, if you go back and you think about who you buy, if you're buying Bitcoin in January of 25, who are you buying with? It's a different, it looks like a different group of people that are surrounding you. And so I think that's an interesting way to sort of think about the market and the market structure. Are there potential risks moving forward? We can certainly get into some of that. It's not like totally clear that we've hit that sort of low. But I think generally speaking, we're in the kind of phase of the market where you can be comfortable with a longer term, you know, horizon, time horizon as an investor.
Ryan Sean Adams:
[8:09] Okay. So the KPIs were close to hitting deep value from the previous cycles. You said we dip below the 200 week moving average. I should say, at the time of recording, Bitcoin's about, what, 62K, something like that? Yeah. 62, 321 exactly right now. What is the 200-week moving average?
Michael Nadeau:
[8:29] It's 61.9K. So it continues to rise up. So we're above it. And we closed last Sunday. We had the week of close actually above it as well, which was kind of important to see. So that is definitely a key number to keep an eye. If we do end up having a weekly close or a couple of weekly closes below that, Then we may start to sort of just kind of chop around.
Ryan Sean Adams:
[8:50] Further breakdown?
Michael Nadeau:
[8:51] If we have a further breakdown, if we have multiple closes below that 200-week moving average, which is about 62K, I could see us sort of like bleeding down, maybe chopping around into the 50s a little bit for a while. So that's something to keep an eye on.
Ryan Sean Adams:
[9:07] The February lows seem like a long time ago. Help us recall, what did fair value KPIs look like then? What was the price? We were lower before. We dipped below the 200 week in February. Is that correct?
Michael Nadeau:
[9:20] We did not dip below it back in February.
Ryan Sean Adams:
[9:22] Is this the first time in the bear cycle we've dipped below the 200 week?
Michael Nadeau:
[9:27] Yeah, and we hit a lower low as well. So we got to 58.9K, I think, last Friday. And we really kind of only came down to like 60. It was really a V-shape bounce out of that back in early February. So this is a little, this is different. Like this feels different to me. You're not getting the V-shape bounce out of it. Um, we don't see what's interesting on like kind of the funding markets and what's happening in the, in the futures markets. I'm not seeing like traders that want to get aggressively short, uh, right now at these levels. Um, so there, there's some differences here. And, you know, the, the, the other thing is like the, actually we went deeper on, uh, sentiment. So fear and greed went deeply, deeply negative in February. It was actually worse than what we see now, but the price actually, uh, has dropped to a lower low.
Ryan Sean Adams:
[10:15] It's worse. We are in more extreme fear territory than we were in February.
Michael Nadeau:
[10:21] We are less. So actually, February, people were more scared in February, even though the price has come down more. Now, we are in like kind of that extreme fear zone, but it's just not as like just not as far down on that metric.
Ryan Sean Adams:
[10:35] I was thankfully not checking prices on Friday. That's when we hit the lows. Was that July 5th?
Michael Nadeau:
[10:41] That was June 5th. I believe it was the 5th. Yeah.
Ryan Sean Adams:
[10:44] June 5th. Okay. So how low did we go?
Michael Nadeau:
[10:46] So we got all the way, I think intraday got down to 58.9, 58.8, 58.9 or so. And then we recovered from that and got above 60K. We're now above the 200 weeks.
Ryan Sean Adams:
[10:58] So were there any reasons for this? Was this just part of the broader NASDAQ
Ryan Sean Adams:
[11:02] sell-off or on poor scare?
Michael Nadeau:
[11:04] I mean, so, you know, I think what's happening with strategy, you know, just with their, you know, balance sheet issues, cash, you know, management and debt management, I think that's sort of getting a lot of the attention and creating maybe some of the fear. I sort of think that that's more of a story that, you know, if you're an MSTR holder or if you're an STRC holder, like you should be really paying close attention to that. I don't know if that's like that big of a story for just Bitcoin holders. It is a narrative and it is creating, I think, some fear out there. And the challenge here is we talked about this last week with David. The challenge is that Saylor doesn't have a ton of cash left to pay dividends on the STRC.
Ryan Sean Adams:
[11:56] Six months, right?
Michael Nadeau:
[11:57] Roughly six months of cash there. And, you know, we've seen that STRC start to trade off of par, which is 100. And when it's doing that, it's sort of like the SDRC holders are saying we need a higher yield, which it's already 11.5%. You know, we're getting skittish because Bitcoin price is coming down. You don't have enough cash. You might not be able to raise if you're not at par. This gets like a weird, you know, there's a weird sort of doom loop that could happen if the markets just keep getting really, really fearful. You know, I don't know how this is going to shake out. There was some speculation over Friday or over the weekend you know, there was so much selling activity. It looked like forced selling activity on Friday that maybe strategy was one of those sellers and they're just unloading some Bitcoin to shore up the cash needed. And then they're going to come out on Monday and seller's going to announce that, hey, we sold, you know, a billion worth of cash, you know, Bitcoin or so. We've locked up the next 18 months of dividend payments for STRC holders. Maybe that calms down the market and STRC's trades back up to par. That's not what happened. What happened was he, they actually, they bought some Bitcoin. So he bought like 1,500 Bitcoin or so.
Ryan Sean Adams:
[13:18] Does he have to tell you though when he sells? He doesn't have to, right? I mean, in disclosures later he does, but at the moment, does he have to?
Michael Nadeau:
[13:25] I don't think he has to tell you in real time. I don't think we know in real time when he's buying either. It's usually like a couple of days later or whatever. So, you know, we don't really know what's going on. The fact that he didn't panic sell actually um was able to buy some bitcoin and use some of the and that was because they issued mstr shares that's how they got the cash and they bought some bitcoin um and i think some of that cash can be used for the dividend payments i mean it's it's not a a perfect setup and there's definitely some risk here to pay attention to but i think if you're a bitcoin holder like What matters more to me is like the high level KPIs, everything else that's going on right now. This is like a little bit of a side story. And I think if you're an MSTR holder or an STRC holder, you need to be paying more attention. But for Bitcoin holders, the air is mostly out of the market. And like, yes, this is like a final risk, but there's always a final there's always a risk that's that's going to still be there.
Ryan Sean Adams:
[14:23] I kind of agree with your broader point here. But this is an interesting scenario for Michael Saylor in that he's got a lot of masters to kind of serve because it strikes me that there's some disalignment between STRC holders and also MSTR holders. And then Michael himself has another set of alignments. Maybe this all gets worked out in the long term, but you're playing a lot of dodgeball on the court here while this is happening in the bear market. Let me just ask this question, high level. If there was some type of ugly unwind, at strategy that caused some Bitcoin price action market dislocation, how would that happen? If you can envision something like that, because that could be part of the final capitulation type story. I think you talked in today's report a little bit later how it's kind of weird how the sins of the cycle haven't really been paid for. And one of the possible quote unquote sins is taking on a little bit of, I don't know, he doesn't like the word margin, leverage debt something on the strategy balance sheet. That could be a sin that we see. If there was an unwind, how can you imagine that unwind would actually look? Or do you not think that's even possible?
Michael Nadeau:
[15:35] So, yeah, I think the unwind... Sort of played out last week. You know, I think like there was so much selling activity last week. And I, when we, when we published our report on Wednesday, I think I even sort of used like the past tense, like we just had a capitulation and, and it's sort of the selling
Ryan Sean Adams:
[15:52] Strategy on wine. He only sold like 32 Bitcoin, right? Yeah.
Michael Nadeau:
[15:55] He only sold like 32 Bitcoin, but, but there was so much selling activity and Bitcoin went to, I think the lowest level ever on the 14 day, the short-term RSI. So like just, and it went to extreme level in February and That was the lowest ever. So just a ton of forced selling, a ton of fear in the market. And, you know, the view is like, I think that that was probably peak fear related to this. If you wanted to like sort of go doomsday and say like, what would the real unwind look like? I think it's just like that never ends. Like that fear just like keeps cascading and then Saylor like gets caught up in it himself and starts coughing up Bitcoin and like, I don't know.
Ryan Sean Adams:
[16:42] It's kind of like every few months he has to sell more Bitcoin in order to pay SDRC, like a short way cash to pay SDRC holders. And that's just continuous.
Michael Nadeau:
[16:51] Yeah. I think what you don't want is like the market to be like just in this like state of unease about them being able to pay that. And then they have to dump Bitcoin because then you sort of incentivize people to sell Bitcoin in front of you. It's similar. We get it on the upside as well. People want to front run him. So you create this weird incentive where people want to potentially front run him. I don't think Bitcoiners want to front run him right now. I think they mostly want to buy Bitcoin at like these more depressed levels. And that's why like I just, it's hard because of if you really deeply understand like who is holding the Bitcoin right now, it's harder to kind of get into that mindset where you get this panic thing. Like I think most Bitcoiners have been through these drawdowns over years. We're already, you know, about 50% off of where we were. So I just, I just, I have a hard time seeing that, that play out. I think Sale is pretty good at this, honestly. I think he's pretty good at it. Yes, he's in a bind right now. We're in a bear market and he's kind of got to steal from Paul to pay Peter, whatever that saying is, on his cap table. And that's not a pretty thing. But again, I think it's more just like if you're actually on his cap table,
Michael Nadeau:
[18:08] you probably need to pay some more attention.
Ryan Sean Adams:
[18:10] Let's look at these cost basis clusters then to try to answer some of that question of who's selling Bitcoin, who's buying. You write that top buyers of last cycle, this is the people that purchased in the $108,000 to $126,000 Bitcoin price cohort. You write that they're just about finished selling. That's what it looks like from the on-chain data, which means somebody is also buying. And you said earlier that if you look around and see who else is buying, hopefully that's the smart money, by the way. If you're in a cohort and it looks like dumb money, then it's a bad cohort to be in. So who is on the other side, you know, if they're passing their coins to someone else, this sort of new money type cohort that we've talked about so often, who's buying it? Is it the old money cohort? Or do you expect, do you see any like net new buyers at this level?
Michael Nadeau:
[19:05] I think you probably always have a little bit of some net new buyers. I think the success that the ETFs have had in the past cycle is one of the most, you know, widely adopted ETF products we've ever seen. There's definitely a lot of like institutional investors that have come into that. They are, you know, underwater. Like we've talked about the ETFs and how we really weren't breaking down below like kind of the average cost basis of the ETFs. And it just like hadn't been enough pain there. So like, I think we're going to see now is like, are those like really long-term investors that like have cash, they want to actually really, you know, double down on the asset now. So I think you'll have some of that.
Michael Nadeau:
[19:46] I think you have every cycle, like, you know, the people that were the top buyers of this past cycle, roughly half of them have sold their Bitcoin, right? So that's a lot, but you're hardening up some like kind of diamond-handed Bitcoiners now at the same time, I think some of those people are probably doubling down and averaging into their cost basis. And then you have people that are playing the long-term cycles that are really bullish on the asset class over a 10-year arc or so, like maybe the way that I kind of invest. And so I think you have some of those people that are coming into the market.
Michael Nadeau:
[20:23] And institutions like the family offices, those types of buyers will come in at these types of levels. So I think it's a kind of mix of who's coming in. And at the same time, there's not a lot, right? When you're at the bottom of a bear market, It tends to not resolve on the demand side of the equation. It sort of resolves on the sellers being exhausted on that side of the equation. And so I would say we're kind of in that process of finding where the sellers become exhausted. The bottoming process happens that way rather than demand really coming in and overwhelming the supply. But if the sellers become exhausted, then eventually the price will start to move at some point. What I would love to see is like that start to play out after maybe we've had a little bit of degrossing. And on the AI side, maybe NASDAQ has sold off a little bit. Now that gets interesting and people are starting to look to reallocate capital, maybe diversify out of AI. Bitcoin is starting to move a little bit. And that's where I start to get excited about where crypto is going over the next year or two.
Ryan Sean Adams:
[21:34] I can tell that's kind of a case you think is probable at this stage. Yeah. Can we see some of that seller exhaustion in these two charts? I really enjoyed this chart. This is Bitcoin realized loss by age, seven-day moving average from 2026, compared to the same metric, same chart from 2022. And you could see the charts look very similar. I guess where you have the indicator here and the line pointer, you're seeing a similar pattern from 2026 that we saw in 2022.
Ryan Sean Adams:
[22:08] Too, which was kind of a later bear market cycle spike in realized losses. Can you explain what you see in this chart? What does this indicate about seller exhaustion?
Michael Nadeau:
[22:21] Yeah, so I've been trying to, you know, we do the market structure updates every week. And I also, you know, we'll go a little bit deeper, just try to get a feel for who is the seller out there. And what you can see in the first chart there, and that's showing the current bear market, that first big spike you see a lot of orange you know mixed in in there and that's really like much shorter term shorter term holders um people that probably bought you know they were selling that big spike was in december of last year and that was
Ryan Sean Adams:
[22:52] Like a panic sale of new new buyers right.
Michael Nadeau:
[22:56] Probably just bought over the last three months or so and aren't super confident what they're holding they saw the price go down they just panic sold right away and like you tend to see that type of activity early in a bear market. And then in the later stages, we see things kind of trail off, but then a big spike, but the colored range is slightly different there. And that color range is just longer term holders. Some of those are just new money that came in that aged into the longer term holder cohort.
Michael Nadeau:
[23:26] But it tells a little bit of an interesting story just in terms of like, You know, you have these people that will cough the coins up very quickly. And then some of them maybe wanted to cough them up quickly. But then the price, right, we have those retracement moves and it sort of changes your mind. You get comfortable again and you don't sell. And then later on, you get another, you know, capitulation down. And we see those, you know, in the one to two year aged coins start to start to realize some losses. So I think that's kind of a, it's interesting from a market psychology or just a market structure perspective, how that plays out. But you can see that it kind of played out similarly in 2022 as well. We had a big spike after the FTX unwind in like November of 2022. So it kind of, when I was looking at these numbers and just getting a feel for like the size of the realized losses and comparing it to the one that we had in late 2022, right? It looks kind of similar. We did a big realized loss analysis a few weeks ago, and we're going to revisit that now that the smoke is starting to clear here. So we'll have that next week. But it's kind of just giving me some more conviction that it looks like we're in kind of that later stage of the bear market where you have a little bit more of an all clear, I think.
Ryan Sean Adams:
[24:45] This is, you can see it brilliantly in the visuals here, right? So the orange is much smaller. They have fewer coins to cough up. This is the cohort coin shuffle that you've been talking about where there's exhaustion, clearly, in these charts. It's a great visual.
Ryan Sean Adams:
[25:03] Let's talk about maybe the AI trade and how that factors in. So one key point that you have made in these reports over the last couple of weeks is during bear markets, there seems to be a pretty high correlation between the NASDAQ and our crypto assets, in particular Bitcoin. It's where a lot of your analysis is coming from. And we're in a bear cycle, so we're seeing high correlation. So when NASDAQ, you know, gets hit.
Ryan Sean Adams:
[25:34] Crypto gets hit, it feels like, much worse, much more significantly due to that correlation. So right now, at this point in the cycle, where the AI trade is going will show us where crypto is going and could capitulate. Tell us what you really think of the AI trade because markets are still hyped on this. NASDAQ been hitting all-time highs. Last week, it looks like, was a pretty rough week. What are your thoughts on what's going on in the AI world? Because whenever we've talked about the bear case for equities, we've talked about liquidity, we've talked about late cycle stuff, always the retort from me would be, or the pushback from me is like, yeah, but Mike, what about AI? Because that's the next industrial revolution and the old regime and old rules, may be broken. This time is different. What do you think of the AI trade? You spell it out in today's report,
Ryan Sean Adams:
[26:31] and I love it. Give us the takes.
Michael Nadeau:
[26:33] Yeah, we went into this pretty deeply in the report today. Maybe before I get there, you're correct about this NASDAQ-BTC correlation, but I want to just double-click on the part that BTC is the leading indicator here. So what we've identified is that Bitcoin tends to be leading NASDAQ.
Ryan Sean Adams:
[26:58] So Bitcoin is the tail that wags the rest of the dog, huh?
Michael Nadeau:
[27:01] And I think a lot of people think, well, wait a minute, what if AI goes down? Is that going to pull the crypto markets down? It's like, no, the crypto markets are already down. The AI is already out of the crypto markets. What you should be paying attention to is that the leading indicator on the AI side. So I feel less like we go through this and I think there are some risks here, especially if there is like a significant unwind, which I'm not necessarily projecting, but I think there could be some concerns. I think, and the data tells me that Bitcoin tends to lead that, not the other way around. So yeah, I guess on the AI stuff, I've just been thinking about this a little bit more. I'm not an expert in this field or spending a ton of time investing here. My exposure to AI is largely just through index funds.
Michael Nadeau:
[27:53] But what I sort of like kind of just high level look at everything, Like I see a lot of interesting similarities between crypto and maybe it's just because I kind of see the world through crypto as a crypto focused investor. I see a lot of similar similarities here with AI in 26 versus like crypto back in 2021. And I think like when you think about the build out of the crypto, you know, infrastructure layer and what was that that was really happening in 2021. We have a similar infrastructure CapEx cycle that's happening on the AI side. And if you kind of like just focus on what what happened, what was true about crypto and like are any of these principles potentially going to apply to the AI build out? I think something that, you know, we we observed is that like there was a rush of demand right for for compute. This is a it's gas right in the crypto world, but there's a rush of demand for that. And that most of that happened on the Ethereum network. and when that happened, it created this reflexive thing where lots of entrepreneurs rushed into the crypto world to solve that problem.
Ryan Sean Adams:
[29:04] Guys, like if you don't remember, we literally ran out of block space in 2021. There's no block space left.
Michael Nadeau:
[29:10] $150 to trade on Uniswap, right?
Ryan Sean Adams:
[29:12] Yeah, so what we thought we needed was more infra, more infrastructure, more and more block space. So that's what we created.
Michael Nadeau:
[29:18] Right, and the free market will solve that for you, right? So what happened? We had Solana and Near and Sui and Say. So VCs will throw money at that problem. Layer twos.
Ryan Sean Adams:
[29:31] Infinite block space.
Michael Nadeau:
[29:33] And we solved that problem pretty quickly. And what that did was it lowered costs for users. It allowed the technology to scale. It makes it better for builders and apps. But the infrastructure is not really capturing the value. We've seen Ethereum really struggle over the last, since really the 2021 peak. So, you know, if you kind of take that framing and then look at what's happening on the AI side, you can sort of start to see that like, hey, there's like this, like the inference is the thing that matters. That's like the gas of like the crypto networks. That's what's driving all of the revenue. And there's a massive incentive for entrepreneurs and investors to come in and find a way to lower those costs.
Ryan Sean Adams:
[30:20] So if you look at the growth of Anthropic revenue and compare that to the growth of like transaction fees on Ethereum in 2021, you sort of see where you're getting this story, right?
Michael Nadeau:
[30:31] Yeah. And then if, so if you think about, okay, well, those costs have to come down. So Anthropic, OpenAI, there are new models that are coming out, open source models in China. There's tons of money that wants to be thrown at this problem because we could see all the demand for inference um there's even you know interesting things like what um venice is doing and encrypt and uh with crypto interaction there there's different ways to decentralize uh access to compute so there's like lots of money being thrown at solving this problem to lower the inference costs at the same time the like the the sort of like physical constraints and all the capex that's been invested. I mean, some of these companies are building their own nuclear energy facilities. Like this is massive, massive asset-heavy infrastructure that's going in here. And those are fixed costs. And so you have all this competition reducing inference costs. You have all this fixed costs in a very capital-intensive business, which are not, I don't like capital-intensive businesses myself. That's a weird structure that, you know, the market may start to look a little bit more at this,
Ryan Sean Adams:
[31:42] I think. And that's just the supply side. The other side of this equation is demand, which has been fever pitch. But the question is, is that demand translating into white-collar jobs being eliminated, real productivity? I think you make the point later on, in today's report that that's definitely true on the software development side of things. We are seeing massive productivity increases in software development, but will that translate to other areas of the economy and how many before the distribution challenges get in the way? Regulation, legal, healthcare, all of these other fields. And so right now it does feel very much like demand is off the charts partially because companies are FOMOing in here, right? They're like spend more tokens, spend more tokens because we can't get left behind. We have to see if this is going to be useful for us in changing our model. But is that sustainable demand or will that decrease to something that is... Less than the market predicts?
Michael Nadeau:
[32:47] Yeah, I think that's the question. When I talk with my friends who work at large publicly traded corporations, Web2 companies, and you ask them what's going on with AI, it sounds kind of chaotic and not that much is happening and there's lots of legal blockers. And it just doesn't feel to me like... It makes perfect sense to me that the people in Silicon Valley that are sort of building the AI labs and the software developers that are actually like actually using AI to like develop some of these products and models and say it's pretty incredible. Like it totally makes sense. Like that's very, it's being disrupted. And these are the people who are sort of providing the messaging around how powerful this technology is. But they're giving you the perspective that they're seeing, particularly in your field. It's almost like a crypto founder who's like running a stablecoin company and like sees all the potential of stablecoins and is going on CNBC and telling you about all that. But then, you know, there's all this regulatory stuff and there's a lot of friction in the real world outside of just like software engineering and other types of jobs where there's legal, there's regulation, there's
Michael Nadeau:
[34:04] Different workflow issues. So I just think... It makes sense. The narrative makes perfect sense. And who it's coming from makes perfect sense. It's just more of like, there's a lot of inertia to the way the world works and the way corporations function. There's customer preferences. You know, there's been some interesting reports. Somebody put out, we linked to it in our report today, just on like agentic AI and e-commerce. There's a lot of struggles on the implementation there. There's really not a ton of demand. And there's just a lot of challenges because of all this friction related to laws and regulations and verification and all of this. So it feels like it's just going to go the way crypto. We were so excited about crypto in 2020, 2021. You need regulation for it to really work and you need everybody to come on board. So that's, you know, I see it in my business, right? I see how it's driving productivity. I think it's really helping small businesses. I mean, it's helping software development. The cost of like being curious has just come to zero, right? It's so easy to be curious. And I love that. But how does this really extrapolate into like ROI at like a large insurance company is a little bit more confusing. That's right.
Ryan Sean Adams:
[35:17] You talked about the political backlash, which you're seeing signs of. It's almost like AI may need to still go through its Gary Gensler type moment of political backlash. Bernie Sanders just last week calling for ownership, I think, of 50% of AI companies' public ownership. I mean, that's kind of unprecedented. It might need a Gary Gensler type era, and then it might need a Clarity Act on the other side of this. So the 2022 analogy, 2021, 2022 analogy does somewhat hold for me. But again, I have the crypto goggles on too. Let's nuance this a little bit with your macro takes, which are interesting, I thought. You are not bearish on the economy.
Ryan Sean Adams:
[35:59] So why don't you give us the macro picture here? How would you summarize your positioning on this and thoughts?
Michael Nadeau:
[36:06] Yeah. So I think, you know, when we went risk off last September, October, part of my, you know, part of what we were pulling into that framework and why we wanted to be risk off. We sort of have a different view on this run it hot. People were saying the economy was in a run it hot state. Gold was doing very well last year. Silver. And it looked like it was an environment where negative real interest rates and run it hot. I sort of didn't buy that view because I was mostly focused on tariffs and how tariffs were pulling capital out of the real economy back into the government. That was actually reducing the budget deficit, you know, still high and still tons of, you know, government spending, not saying we're balancing the budget or anything like that, but just on the margin, the budget deficit was dropping. I think that view was largely correct. So the budget deficit, I think in 24 was 6.4%. It was 5.9% in 25. And it's like 5.1% now, which is still high, but you're on the margin, you're coming off a little bit. Now, you know, this is all the framework here is really shifting because tariffs were shot down in the Supreme Court back in February. There's about $180 billion of tariff revenue that needs to be repaid.
Ryan Sean Adams:
[37:22] So that's going to increase the deficit, right?
Michael Nadeau:
[37:25] This is increasing the deficit, right? So now this is like a fiscal impulse. So tariffs were pulling money out of the economy. Now that's coming back to the private sector. And you can sort of think of that as potentially like a fiscal impulse. Yeah. Maybe not the same as cutting checks to people or whatever, but there's money going back to really importers. How does that get pushed through the economy? Do they actually pass it back through lower prices? I don't know. Are they going to hoard it? It's kind of weird how this whole tariff refund thing.
Ryan Sean Adams:
[37:53] It's hard for you to see sort of recession with conditions like this.
Michael Nadeau:
[37:58] That's kind of the takeaway is you've got tariff capital coming back. There's less being pulled out of the economy because about 50% of the section, I think the section 232 tariffs were removed. Trump is still trying to pursue tariffs. We'll see. But I think the worst of this is over. And, you know, when you factor in that, that is playing out, well, the AI CapEx story is playing out, a lot of capital being injected into the economy there. We had higher than normal tax receipts or tax refunds this year. And so I just think there's a lot of money swirling around out there.
Ryan Sean Adams:
[38:37] That's true. There's a lot of money swirling around, but we also have CPI, inflationary pressures. And I think you told me prior to recording the numbers for May, am I right, just came out, CPI numbers? What were they? Yes, 4.2.
Michael Nadeau:
[38:48] Yeah, that just came out today. 4.2? Yeah, it was 3.8 last month.
Ryan Sean Adams:
[38:52] When's the last time it was 4.2? That was back during kind of COVID era.
Michael Nadeau:
[38:57] 2022, yeah. We have to go back to 2022 when they were hiking. So that's not a good sign. I haven't had a chance to really dig into that number and see what's going on there, but we'll get the PPI number tomorrow. That tends to be a little bit of a leading indicator of where it's going as well. So I think the NASDAQ is sort of selling off a little bit on this news. And, you know, we'll see. I think it's a tough setup here for... For Warsh, in his first meeting, I think he's the first chairman coming in during a rising inflation environment since the 70s. And we're going to kind of find out how this is going to play out. He's there to lower rates. His boss, the president, wants lower rates. We are not in an environment where you can really cut rates.
Ryan Sean Adams:
[39:49] Well, one thing you can do, though, is you had this line here, which I need to do some more research in. You could change the definition of what CPI inflation actually is. You said that Warsh seems to favor Dallas Fed's trimmed mean PCE, which disproportionately removes the top 31% of rising costs. As such, this would show lower inflation rate compared to what the 3.8% of something like 2.5%. You just changed the definition around. I didn't know Warsh was kind of so like easy money i thought he would be a little that was not his previous.
Michael Nadeau:
[40:27] Tenure we've talked about him on this show of like when when we when he first um was approved we took a look and he looked hawkish and he was very outspoken that's not
Ryan Sean Adams:
[40:36] Hawkish if you're changing the definition of inflation right that's like uh, changing the the moving goalpost.
Michael Nadeau:
[40:41] That's gas lighting is what that is but um yeah i mean we'll see i mean that's what he's hinting at and what that does is like it basically trims like the kind of like the stuff that's driving inflation the hot stuff on the top side takes 31% of that off but then it doesn't trim as much on the downside so it just kind of gives you like a disproportionate you know kind of lower inflation figure. And that's fine. I mean, they can look at that and maybe there's a reason for that, like a legitimate reason to focus on that.
Michael Nadeau:
[41:17] But he doesn't just run the Fed. He can't just unilaterally make that decision. The Fed is run by committee. So he has to get all the other governors on board with that if that's what they want to be the official stance of the Fed. So it just kind of had the setup to me looks like it's going to be a little tricky. It's going to be interesting to see if trump gets on him uh if he's not cutting rates or if he kind of lets it lets it go for a little while but i think the setup here is like the market kind of potentially forcing the fed's hands you can if you and the way to sort of look at that is just to focus on a two-year treasury if that's rising significantly above the um the fed fund target range it's kind of the market saying hey the rates are too low for this we've got to run it hot economy right now There's a ton of earnings growth. There's tons of capital swishing through the economy. Budget deficit's high. And this tariff thing was, I think, helping the bond market sort of say, well, wait a minute, like the budget deficit's coming down a little bit. Maybe we don't need to be as worried. And if that's getting reversed at the same time, to me, it would just make sense for the bond market to reprice a little bit off of that. And that could impact equities in the AI trade.
Ryan Sean Adams:
[42:33] Well, we don't have to solve for all the assets. Let's zoom back in on what all of this means. AI trade, macro setup, cycle, current place in the cycle, and the coin rotation. What does that mean for the TDR portfolio, which is, of course, a crypto portfolio? And I think the report promises to help answer, is it time to buy Bitcoin yet? It seems like for those who are still bullish on crypto assets, of which if you're listening to the TR podcast, that's you guys, or you wouldn't be here. The question now is, do we buy now? If we have any cash, or do we wait for some sort of final capitulation and buy a little bit later? What side do you come down on?
Ryan Sean Adams:
[43:20] What are you doing with the TDR portfolio?
Michael Nadeau:
[43:23] Yeah, I think the probabilities of going lower to me are maybe like 50% or so. It's not, but I think most of the air is out. And so I kind of think if you were dollar cost averaging, Bitcoin in 2022 when we were below the prior cycle high. So if you were dollar cost averaging in around 20K or so and below that when there was plenty of time to do so, then I think that turned out to be a really nice trade over the next three, four years.
Ryan Sean Adams:
[43:54] So this is like the equivalent of 20K?
Michael Nadeau:
[43:56] I think we're in like the equivalent of like 20K when Bitcoin's trading around 60K or really underneath 66K or 67K, which is the prior cycle high.
Ryan Sean Adams:
[44:06] Can we talk about some other numbers? So there's the weekly average, which is 62K. Now in previous cycles, were we under the 200-week moving average for very long? How many times? And did that last?
Michael Nadeau:
[44:20] Yeah. So we dropped about 30%, maybe a little bit more than that, below the 200-week moving average in 2022. And we stayed down there for a little while.
Ryan Sean Adams:
[44:30] Would that put us in the low 50s or high 40s?
Michael Nadeau:
[44:35] To, you know, if we go to the realized price, which is 54K, if we drop, you know, below the 200.
Ryan Sean Adams:
[44:43] And we did go to the realized price in previous cycles.
Michael Nadeau:
[44:45] We have. Yeah, we have.
Ryan Sean Adams:
[44:47] And below.
Michael Nadeau:
[44:48] And below it. Yes. So that's how you get, you know, we talked about, you know, what's the doob loop with Sailor? Like if these things play out. Don't have strong conviction really either way. But I think this is how you get to that 50K level, potentially all the way down to the 40, 45K level would be like an extreme risk off setup. So I don't know what would be the catalyst or how we'd get there because I think the air has mostly been removed from the markets largely. And I would say, like, when I think about the air being removed from the markets, like, it's very clear that that's the case for Bitcoin, for ETH, for Sol, for like the major assets. And also very clear that that's the case on some of the other stuff that's in our portfolio. Um, we've got some stuff, access to Stava coins. We've got some access to sort of like what I call retail, social, consumer, fast trading.
Ryan Sean Adams:
[45:46] For people who aren't TDR pro members, portfolio is getting a little interesting. Yeah. All right. There've been a lot of moves here on the past week or so. So if you've not looked at what's in the portfolio and why Mike is making the moves he's making, you should go become a TDR pro member just for that. It's, it's worth it for that. But anyway, continue. So. Yeah.
Michael Nadeau:
[46:05] But so identifying sectors. So it's kind of like what, you know, the work that we've done over the last year or so, all the fundamental research, all the data, and we have dashboards and people can follow any of this work. And we do the watch list every Friday. But all of that work culminates in a view on what we think are the primary sectors and categories and themes that we want to have exposure to.
Michael Nadeau:
[46:26] So we've been building positions in these types of themes that can be DeFi, perps, on-chain options, things like that. It can be consumer, social, retail, fast trading. You know, I think there's sort of two types of segments actually within that category, consumer, social. There's sort of meme coins themselves and betting on communities and that type of thing. There's also retail kind of fast trading. There's a social element there. I think that's one of the most misunderstood potential things for the next cycle. So we have some bets there. We have some bets in DeFi. We are focused on stable coins. or I think stable coins, if we get regulation. So we're separating out the categories, store of value, Bitcoin, ETH. And then we're also thinking about exposure to small cap, mid cap, large cap. I want to have a little bit of exposure across the board on some of that stuff. So there's a lot of thought that goes into this. And when I think about the air being out of the markets, we try to only be allocating and stuff that I have high conviction on that. And what's interesting right now is
Michael Nadeau:
[47:36] If you look at the altcoin space, the assets that have been that, you know, when we talked to David last week, I was talking about how this is the most fascinating market I've ever seen because of the dispersion and how there were so many assets that were just, you know, trading independently of what Bitcoin was doing.
Ryan Sean Adams:
[47:53] The hype Zcash Venice type.
Michael Nadeau:
[47:55] I sort of changed my mind on this because, you know, I had a chance to kind of go back and look at these things. Yeah, this is Zcash, hype, Venice, near Bitcoin. I kind of have strong conviction, maybe I'm wrong on this, but I have kind of strong conviction that those assets are going to join the rest of the space. And it's all a speculative derivatives trade on those right now. And there's a lot of open interest that has not been cleared just yet. So keep an eye on that. If you're, you know, I apologize to people that are holding those assets. We'll see how that plays out. Even we own a few things that have been performing relatively well, considering other stuff. And even those assets have some, you know, some froth, I think, still in them.
Ryan Sean Adams:
[48:40] I saw Chris Berninski kind of shares your take. It's hard for some of those assets to continue to outperform.
Michael Nadeau:
[48:46] There's still inertia there. You know, Zcash has a lot of inertia to it.
Michael Nadeau:
[48:49] Hype has a lot of inertia to it right now.
Ryan Sean Adams:
[48:51] Let's end this by talking about Bitcoin specifically and kind of the buy zone. So you write this, our strategy moving forward is dollar cost averaging to Bitcoin at levels below the prior cycle high of 67K. So you like Bitcoin below 67K, but I'm getting the sense that you're not, I mean, I know you've done some larger lump sum purchases below this amount. We've talked about that before. But you're using the term dollar cost average below 67K. Does that indicate some time-based, allocating in to a Bitcoin position? You like it under 67K, but does that mean, oh, you actually wait for the 50s to do large buys? Or are you just like weekly basis, hey, it's still under 67K, snap it up?
Michael Nadeau:
[49:40] Yeah. I'm trying not to overthink it too much. It's kind of a DCA-type strategy. And I think if you're doing that and you're just kind of patient, maybe you can get a little more conviction and buy some more if it keeps coming down into zones.
Michael Nadeau:
[49:57] I think from my perspective, I don't want to overthink it too much. I kind of want to just be buying when we are underneath the prior cycle high and then keep some cash on the sidelines in case this like sailor thing or, you know, we have to pay for the sins. I don't know, you know, that type of thing. And maybe we already have. We've had these three, you know, big, you know, capitulations. So I don't know. But always kind of keep a little there. And then if we don't go down and you still have that and you didn't deploy it, you can always like once the bull market starts and there's always opportunities to deploy like once you have confirmation as well. So I think that's kind of how I'm thinking of it. And like, I know I'm not going to get this perfect, right? You know, this is like impossible to get it perfect. What you're trying to do is be able to scale in that when at some point we will have seen the lows, you want to be in a position where, you know, hopefully you're not down 50% on that position there and you're in a position where you've scaled in, you've done it, you've done it with patients and you're
Michael Nadeau:
[51:00] That position can be up significantly before the market broadly starts to accept that you're even in a new bull market, right? And then you have all of the communities, all of the, you know, I call it the marketing departments. As a crypto investor, if you're in at the right levels, those marketing departments work for you if you're in the right assets. And so that's kind of how I think about trying to get this right. We know we're not going to get it perfect, but get into a good position and then hopefully be in the right assets. You know, it's not easy. If it was easy, everyone would do it, but it takes a lot of work. And, you know, I think we've done a pretty good job of being on the right side of things here. You have.
Ryan Sean Adams:
[51:41] You've called it really well. Best in the biz, best I've seen. Maybe Ben Cowan is the other one, but you guys are doing incredible work here. So I think we've answered the question, is it time to buy Bitcoin for you? Your answer is yeah. Dollar cost average. Keep some cash for capitulation though. That's how Mike is playing it on the week. If you want access to this report, guys, you know what you need to do? Become a TDR pro member. This episode went on a little longer than usual because it was almost like three reports in one. You did cycle awareness, We talked about AI trade. We talked about macro. It's all in this report. It's one of the longer ones Mike has done. Just go become a TDR Pro member just for this report alone. There's a lot of material we didn't cover. You'll find a link in the show notes. As always, none of this has been financial advice. You guys know that. This is our Investor Journal. We're just on the journey alongside you. And until next time, stay curious.