 The FTX collapse has hit the crypto ecosystem hard, prices are depressed, confidence shaken and we still haven't reached the end of this crisis. But besides price action, how bad is the current state of crypto? Have we reached a capitulation point? And is there any silver lining? To fill the pulse of the crypto market, we looked at data on the blockchain with on-chain analyst Will Clemente. I'm Giovanni. On this show, we challenge the ideas that shape the world of crypto. In each episode, we assess a crypto narrative, a macroeconomic outlook or a potentially disruptive technology. Only the most solid ideas will make it to the other side. But before we get started, as always, don't forget to like the video and subscribe to our channel. Let's get into it. But the situation in the market looks very green, probably one of the darkest points that we have ever reached. From your point of view as an on-chain analyst, have we reached the capitulation moment or there is still room to go? Sure. It's a great question. It's kind of a trillion dollar question. I think one of the metrics you can look at is something called net realized profit and loss. The way this is measured is essentially by looking at when's the last time a coin moved? A coin last time, let's say last move at 60k, now moves at 16k. Well, that coin has obviously moved at a much lower price than where it previously did, so therefore it realized a large loss. When you look at the aggregated sum of all the profit and loss, we can get what's called the net realized profit and loss. We can look at that raw value, which is measured against historical measures right along every other historical capitulation for Bitcoin. We can also take it a step further and adjust it for Bitcoin's market cap to basically adjust for the size of Bitcoin's growing market cap over time to basically get a gauge of how large is this capitulatory behavior on a relative basis. That's also showing very similar signs of being on par with historical measures of deep capitulation. The kind of high level of everything I'm saying is there's immense losses being realized and you can see that on chain. There's also a large amount of market participants that are now under water, which you can also see on chain. Yeah, actually I read that right now over 50% of Bitcoin addresses are in DRed. Can you confirm that? Yeah, that's correct and we can also look at long-term holders supply and profit or say conversation supply and loss. The percentage of supply of long-term holders supply and loss has reached an all-time high over the last few weeks, so that's another measure where when you look at kind of that reading in 2014-2018 we've just reached an all-time high but similar levels during those time periods. Let's look at the silver linings. Let's start with Bitcoin. You put out a few interesting charts in the last couple of days where you make the point that the Bitcoin hodlers are doubling down on their position. Tell us more about that. Yeah, sure. You have long-term holders profitability at an all-time low. You have their holding is reaching an all-time high, which shows that they're doubling down. We can also look at measures such as the amount of supply that hasn't moved in at least a year, has reached all-time highs, things like that. They are doubling down. How significant is this piece of data for the average viewer that maybe got into Bitcoin six months ago? Why should he care about it? Yeah, sure. Great question. I think a lot of people like to talk about whales, and this is something we hear a lot. What are the whales doing? At least from an on-chain perspective, when we look at whale behavior, what you see is that they tend to be very momentum-driven, so whales don't necessarily set the bottoms. They tend to come in after the bottom, it's got confirmation, and then they exit towards the top. Who really sets the floor in terms of these broader cyclical dynamics, these multi-year cycles? Who's setting the floor of these cycles? It's the long-term holders. What we see is that long-term holders buy heavily into the bear market. They set the floor, come to the buyers of last resort, and then those long-term holders distribute their holdings to new market participants in the bull market. What I think is more important than necessarily looking at whales is where the long-term experienced market participants, what are the OGs of the market doing? By looking at that cohort of market participants, what we see is that they're doubling down aggressively on the holdings at the moment. Some people are criticizing the argument that there are this cohort of long-term holders that still hodl on their Bitcoin. They say that this doesn't necessarily mean that there is confidence in crypto or in Bitcoin, but just that these people don't want to sell right now because they would sell at a loss. So they're just forced to hodl further. Sure. I guess that's just the conjecture. I'm not really sure exactly what the reasoning why people are selling. I think you could have some of that, but also I would argue that more people are likely to be driven by fear than say, I'm down 70%, I'm not going to sell. I think more likelihood, higher likelihood is if you have a lot of money invested in something and you don't have conviction in it and it goes down 70%, you're going to panic and sell it. But even regardless, I don't really think that that's like a conversation that really matters because regardless, they're not selling. And so bear market bottoms are set when sellers run out of supply to continue to sell onto the market rather than necessarily a new amount of buyers coming in. It tends to be more so when do the sellers just run out of coins. And so regardless of the reasoning, which I would push back on that frame of thinking because I just don't know how data-driven that is. But I would say that regardless the amount of supply that's being held by long-term holders is at all-time highs and the amount of supply that hasn't moved in at least a year is at all-time highs as well. So the collapse of FTX has been interpreted as a warning sign that people should move their assets off from exchanges into subcustody. So is this trend really happening? Looking at on-chain data, is this lesson being learned according to you? Yeah, sure. When we look at exchange balances according to Glassnode, which is the data provider that I use for most of my on-chain data, it does appear that coins have been getting absolutely drained from exchanges. When we look at something like the 30-day change, so looking at what were exchange balances this time 30 days ago versus now, we see that that's in the strongest decline in Bitcoin's history. So coins are coming off exchanges at a very high rate. I think a large reason behind that is obviously that the FTX situation and people are realizing that you don't have self-custody of your Bitcoin. It's not really your Bitcoin. A lot of platforms are rehypopcating your Bitcoin, lending it out to other entities in the space. So it's great to see coins coming off exchanges. One thing that I was looking at this morning was the amount of supply held by on-chain entities between the size of 0.1 BTC, so a tenth of the Bitcoin and one Bitcoin. And what we see is that this is in the most aggressive increase in Bitcoin's history paired with coins coming off exchanges aggressively. And so by combining those two metrics, you get this picture that you can paint of coins coming off exchanges into these custodial wallets for the average everyday retail person. And so I think that's very positive. I guess that one way to go would be having your crypto in a private wallet and then using the exchanges only at the moment where you want to sell it or send it somewhere or exchanging it, but not using it for custody. Completely agree. Talking about Bitcoin, so a lot of maxes, a lot of Bitcoin maximalists are saying that this crisis should also point to the fact that Bitcoin is probably the only asset that is kind of worth investing because the rest is just shitcoins, it's just camps and so on. So can we look at the on-chain data and see whether this narrative is taking ground? Sure. Yeah, it's a good question. From an on-chain perspective, what I like to look at is something called realized cap dominance. And so realized cap looks at what's the last time a coin moved. So for example, if a coin is last moved at $1 of Bitcoin and you bought $1,000 of Bitcoin then and never moved them again, in terms of realized cap, that's only attributing $1,000 to realized cap as opposed to in market cap terms, it's obviously much larger. So it's basically looking at what's the value stored in the network or another way to frame it. If that doesn't click with you would be kind of what's the cost basis of the market. And so when we look at Bitcoin's realized cap dominance relative to I think coin metrics looked at like the other top 10 coins or something like that. I forget exactly how many coins they included in this, but what you can see clearly in this chart that they put out of realized cap dominance is that Bitcoin is the 800 pound gorilla in the room and it's realized cap dominance continues to trend upwards over time. All over the last year and a half was you had a lot of these what are called low float high FDV tokens. So the VCs that would put out a lot of these tokens, for example some of the tokens that were involved with FTX, they would put out 5% of the circulating supply and then the fully diluted valuation, meaning instead of multiplying price times the circulating supply, you're multiplying it by the total amount of supply that will ever exist for the asset. And so the FDVs on some of these tokens would be in the 10, 20, 30 billion dollar range when in reality there was nothing of that level of accordivity that was supporting the asset whatsoever. I think regulations are probably on the horizon. I think the age of listing illiquid low float high FDV tokens is probably behind us. Now final question. I wanted to ask you, is there any other piece of data on chain that our viewers should look at in order to fill some hope in this dark time? Sure. It's a good question. I think one piece of data is very, very basic, but just looking at active addresses. We looked at active addresses over the last 10 to 12 years. Those are up only and making higher lows throughout the last 10 to 12 years. Of course, you see that active addresses really spike up in a bull market because you have new market disciplines that come in and are looking to get involved with big ones. But what you see, and this is the signal in the noise, is that every bear market, the number of active addresses makes a higher low. What's more important is not necessarily the amount of people, the tourists that come into crypto, but it's the amount of people that stick around in the bear market. That's definitely important to see that in each bear market confidence in crypto grows still. With each bear market, people see that crypto is coming back stronger. Yeah, Will, thanks a lot for bringing some hope in these dark times. Hopefully next time we talk, it will be already a bull market. Yeah, I hope so. Thank you so much, Giovanni, for having me on. I enjoyed it.