Michael Nadeau's bear thesis for Bitcoin

Transcript

I will be interested in Bitcoin again around like 75K or so and I think we probably go down lower. >> What's up everybody? It's LG Ducet here and welcome to the Milk Road Show, the daily crypto show that tries to stay bullish until someone shows us a chart that ruins our day. Today is November 18th. We recorded this end of day yesterday, November 17th, and this episode comes with a very special disclaimer. The episode today provides a bearish outlook on the market. And although Milk Road and our team, we remain very bullish going into 2026. And if you listen to yesterday's episode with Kyle, you'll know that that's true. It's our absolute duty to bring you different perspectives and opinions on the market. That's the whole point of this show is to give you a lot of different analysis from a lot of different people that are experts and

let you make the final financial decision, not us. So, we'll probably have more episodes like this going forward. It's very important to entertain the other side, whether people are saying that the the cycle is over, that we're going to zero, or whatever that might be. Today's guest is Michael Nato, author of the DeFi Report, one of the sharpest, most datadriven voices in crypto. He describes himself as the Warren Buffett of crypto. And here's why this episode matters. Michael didn't just predict weakness in the market. He acted on it. On September 24th, he was just 10% in cash. October 1st, he was 24% in cash. October 9th, 58% in cash with the mega liquidations happening the next day. And as of November 12th, just

last week, he said he's sitting at 78% cash. This guy clearly knew that something was about to happen in the market. And today, we're going to break down why he turned bearish and what charts matter most to him. And most importantly, come on, what it would take for him to flip bullish again. Before we start, support the show. For our YouTube listeners, hit subscribe, hit that like button, drop a comment below, and for our podcast listeners, listen, we need that fivestar rating, man. You got to you got to tell people you like my voice more than Jay's. and smash that fivestar rating on iTunes or Spotify or wherever you listen to our shows. Today's episode is brought to you by Block Trust IRA.

Let AI outsmart the market and grow your crypto while you sleep. Bridge, power your business with instant stable coin payments. No friction, no banks, just global finance made simple and figure markets. Earn solid returns on your cash because sitting idle is not a strategy. Here he is. Welcome back to the show, Michael Nato. What's up, man? >> What's up, LG? Thanks for having me, >> dude. I'm stoked to have you, especially because your last couple of appearances were very different than the one we're going to have today. Uh, and I think a dose of reality for people uh, and a different perspective is always needed. Last time you came on September 18th, the title of the show, I'm not even kidding, on YouTube. Is is crypto about to explode? We were primed for a huge Q4. Something has changed for you. Tell me about that change in sentiment and

strategy uh, in the last like five or six weeks. It hasn't been that long. No, crypto moves fast and I think this is a pretty good example uh of that. So I think the last time I was on was September 17th, 18th, some somewhere in there right? >> And we were I think at the time the markets sort of looking at uh October period, Q4 period. September was I think we finished down down in the month. September is typically more of a bearish month. And so everybody's sort of looking towards Q4 saying, you know, this is where this is where greener pastures are and this is where like the fireworks are coming. And I think we um had a similar view. I think that was probably market consensus at the time and we had a similar view. Our our price target for Bitcoin was 150K. Um at the

time we were sort of looking at okay there's probably enough here for another 30% move. You've got you know rate cuts coming and we didn't see a lot of the other sort of like darker clouds swirling uh at the time. Now, uh, fast forward, you know, a few weeks and we did have a a big liquidation event. This was before the one that occurred on October 10th, um, which was also a very large liquidation event, one of the largest since, you know, back in 2021. And at the time I was looking at that liquidation event as something that you know kind of just like a nice little cleanse of of sort of market structure traders getting out over their their

skis a little bit. Funding rates had had gone up. There's a lot of activity on hyperlquid at the time and so we sort of cleansed some of that out and I thought that was healthy and we could sort of resume into Q4 and potentially a good a good Q4. ended up pivoting out of that partly because I sort of had had one foot sort of in the more kind of bearish camp where it was possible that we may have a more muted Q4 which was actually would be similar to what we saw in the the past cycle back in 2021 when we had a a peak in in April of 21. We had sort of a mini bare market over the summer months and then we had another peak which but but it barely got above the the first peak in April. And so I I sort

of had a view that we may that may be what plays out for this cycle. Um, and so as the darker clouds started to to to seep in and I'm kind of looking at capital flows, I'm looking at liquidity, I'm looking at fundamentals and Bitcoin market structure, the probability started to point towards, hey, this this meltup risk that that I thought, you know, could play out where that's the BTC to 150, 160K, you know, that was a risk to me of of sort of staying in the market that I might miss that. There's also a risk to actually staying in the market. I decided that the the probability was pointing towards downside risk and so we we made those changes. We went, you know, much into a much much larger of a cash position. Um,

and that's kind of where where we stand now. So happy to happy to get into any of the details there. >> Oh my god, man. What Okay. What you mentioned a lot of different stuff. What was like was there a specific moment or specific catalyst of all the factors you mentioned that you remember you were that it it clicked for you that that was I think I may need to start changing my position. >> Yeah. So I think um it's it's I I spend a lot of time on with data and and fundamentals and exactly what's going on in the market but we are also very active uh market participants. So we are writing and we do lots of research. We share our research broadly, very active on social media. So, I'm I've got a

pretty good pulse of sort of what the sentiment is like out there. And I think one thing that I was noticing as I'm sort of getting more concerned about fundamentals about um sort of what I think is a a transitioning economy from sort of the Biden years with fiscal dominance towards uh what I think is more private sector dominance and what the Trump administration is trying to do and to get the economy moving via bank lending like that does require a transition and I'm starting to see you know changes in liquidity out there as I'm seeing this I'm seeing this narrative actually picking up within the crypto crypto Twitter that the cycle is going to extend. Um and so I've got this

view like people are starting to say wait a minute um there's rate cuts coming we've got regulation. We've got all these bullish catalysts coming for crypto and therefore the cycle should extend me while I'm start starting to get more nervous that that we actually topped. And so that is what started to prompt me to say, wait a minute, the probabilities are pointing towards the left tail risk which is the downside risk and not the the right tail witch which is the sort of meltup risk. And so I haven't seen a lot of people talk about this view that like the economy is in transition and this was something that happened at the top of the 21 cycle. So if you go back to this, you know, let's say October, November of 21, uh you had a similar

setup here where inflation was, you know, 9% or so. And it was becoming clear that the Fed was going to have to come in and start to aggressively uh hike hike rates. And at the same time while that was happening in the background, you had the super cycle narrative, you know, coming out, which to me the super the uh cycle extension narrative is just another version of the super cycle uh narrative. And so you had this structural shift that was starting to happen with liquidity under the surface back in 21. I think the same thing is happening right now. And we can get into details on that. and at the same time you have the market consensus not adjusting to that fast enough and so

that's what forced me to go uh risk off >> so can you summarize that for me you just said you just said a lot of strong things but I'm just trying to understand that that despite all these very bullish conditions right that it's like this is this is going to be good and I think around the time when you change is also when shortly after drone pal said we may not do the rate cut in December right? Or that maybe that was a few weeks after. Even as you did this, Bitcoin did top so far on October 6th, so it was still like a little bit after. But you're telling me that you kind of based a lot of this on a mirror image to last cycle where you had like a high inflation number and where the the Fed was going to no matter what have to

start to tackle that regardless of I guess like the global liquidity. Is that kind of what you're saying? Trying to I'm just trying to summarize it. >> Yeah. at one point so I can kind of move keep going with it. I think just to summarize it, I would say like the key thing is that you have a transi there's a there's there's a transitioning happening in the economy and in 21 that was inflation. It's not inflation today. Today what you have is this move from lots of treasuries, you know, the Treasury essent essentially doing all the spending, pumping liquidity into the markets and the Trump administration coming in and saying, "Hey, wait a minute. We're not going to do that anymore. That's bad for the economy.

It's crowding out the private sector. What we want to do is get rates down. We want the banks to lend and we want that to be how liquidity gets out into the market. So that transition to me is not going to be a smooth one. There's going to be some choppiness to it. I think that's why we've seen challenges in the repo reverse repo, you know, bank reserves, all of that. U so I'm just saying it's a transition period in 2026 similar to what we saw in 2022 with the transition period. And despite these bullish catalysts out there with rate cuts coming with regulation and other stuff out there to me the most important thing is you know what's happening at the margin of of the economy and then we can get into market structure for

Bitcoin specifically that you know that just helps me build conviction when I look at the market structure for for Bitcoin uh specifically. >> Bitcoin changed the investment game. Now AI changes the strategy. Crypto's wild ride demands perfect timing. Selling before drops, buying as it climbs. Will most investors panic sell or hope? A select few leverage a crucial edge. AI. Block Trust IRA's trading platform spots market patterns with precision no human can match. Since 2020, their Animus AI platform has outperformed Bitcoin by 250%. Visit milkroad.com/blockrustirra today to get up to 2500 in bonus crypto and transform your investment strategy.

Stable coins are the biggest use case in crypto right now. But let's be real, using them on chain is still way too complex. That's exactly the problem Bridge is solving. Recently acquired by Stripe. Yep, that's Stripe. Bridge helps businesses send, store, accept, and launch stable coins instantly. Explore the future of global financial infrastructure at milkroad.com/bridge. >> Let's open up. You were nice enough. >> It's very clear. Thank you. you were very nice to prepare us a deck that is literally titled Why I Turned Parish.

Nobody freak out. Okay, this is uh but definitely walk us through this. I think you've already kind of given us an overview, but I would love to know um you know for a lot of us who who look a lot of look at a lot of these charts and we've got a whole macro team as well here. Um we want to know from you like what are the charts in here that really kind of changed your opinion on this before this cascade of of price action, right? because you started to change your opinion, like I said, right at the pico top, right? We were at we're in the 120s of Bitcoin and now we're in the low 90s. Uh, and you clearly saw some charts here that that that helped you establish that theory. So, so please walk us through this.

>> Yeah. So, if we go to uh yeah, to chart two here. So, this is the what I'm saying in terms of like on the margin. This is not I'm not saying that the you know the new Treasury Secretary is going to you know we're going to go into a surplus where we've actually balanced the budget and the government's you know spending less than they're they're taking in taxes. I'm not I'm not trying to say that. What I am saying is that I think it is not market consensus that fiscal year 25 just ended at the end of September and the budget deficit came down. I think market consensus is that the Treasury is still spending at the same clip that they were spending under Biden and that's going to continue and that this fiscal dominance um story is

going to continue and that the the way to sort of escape this is in in in hard assets. I think that's on pause. I think that's coming back. But I think it's that story is sort of on pause and I think I'm sort of out of consensus with this view. And the reason I had this view is just this this chart. It's telling me that the capital flows have shifted here. Uh you have tariffs which are pulling capital out of the the private sector and going into the the public sector into into the government. So that's a that's a move that's liquidity negative. Uh and then you have less actual spending less spending growth I should say coming from the treasury. So on the margin, we're not

going to be spending as much as we were under the Biden in the Biden years. Plus, you're pulling capital in from tariffs. That's sort of the transition to me. That is similar. It's not the same mechanics, but it's similar to back in 21 when you had 9% inflation and you had to transition out of that. You were going to have a hit to liquidity. Same things playing out here. You you have a hit to liquidity. And when you see the tensions, you know, starting to come up in the, you know, within bank reserves, there's there's a lot that, you know, I'm not an expert on on monetary plumbing, but we do follow a lot of other experts in this area. And so, as we're coming up with this view, we're

also seeing tension uh occurring within the sort of banking sector where you would expect it to show up if there was a a sort of a transition going going on with with liquidity. And so that confirmed, okay, this is this is happening. Yes, there's rate cuts coming, but we don't think we think the rate cuts are needed to just actually backfill what you took out uh in liquidity with tariffs and and less um spending growth. And so, yeah, that that that I think this hopefully sort of lays out why we're saying it's a little bit of a transition here. I'm not saying like, you know, I think they're going to have to go back to the same playbook at some point and turn on the liquidity spigots again and that sort of debasement trade does come back. But I think you're in a little bit of a sort

of a pause on that right now. >> Michael, how does how does quantitative tightening and easing fit into this this picture of the liquidity in the market? >> Yeah, so we've been um in quantitative tightening for for years now. the the the Fed has come out and said they're going to to pause uh quantitative tightening. They didn't they're not making any um any policy decisions around you turning on quantitative easing at this time. But I think what was interesting is there was interesting interview that um came out a few weeks or maybe it was last week with the new uh Fed Governor Steven Moran and everyone has this view that he's just like this Trump plant and he's just he

just wants to like get rates way down and and juice the markets. He actually had some interesting uh views in terms of what's going to be happening when they cut up when they um stop QT. He actually doesn't view that as like liquidity positive. And I'm not going to get into all the technical elements of that, but the market consensus is that that is liquidity positive. And I think there's a lot of sort of nuance with how um some of these polic policy decisions are actually um transmitted into the market. And I think we're a ways away from QE. So I think we will we're going to have to do QE at some point, but I don't think that that's in the cards

like anytime soon. And so what would it take to get QE? I I think you have to have, you know, more um more downsided markets uh to to get there. So, >> excellent. Okay. Thanks for thanks for kind of clarifying that. What's this next chart that has a massive chart, the massive candle up to the right just in present times? Yes, that is the government uh taking the hardearned money from the people uh via tariffs and putting it back into the government. So that's money coming out of the economy.

This is this is factored into the first chart we just showed with the the fiscal deficit. Um this is the main reason that the deficit came down. So it wasn't that we actually spent less, it was that we actually received more in in F FI25. this is projected to, you know, we we're going to learn more about whether or not the tariffs are overturned by the Supreme Court. There's there's potential changes coming here. Um, but right now we're sort of budgeting like 400 uh billion or so of tariff revenue for next year. And then and this is just sort of visualizing, hey, that's money coming out of that's that's liquidity negative for for markets, >> right? Would those would do you anticipate that money to come back to retail via this supposed tariff dividend

idea of $2,000 uh per person? >> That is uh fascinating if if that's what actually happens because if you follow the full daisy chain, you're just taking it from people. Maybe there's a you know, I don't think it's fully clear who's paying the tariffs. I think it's probably maybe a combination of a consumer, the the importer and and you know the the exporting country. Um but if you're taking it out of consumers and then you're just giving them a a check back, like what are we what are we doing? What are we what are we really doing there? Um so we'll see. I don't I guess I my view on the um them potentially sending out stimulus checks is that makes me more bearish in the near

term. I would say like it's bullish like if they have to do helicopter money and all of this like great like that's that's ultimately good for Bitcoin and it's ultimately good for crypto. But I think it's it's good after it comes out and after the economy's had a chance to process it. But I don't I don't think that sort of putting these things out there is just going to make the market go up. Uh is kind of my view. You need like and that also has to get approved by Congress. And so to me, stimulus checks, we've only ever seen stimulus checks when there's like a lot of trouble, you know, in the economy.

People really need that money. So again, it's kind of bullish, but like I would expect more pain before that sort of becomes a more bullish bullish thing. >> Maybe that that retails a little wiser this time. I won't blow it all on on NFTTS and other random tokens like last time. >> Uh show me this next one as well. You've got uh this is Bitcoin point in time total supply held by long-term holders. So we're seeing some changes and people have been holding Bitcoin for a long time. >> Exactly. And this is this is kind of coming back to market structure and you know if you believe that fouryear cycle is a thing of the past and like that's that's actually going to change in this cycle um then you have to sort of move

you have to reconcile this in some way because what this is telling you is that the the smart money of Bitcoin which is the long-term holder cohort they've been exiting the market uh at these sort of 100k Bitcoin or so 100k loss. And so what what this is telling me and it looks similar in terms of the amount of you know profit taking that's already happened compared to last cycle. If that is happening but your view is that this is good and that we're going to we're just sort of like setting a new capital base. Who's going to set the new capital base? Uh is it short is it new money coming in? That's the only way you're the only way you're not going down from here is if there's a new cap there's a

new buyer that's going to come in and set the bottom of the market. That historically happen that long-term holders historically are the the cohort that does that. So seeing them sell here tells you that there has to be some new diamondhanded, you know, buyer that's going to come in and save the market at these levels. I don't view I don't think that's going to happen. I think what's actually going to happen is the people that have been buying over the last year are as the price of Bitcoin drops below their cost basis, they're more they're more likely to sell than they are to buy the dip once they start going under their cost basis. And so this when I this is part of the data

that was helping me just develop a stronger view of Bitcoin market structure and and try to factor in like is it possible that we do actually just you know we don't top in Q4 and maybe we top in Q1 next year we top like I you know as I was trying to like understand that view I kept coming back to this and just saying this is the market structure like the thing to pay attention to is the market structure not the idea of whether or not you're going to have a Q4 top or a four-year cycle. That's a narrative. This is actual uh market structure.

>> Why are we so obsessed with these narratives, Michael? Why are we so obsessed with looking at month over month in crypto compared to past November's, past Q4s, making these outlandish predictions of it will get to this price by this point in time. Why why are we so obsessed with these ideas like that in in in our industry? >> Good question. Um, I think everybody I think part of this part of the reason we have so many of these different narratives specifically in crypto is that crypto is a new asset class and we don't have the same KPIs, metrics, valuation criteria that you tend to have for traditional finance. And so a lot of

the analysis that people do to try to understand, you know, where are we at, like you we use discount cash flow analysis and PE and we have different metrics that we can use in to analyze stocks and other assets to say this thing's overvalued, this thing's undervalued. You know, it's it's priced here relative to something else. We're still trying to figure that stuff out for crypto. And so a lot of the analysis goes back to just like, hey, it hap this is what happened last time. uh it did this last time and you're almost like when you're just doing comparisons from this, you know, where you're at today versus where you used to be, it's you're factoring in sort of like market uh psychology. I think in a lot of ways I

think a lot of that like I I try not to fade that like the idea that the volatility of Bitcoin and the fact that it's always topped in the Q4 of the posth having year like that actually really matters to me because if investors understand how volatile these assets are and they know that there's a history on certain things and then I can confirm on the market structure here then I can say well it's probably actually most it's way more likely that they we top in Q4. more than than something else. I I should probably actually anchor into that, then just assume that whatever the business cycle is saying is going to to carry forward because if you think that the if you think Bitcoin's going to have another

70% correction and you're you're starting to see some some dark clouds, like that's going to change your your behavior knowing that in the past it does correct 70 to 80%. And so then that becomes it becomes a self-fulfilling sort of prophecy in some ways. I think >> I guess you're describing that that crypto is still a slightly immature market in that sense that that for lack of historical narrative or even just I guess more robust structure similar to stocks which have been around for 100 plus years. Some even some of them some specific stocks have been around that long. Um, but for for something that's only 15 years old, we have nothing else but these four-year cycles and these Q4s post having until proven otherwise, basically.

>> I think that's right. I think that's right. >> Okay. All right. What else do you have for us in here? Supply hold by held by short-term holders. >> Yeah. So, this is kind of I guess the mirror image of the chart we're just looking at to say like, okay, we know we know long-term holders, the the smart money of Bitcoin is is happy to take profits, you know, over 100K. I think they're still exiting the market even now down at these lower levels. So, that means that we have to have a new buyer. There needs to be a new catalyst. Michael Sailor needs to come in and buy all that. The ETFs need to come in and buy all that. Like, who's who's the buyer? And so we're looking at this and saying, okay, there is some there is some new money, you know, coming into

the market. Is that enough to, you know, essentially allow you to set a new base at like an elevated level? Historically, what tends to happen is you have the selloff. It's the long-term holders, the smart money, they decide when the bottom is in, they buy up the bottom, that sets the floor, and then of you start to move off from there. So, when I see long-term holders selling now, I'm saying, well, you know, that's going to be tough for us to just sort of go up again from here. Um, I think it's more likely that, you know, these this this new money that just came in over the last uh couple months. You can see that that that

orange line moving up. I think what's more likely is that these people are are going to start to go underwater and sell and they're probably not diamond hands because they just came in at the top. They're more likely to probably uh sell. And then as you start to hit, like we were saying, as you start to hit the cost basis of some of these other holders that came in over the last year, like you're just going to test their we're going to test everybody that came into Bitcoin over the last year. if if we stay if prices stay in this range in this or or going lower, we're going to test everyone's conviction and see if they are they're diamondhanded holders or not. Um and then we'll see when long-term holders decide that that the

bottom's it. Yeah. >> So, so you think that that's what would define the bottom as well is these these OG long-term holders when they start buying again, you think that that would that be a sign for you even to to reenter the market or to flip bullish again? >> Yes. Yeah. That that's that's that's what it would take for me to to get bullish again. Um, you mentioned like I sort of view myself as like a you know, I'm not I described as Warren Buffett for crypto. I am certainly not >> You said that. I didn't I you told you told me that when we were chatting before to say you were like that's me.

That's who I am. I didn't make that up. >> That's who I am. Yeah. That's who I am secretly. But uh I mean the style of when I describe this is sort of like we the reason I say Warren Buffett is like we try to be really patient and disciplined about when we sell, when we buy. And so we do have some metrics that we can go through. A lot of people have been asking like okay you know you're you're bearish right now. And I think people can can understand why that's the case. What would it take to to become bullish? Um again, and we can go through a few of those of those charts um if you if you want. And this is like where the patience the patience comes in because I think the market will test people on our way to sort of finding what we would

call like fair value for for Bitcoin. So >> yeah, absolutely. Yeah, I would definitely like to do that and I'd like to know since since Warren Buffett finally did buy something the other day, we could save that for us. uh he bought some Google. So maybe you could tell us what the one thing is that maybe you're interested in. But before we get to your flip bullish scenario, I do want you to take us through this chart about how Bitcoin has topped months before global liquidity in the last two cycles. Can you expand a little bit for us? >> Yeah. So you know this I think this is another thing where um something we like to do is like you know understand what is the market consensus what is the narrative what's the market consensus and then can we do some extra work to figure out if that's actually true or

not and so I think what has become market consensus is that uh bitcoin follows global liquidity or it's correlated to global liquidity we know that but that it actually follows global liquidity on a you four to six week lag. Uh there's different, you know, different analysts out there that'll tell you that it tends to follow and it follows over over these time periods. That might be true, but over the in the last couple cycles, Bitcoin topped, you know, and you can see that the global liquidity line was still moving up. So, Bitcoin topped a few months before liquidity. So, if that's the case, then we maybe we should be actually be asking the question, does does global liquidity follow Bitcoin,

right? Is Bitcoin actually sniffing out what's happening with the macro economy and looking at, you know, okay, the treasury has to refinance a bunch of debt or whatever coming. We know that that's going to add to liquidity. So, you know, buy Bitcoin, Bitcoin price goes up and then liquidity comes up. U I think that's more what's happening. I don't think that I think markets fundamentally are speculative and markets are forwardlooking and so the market should be sort of pricing in what's going to happen with liquidity and it would do that you know through the lens of Bitcoin. So, the fact that Bitcoin is now down 30% or so and global liquidity is actually the line is still

going up, it's telling me that the market is forward looking and liquidity is rolling over right now and we're probably going to see that show up, you know, in the next, you know, in in the next few months or so. So, >> right. So, it's almost like Bitcoin is frontr running global liquidity or people are buying Bitcoin as a reaction to liquidity that will be coming into the market, right? That's basically you're telling that's the first thing people buy when that liquidity is coming. >> Yes, I think so. I think so. And you know, we'll see. Yeah, I think when we look at what happens at the bottom, so when Bitcoin is bottoming and is is is it leading global liquidity at that point, I think you can make a more of an argument that it follows liquidity

potentially at the bottoms because market participants are looking more at, you know, what are policy makers going to do to give them the the sort of the runway or the the freedom to go ahead and buy assets because, okay, we know the Fed's going to start easing and and maybe there's actually a little bit of a lag at the bottom, But the last two last two cycles, it does look like BTC was um was predicting the top for for for liquidity. >> Oh boy. Oh boy. That's uh I don't want to hear that, man. But it's okay. I appreciate you telling me. >> I wish you told me 6 weeks ago. Wish you emailed me and told me specifically then. Uh people there's nobody would have believed it other than yourself, obviously. Um okay, Michael, let's let's We've been talking about 30 minutes why you've been right this whole time.

Please tell us at this point we need to finish the episode with some kind of hope. What would it take for you to turn bullish after looking at all these uh bearish charts? >> Yeah. So, um for one, like you know, I I I I haven't seen like full confirmation that we're heading into like a a bare market just just yet. Like we did have a close that was below the 50we uh moving average. That was on um that was this week. That was that was last night. So, you know, typically once you get two uh closes, two weekly closes below the 50we moving average, that has not been a good sign for like heading into a more prolonged uh year-long bare market. I do that's sort of my base case. I know

people don't want to hear these things, but that's kind of my sort of base case of of where we're going. And so, what would it take for me to get bullish again? it would essentially be, you know, where I'm on the other side of consensus. So, if I'm I'm if I'm on an island now, maybe not so much, maybe it's getting the island's becoming a little more populated, uh, as Bitcoin price comes down, I want to be on the other side of the island again. And so, when everybody has fully sort of come to this view that we're in a bare market, that's when I will start to get bullish.

Um and >> hold on, wait, wait, wait. I I I hate to interrupt you. I hate interrupting our guests, but you have to explain to me >> how being at 14 on the fear and greed index makes puts you on an island by yourself of of of bearishness >> at this point. We're at 10 yesterday. So, I mean, would you could you not argue and I'm sorry again, I'm sorry to interrupt you because you're on a really good tangent, but could you not argue that the your your island is currently quite crowded? I would say it is crowded, but I would say that is not an indicator of what market participants have actually done.

So the fact that Bitcoin is still trading at 93 94K tells me that people are nervous, but what did you what are you what are you doing? Are you actually selling? Are you buying? What are you what are you doing? So yes, um I think I think market consensus is is definitely shifting towards the the the more bearish view for sure. But in terms of like, okay, what what would it take for me to go go back to being bullish, it's it's a number of indicators that that we look at and what tends to happen is uh in bare markets, Bitcoin will trade below its realized price, which is a proxy for the the cost basis of the network. That number is currently

$56,000. uh I expect it to actually rise a little bit more uh going so that's the realized price so that's not the actual Bitcoin price so I expect as you know new buyers are coming in they're buying 95k Bitcoin potentially from OGs that are selling that the realized price is going up as as that's playing out and so I think that's going to land somewhere around 60 somewhere between 60 70k so that's one number to keep an eye on because Bitcoin usually trades to that at the at the bare mark at the bottom on the bare market. Um, >> can you summarize for me what that is?

Sorry. The re the true realized price of Bitcoin. Can you just explain really quick what that is? >> Yes. So, if you go to uh I think we have a slide in here. Yep. >> Yep. I've got you. Here we go. Realize price. Oh, here you've got it. Okay. >> So, the red arrows are just showing that in bare markets, the BTC price typically drops below the the realized price. So the black line comes below the the orange. And what that's telling you is that the the realized price is the is the proxy for the cost basis of all bitcoins in circulation. And this is a glass node metric. Um it sounds crazy to be able to sort of come up with that,

but this is like the power of onchain data. what they're doing is essentially marking all the wallets and then when someone spends from that wallet uh that's essentially they assume that's a cell. Uh so not every spend is a cell but it's historically been a pretty good proxy for um where's the sort of like cost basis of the network. So right now that's 56,000 and that's mostly like long-term holders. So long-term holders cost basis is more in that range. Now, when you go into the bottom of the bear, you tend to collapse to that. In the last couple, we've we've actually gone below it. And so, right now, you're 56.

That means you've got a ways I think that realized price is going to continue to trend up. But I'm looking for an intersection of the price. This is one metric. We look at a number and we look for confluence of all of them. I know this doesn't feel good for people um hearing this, but what this is the fair value of Bitcoin to me. This is the cost basis of the network. What what you see in bull markets is you get a a valuation plus a leverage premium that drives the price much higher than the the cost basis. >> Got it. Okay. So, I mean, hey, listen. I'll tell you, man. It's better than zero.

>> Yeah. >> I'll I'll take 56 to 60K more than zero. Um it it's funny how days like today it does it feels like it's at zero. I don't know why. Even though it's like you're saying, 90 92k is pretty good. >> Okay. Okay, that makes sense. Thanks for explaining that. >> That's one metric. Yeah. Um the this one is just showing so this is showing you the long-term holder cost basis. Uh and so again we can see that even from the long-term holder perspective we did drop below it. So right now that's at 38K. This gets a little interesting because I I don't think we're going that low. I don't think we're going to go down. My base case is that we we probably go towards like I I will be interested in Bitcoin again around like 75K or so and

I think we probably go down lower but this is giving you an idea of where you could go. You could come all the way down to some maybe somewhere between 40 and 45K. Uh, and that would be in line with, you know, the price collapsing towards that that long-term holder um, realized realized price. >> 75K. You guys heard it here from Michael Nato. 75K is the target for him. Twice this twice this long-term holder realized price. Okay. Okay. >> That is a good >> You're basically telling us you you want us to go lower before you turn bullish. >> Yes. Yeah. So, that's that's kind of what these are showing. Um, >> yeah, >> that chart that you were just on there.

So that's the 200week moving average. This is the long like almost fouryear uh moving average for Bitcoin. >> Uh it is currently at like similar to the realized price right around 56K. And same idea you typically do see BTC price converge to its long-term uh 200 week moving average. And so again that gets you, you know, probably somewhere around that 60 between 60 70k zone there. So yeah. So, people have been asking, you know, what what is it going to take when when Bitcoin gets to these levels? Like, I'm pretty sure it'll be during an event like FTX or something like that just totally wipes out the last of the hope for the market. Um, and

then that's when you want to be totally non-conensus and and that's probably usually when the best times to buy uh Bitcoin. So, >> Oh god. So, what what would that be? that's like in the high 50s. >> So it's 56k right now. Again, that's a moving target. So the 200week moving average is going to continue to rise uh as as long as Bitcoin is up above it. So >> okay, >> I think that's going to land, you know, in the next let's similar in a similar spot to where the realized price goes and let's call it 65, you know, somewhere around 65K or so.

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>> Were you ever worried, Michael, when this was so far above the 200week average be even before this most recent kind of change in your opinion in the last like 2 months? Cuz you've got like this this is navigating so far above like at the end of 2024 even. >> Yeah. Yeah. No, we um so we were like fully allocated to the market from the bottom. So um late 22 early 23 we wrote about this we were buying Salana and things like this um and so we >> when it was below when it was below the 200 week >> exactly so we're buying there and you're right we did hold u but we we were selling some Bitcoin in the first we thought that there was a chance that and

I was on Milk Road talking about this that I thought the probability was starting to tilt towards we we might be peaking this was this was like the Trump launch uh and just like late January which to me that was the euphoric peak of the market. Uh a lot of people are saying, "Oh, we didn't get any euphoria this cycle." Like that was the period of of euphoria when you have presidents launching meme coins. That's when the most um new money came into the markets. That's when >> probably this show got the most views that that it was getting throughout the cycle. You know, I think that that was the true euphoric peak. And we were selling we were selling. We were taking profit in in that range. We ended up pivoting out of the view that like we're going into the year-long bare market and

we we bought back and we had a good summer. Uh but now we're kind of more like fully risk off. So >> Okay. Okay. That's a good take. Yeah. There was a lot of euphoria going in that Trump launch. Yeah. >> Yeah. Yeah. >> Okay. >> We're looking for confluence of a of a few of these important factors that would tell me, okay, we're we're getting close to that fair value number for Bitcoin and um it's time to be it's time to be bullish uh again. >> Okay. Okay. So, going forward, Michael, I mean, you know, you I think you've given us kind of a a sobering outlook, honestly. Um, you know, and especially somebody like you who it's always dangerous for when people have been right and you've been wrong in in short time frames as well that we're going to

automatically believe everything you say from this point forward. Um, do you have a time frame for some of those targets to hit? uh if anything uh you know if we are going to 75k or 60k when you would be interested as you know as as a buyer or potentially some of those long-term holders would want to reenter the market when do you think that that would be? >> Yep. Yes. Nobody can predict markets. We don't claim to be able to predict markets. We just try to look at a bunch of different data points to give us a probability of of where we're at. Um and that's how we do this. Um so as far as like timing, I don't know. I would say that historically the bare markets tend to be about a year long and what tends to to happen is you do you tend to get

these deleveragings, right? So you what what happens in bull markets is you get people get complacent, put too much leverage on. That's what creates the valuation leverage premium when you just totally separate from the kind of fair value of of these assets. that has to sort of get get cleaned out. When that gets cleaned out, which we have experienced, the second wave of that tends to take you down another another layer because we don't know what's going on out there right now, but there could be an exchange that's like insolvent.

There could be a market maker that's insolvent that's suffering. And when these bad debts have to become realized in the market, usually that spooks the market more. And this is how you end up finding a bottom. So that process um it took it takes time to play out. So it's it sort of kicked off in the last cycle with Teral Luna. That was the first leg and then you kind of went a period of about 6 months where you had some dead bodies out there that basically didn't get serviced until CZ started taking shots. So I think we're in that right now. There's probably some stuff out there that we is going to come to the surface. Nobody knows for sure, but I think it's a process and I don't think it just like I don't think it uh

will happen like overnight. I think it'll it'll take a little bit of time. Sort of a vague answer, but Oh, >> I think that's that I think that's a great answer. Um, last question for you and I promised earlier that we would circle back to this. Warren Buffett, you compared yourself to him. You're the crypto Warren Buffett. He bought his first uh equity in a long time the other day with Google after sitting on like whatever it is couple hundred billion dollars of cash. What is the one thing that you have your eye on in this market? >> The first the thing I have my eye on is Bitcoin. So we what we typically do is uh we want to allocate to Bitcoin with conviction when we think like fair value uh fair value targets are being hit and Bitcoin tends to lead the market. And so

we tend to be like pretty allocated to Bitcoin. And then we will strategically find times when we want to reduce our Bitcoin position and and go into like things like ETH and and other like higher beta assets. So for me, I'm when I step back in, it's going to be Bitcoin uh first. And um that's a key thing. We we only, you know, we I we I have other investments, so it's not like I only invest in crypto, but we only talk about like our, you know, kind of our crypto focused uh investments. So, >> okay.

>> So, yeah, that's it's Bitcoin. That's probably a boring answer. Um >> I think Google's boring, too. Google's not the most exciting one. >> And and I don't know if that was Buffett. I think it was his his partners that were buying Buffett. kind of interesting that they've been sitting in cash for this long and they're like top blasting Google uh at the same time. But I I think like maybe just to put a little more color on this in terms of like you know why I'm focused on Bitcoin and not like other altcoins or something is is that when you go into it's it would be very unlikely for like altcoins to bottom before Bitcoin did is kind of my view is that Bitcoin leads the market. Bitcoin when Bitcoin bottoms I think the altcoin space is going to be

much lower than than it is. And the challenge with altcoins even when you you sort of go to the bottom there is a lot of them have really poor token economic structures where there's still unlocks happening and things like that. So we tend to avoid those um in bare markets. you want to be allocating to those types of things when um you're in a risk-on environment and there's plenty of like flows to support whatever unlocks you know might be occurring under the hood. So, so mostly um just looking for our fair value targets to be hit for Bitcoin. We're following a lot of the stuff on the macro. Things can change. We changed our mind pretty quickly um you know after last time we were on the show. So I I'm always say like you know we have strong conviction.

We have we always are rooted in data and a strong thesis but you know strong views like loosely held like I'm open to changing my mind at any time. So >> that's the most important part of being most important part of being a market participant right there. Okay Michael there's two scenarios in which you're coming back on the show. Okay. And if neither of them happen soon you're coming back anyways. One is you change your mind. Okay. As soon as that happens you drop give us a call. You're coming right back. When Bitcoin hits 75K, if it hits 75K, you're coming right back here and you're you're we want to see you slam that buy button or tell us why you're not.

>> Sounds great. That sounds great. Really enjoyed it. LG, >> thank you, Michael. Thanks for coming on the show. You guys can check him out. I guess the defreport.io is the website. Uh so go check it out. Uh read all of Michael's wonderful reporting on on what's happening on the market. Uh and stay tuned. Every day we have a new episode of the Milk Show uh daily crypto show. So, we'll be right back here tomorrow and every other day. >> If y'all are making swaps or trades right now, highly recommend you check out Milk Road Swap. This is a DEX that we built in partnership with Cow Protocol. Why did we build it? Not to make money. Just honestly, so we could have a place to do our swaps for the lowest fees that we could find. This is the fees on Ethereum, Arbitum, and Bass

are only.15% fees. Uh this is a huge difference from uh other centralized exchanges that charge half a percent or even up to 1.2% fees on their swaps. Also, you can swap on Salana all at swap.mmillgro.com. Check it out today. You won't be upset. And you can join me in my favorite place to make swaps on chain. Want insights on what's moving crypto markets and how we're trading each event? Subscribe to our channel and join the Milkro Daily and Pro Newsletters and start investing like the top 1%. This show is for educational purposes only. Nothing we say is financial advice. Investing is risky.