What is On-Chain Bitcoin? Will Clemente Explains

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Bitcoin has been around for quite some time — long enough to have a generation that grew up hearing about it. Will Clemente is one of them. At just 19 years old, Will is someone who has already accomplished impressive things in the space, such as becoming the Lead Insights Analyst at Blockware Solutions.

Today we sat down with Will to talk a bit about his story. We also talk about bitcoin on-chain metrics and how using them will allow for a better understanding of the state of bitcoin in the market.

Gabriel: Hello, Will! We are big fans of your work.

Will: Thank you kindly!

Gabriel: First things first, for those who don't know you, who is Will Clemente?

Will: I am just a kid who loves Bitcoin, markets, and charts. My official role is Lead Insights Analyst at Blockware Solutions. I head Blockware Intelligence; our research arm comprises a YouTube Channel, podcast, and newsletter sent to over 70,000 investors.

Gabriel: WOW! 19 years old and already the lead analyst at Blockware. When did you begin studying bitcoin?

Will: I started studying Bitcoin in late 2020, following the massive amount of money supply expansion in response to covid-19. I realized part of Bitcoin's core value proposition by looking for a way to hedge against this money supply expansion (stimmy checks and Giga QE infinity). 

As I went further down the rabbit hole, I discovered the other core value propositions of the asset. I mainly found the idea of a censorship-resistant decentralized fixed-supply bearer asset that you can take anywhere around the world in your brain.

Gabriel: Okay, how would you describe it if you had to explain on-chain data and on-chain analysis for beginners?

Will: I would describe on-chain analysis as having an x-ray vision of Bitcoin network behaviors and general market activity.

 

Gabriel: In your opinion, what is a Bitcoin metric everyone needs to understand?

Will: For starters, one of the primary metrics a long-term investor can look at is the number of active addresses on the network. Looking at this chart throughout Bitcoin's history can aid in visualizing the logarithmic adoption curve of BTC.

Gabriel: How accurate are on-chain metrics?

Will: On-chain metrics are strongly reliable when used correctly, especially on a longer-term basis. With this being said, I think the market structure has gotten complex enough. This information must be taken into context with other forms of analysis such as macro analysis, derivatives analysis, and technical analysis. In the end, I look at on-chain as a tool amongst other tools in the toolbox.

Gabriel: What sort of tips do you have for beginners trying to understand on-chain data?

Will: Not to get too silly but I have created an on-chain analysis educational series on the Blockware Intelligence YouTube channel, covering most of the basics. 

There are some derivative 101 videos there as well. Glassnode Academy is another excellent tool for beginners. I learned from watching old videos of Willy Woo and David Puell from the early days.

Gabriel: In terms of Bitcoin’s illiquid supply, what does that mean for holders and traders?

Will: Illiquid supply is a way to measure Bitcoin's supply dynamics based on spending behavior. Illiquid supply is defined as the amount of Bitcoin's supply in possession of on-chain entities that spend less than 25% of the coins they take in. 

I ran a ratio, comparing illiquid supply to highly liquid and liquid supply, thus creating the illiquid supply shock ratio. When the ratio rises, the probability of a "supply shock" increases (supply shock = low float + demand).

Gabriel: In your opinion, are on-chain metrics more effective in the long term or in the short term? How effective are they in both scenarios?

Will: In my opinion, on-chain metrics are best used on longer time horizons. They are mildly effective in the shorter term. Yet, I still find that looking at derivatives data is more effective for these time frames.

Gabriel: Are there any on-chain metrics that people should look at to know when to sell?

Will: Of course. For longer-term-oriented investors, you can look at broader "macro" oscillators. These oscillators signal when Bitcoin on-chain activity (network behaviors) is in a state of what historically has been euphoria. 

For shorter-term investors, you can follow large investor activity. For example, large selling from whales or large amounts of coins moving onto exchanges and Spent Output Profit Ratio (SOPR) shows the state of profitability of the market. 

You can also look at metrics based on investors' cost basis, such as short-term holder cost basis. These metrics aided me in being cautious on the break below $53K in December — likewise, these are all deeply embedded in market psychology.

Gabriel: How does the on-chain data react in the case of a black swan event, i.e., COVID crash or rumors of war?

Will: Given that we only have one sample size, it's tough to definitively answer this. But based on the covid crash, we saw many coins move onto exchanges and lots of futures liquidations. We also saw some selling of large entities that perhaps were forced to sell for margin calls. 

Something notable is that most market participants didn't even move their coins during this event, highlighting the resiliency of many Bitcoin holders.

Gabriel: Is bitcoin the superior cryptocurrency, or are there any other cryptos worth looking at?

Will: I think Bitcoin is the dominant store of value assets and will continue to be more so over the coming decades. Not only in crypto but in the overall global financial realm.

Gabriel: If you had to choose the top 3 cryptos you'd hodl for +5 years, which ones would you choose?

Will: Bitcoin is the only crypto-related asset that I personally would feel comfortable buying and having my hands tied for 5+ years.

Gabriel: Now, the question everyone is seeking an answer for is, are we in a bear market? 

Based on price drawdown or network activity measures, we are in a bear market. However, I don't see market structure as a binary bull or bear in how Bitcoin has been during the last few "4 year cycles." I think we should move our expectations away from traditional Bitcoin bull/bear markets as the asset's lifespan increases. 

I expect it to move away from these predictable 4-year cycles as it matures. With that being said, from a momentum standpoint, I think BTC needs to reclaim the 46-47k area. 

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