Checkmatey (James Check): Bitcoin Investor Behavior and On-Chain Analysis 101

**James Check** (0:00)
We've had a sell off to 80K, a very quick one down to 60K. The market just needs to go sideways for like months, and months and months and months. And people are gonna get super excited on every green candle. They're gonna get super bearish on every red candle. There's conflicts breaking out everywhere. Bitcoin goes down, up, down, up. But what's it actually doing? Chopping sideways. And it just, it frustrates people to tears.

**Natalie Brunell** (0:25)
Hey, everyone, welcome back to the show. We've got a special treat for you, an on-chain analysis 101 with James Check, aka Checkmady. James, thanks so much for joining me.

**James Check** (0:35)
Good day, Natalie, how you doing? Thanks for having me on.

**Natalie Brunell** (0:37)
I'm doing well. I'm excited that you're a first-time guest on Coin Stories here, and I want to learn the basics because I sometimes stare at these charts. I have no clue what I'm looking at. I don't understand how it tells you something about investor behavior and where Bitcoin's price might go. So can you give us a lay of the land? Because you seem to be an expert in this area and you have some charts to show us, right?

**James Check** (0:57)
Yeah. So on-chain analysis is a very strange and weird field that, in many ways, I view it as a lens into human psychology. Bitcoin is really the first asset that is important enough, big enough, and frankly transparent enough that we can actually see people making decisions. So really, what is Bitcoin? I mean, aside from all the monetary properties and everything, it is a database of who owned what and when. It's a big permanent record of who owned what.
Now, we can look at spot trading on Binance and Coinbase. We can look at futures, what's going on in the leverage market options, ETFs. But there's a thing that stitches all these things together, and that is the Bitcoin network itself. So in many ways, what on-chain data is and what my kind of expertise is, is I actually connect all of those different market sectors. And what's a really interesting dynamic, you'll see the same pattern of human behavior. I went back and studied my own dumb self. I bought the 2017 top. That was like my initial, and my claim to fame is my, because the CoinBase had an extra fee for Aussie dollars, my first ever Bitcoin buy is above the top wick of the candle. Like you couldn't have bought higher than me if you tried. So I learnt about markets in the 2018 bear, got fleeced as most people did. But I just like, it was the first time I'd bought something, something that markets fascinated me and in particular was the psychology. Why you feel super bullish at the local high, and why you go, I'll sell back here and buy it back later, always at the local bottom and then it goes up again. So now I go back and look at myself and I have metrics that show when the smart money is taking profit and when the dumb money is capitulating a loss. I'm like, yep, that was me. Yep, that was me. I'm making all those mistakes. So I try to apply that framework and say, well, if we can see the smart money selling and we can see when the dumb money sell low, what if I want to flip that around and study the chessboard and try and have an advantage in that sense?

**Natalie Brunell** (2:56)
I mean, it's all fascinating. So I would love for you to start us at chapter one. I mean, give us some charts. Tell us what you're looking for. What do we need to be paying attention to, especially for folks that they're not finance backgrounds, they don't look at charts for a living? Like, how should we be evaluating what Bitcoin is doing?

**James Check** (3:17)
Yes. So I'm actually going to start with something. This is a diagram that I use to just try and help people understand what we're looking at in the first place. So think about the entire Bitcoin supply. And for those who are just listening, it's basically this is like a grid system. Think about it's like a 3D box. The whole Bitcoin supply, just think about it as a space. Now, we can divide the Bitcoin supply into three axes. There's many, but these are the three big ones. Are the coins moving or not? Are they huddled or are they being spent? So that's kind of your first axis. Now, generally speaking, about 1% of the supply moves every day, but that's not exactly 1% of the supply. Many coins transact many times. So total volume is about 1% of the Bitcoin supply, but that's not 1% of the Bitcoin supply, if that makes sense. Now, the second axis is why are those coins moving? And it's generally because of one or two reasons. They're in profit or they're in loss. So now we've got two axes and you can kind of think about this and say, well, at a bull market top, what do I expect to see? I expect a lot of coins that were bought a long time ago to be in a lot of profit. And then what's going to kill a bull when those coins take profit? So you're moving from unrealized profits, coins that aren't moving but are in profit. And then the third axis is by who? And you'll often hear us talk about cohorts in my world, long-term holder, short-term holder, with the boundary between those about five months. That's statistically speaking, when coins just tend to be huddled, once they get to that five month threshold, they're probably going to be held for a lot longer, the probability of spend is much lower. So you can now start building the puzzle and you can say, okay, at a bull market top, I want to see people who bought three to five years ago in a lot of profit spending their coins. That's my problem that I'm trying to solve. So this is my framework for thinking about that problem.