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- [00:00]
A
Hi, everyone. Welcome to another edition of Bits and the Interview. I'm your host Steve Ehrlich, and I'm here today with Katie Stockton, founder at Fairlead Strategies, an independent research firm and ETF fund manager. And we're going to talk about everything happening in the crypto markets. We're going to digest the bloodbath and talk about what's going to happen next. So welcome. Katie, welcome back. Actually, you're a recent guest.
- [00:25]
B
Yes. It's good to be back.
- [00:28]
A
Yeah. And I always look to someone like you in times like this where there's so much volatility, people are watching the charts every, every minute, every hour, every second, wondering what's going to happen next. And it seems like there's times like this where, like the macro narratives, they matter, but there's so many technical signals that people need to pay attention to to understand key areas of support, resistance, et cetera. There's no one better than you to kind of distill all that for our readers so that they know how to sort of how they know how so that they know how to trade and manage their investments. Moving forward, we're going to get into all of that. But before we do, a quick disclaimer. As always, nothing on the show is intended to be financial or investment advice. Please see unchained.com backslash bitsandbips for more information and disclosures. So, so welcome Katie. Let's kind of get right into it. I do want to level set as I do. Thank you. I want to level set as I always do when I bring you on, to just explain sort of your unique approach to analyzing crypto markets. You're, you're a technical analyst. And, and that means that, and that means that you look at price charts in a very particular way. So, so could you just briefly explain for anyone that has not heard your previous interviews with me, what you do and how you do it?
- [01:57]
B
Of course. Steve Yasso, good to be back with you despite the circumstances with this so called crypto winter. As a technical analyst, I do look at price trends and price is our primary and in some cases even sole input. We're trying to understand the nature of the trend, whether the trend still has good momentum, whether it's likely to reverse, whether it's in the midst of a counter trend move. And technical analysis and the indicators that are part of the discipline can help us take out some of the guesswork that's involved in trading and investing and certainly can help take out some of the emotions that are inherent to it as well, because it's to us, just math. Right. We're looking at these price inputs to try to get a takeaway and just put more probabilities in our favor as we invest in the likes of Bitcoin. And cryptocurrencies have been lending themselves, I'd say, very well to technical analysis in that they are very mindful of levels, support and resistance levels, which are key areas of buying pressure and selling pressure on the charts. And I think that's in part because there's so many people watching these key levels, in part, but also because they're traded globally and with a lot of liquidity for the bigger coins, of course. And with that you tend to get this nice clean chart where there's no gaps or anything to worry about, like you have in, say, a small cap equity. So we are very, I can say, adherent, excuse me, to the charts when it comes to cryptocurrencies, and we're just trying to keep these trends on our side.
- [03:40]
A
Yeah, that's great. And in this discussion, we'll, we'll talk about what the charts are seeing. We'll also discuss some of the broader macro forces and themes that are driving all of this as well. But, but in times like this, it really seems like the data matters. And a question I ask you all the time, I won't ask you to answer it again, but given crypto is somewhat constricted history, is there really enough to do technical analysis? And you've said time and time again that even though it doesn't go back decades or centuries like traditional assets, it tends to compress entire market cycles into very short periods of time. So it's, it lends itself very well to what you do. Yeah, yeah. So let's get right into it. You have a chart of bitcoin up here as we're talking. I think it, it's dropped below 70,000, dropped to as low as 66 something down 8% on the day so far. And people are running for the exits. They're trying to figure out what's going to happen next. So I know you also just put out a report on this. What are you seeing on the bitcoin chart?
- [04:41]
B
Well, the uptrend that we could draw back to the 2022 low has certainly reversed itself, and that's become very clear on the chart. More recently, we had a breakdown below a key support level that we were watching, which is based on the shaded area that you see on the chart here. The shaded area represents the Ichimoku model, which it's A technical model that's designed to gauge the primary trend and then also potential support and resistance. Very popular internationally, this model and it's derived from midpoints of price. So it is price based based. We saw the bottom boundary of the so called cloud taken out and that was affirmation that we have seen a bearish reversal in bitcoin. Well before we saw that breakdown below the cloud which was just shy of 89 000, we did see a very meaningful loss of long term upside momentum. I can show you that from the monthly chart which I'll bring over to the screen here. On the monthly bar chart of bitcoin. Our indicators started to deteriorate months ago and you can see that in this MACD indicator that stands for moving average convergence divergence. The MACD flipped to a sell signal a few months ago and has been pointing lower and diverging. That means that the downdraft has growing momentum. And of course it's the opposite of what you want to see if you are bullish on bitcoin. So we have a downtrend underway and the stochastic oscillator that we watch as well, which is an overbought oversold metric really only just now reached oversold territory. And if you look at historical periods when it got oversold, it took months and even at times more than just months to get out of that oversold condition with some kind of major bottom. The last time that did occur was back here, this was in early 23 that we saw in advance from a long term oversold condition. So, so that's the kind of thing that we want to see now. Now that we know that this is a bear cycle and we want to see some reaction to that long term oversold condition before we reassert a long term bitcoin position. But it's not to say that within that framework we won't have opportunities to trade bitcoin even counter trend from a shorter term perspective. Because as you mentioned we do see these volatility sort of or volatile pushes both to the upside and downside and they occur very quickly. And that in a way is opportunity. It's. It makes things a bit more difficult. But then of course the charts can help make it a little bit easier to trade that.
- [07:30]
A
What are some of the indicators that you look to to sort of be opportunistic on the back of a tactical bounce.
- [07:39]
B
So we use a combination of indicators. So it's not just one particular indicator that gives us that all clear signal, but it's the combination and More weighted. The evidence, as with any discipline, is better. Right. So if you had an oversold condition that you were looking for and then you wanted to see that oversold enhanced by improved momentum, we have ways to go about that. So I'll give an example. In this weekly bar chart of bitcoin, we have an oversold reading in the weekly stochastic oscillator. And it's what we call an oversold retest. That actually tends to be a pretty good indication of intermediate term lows. But before you want to step in front of that oversold or you know, try to catch the falling knife, so to speak, it's good to see momentum shift enough to suggest that it's ready to see an oversold bounce or to, you know, rebound from that low. And to that end we're looking at shorter term gauges. So we go from our weekly bar chart to the daily bar chart and we'll look at the same indicators, we'll look at the stochastic oscillator, we'll look at the MACD indicator, we look at something called the demarc indicators, which are a third party service that we use to gauge trend exhaustion. And it's those things combined with support and resistance levels and also some traditional means like moving averages and the cloud model that I mentioned. Those things can all come together in a way that will give you, I guess, conviction in re entering a position or perhaps taking down your exposure ahead of what we've seen. The demarc indicators, I'll show you what they look like on.
- [09:24]
A
What are they saying right now? The question on everyone's mind is are we going to see a brief rebound or at what point can we call the bottom?
- [09:36]
B
Yeah, so, so we have a sentiment data as well for Bitcoin and the sentiment data is pretty extremely bearish. And that provides a potential contrarian takeaway. So we do have a backdrop from a sentiment perspective that would be conducive to a low. So that makes us look out for these signs of downside exhaustion. The demarc indicators are, I would say, almost in no man's land in sending a signal. They're not negative necessarily, they're not positive. Right now. The last big sell signal we had was right here. You see a 13 on the chart and that was as of October 5th, the week of October 5th. So it's been some time since we've had a signal from this one particular indicator and we, we're not anywhere close to seeing a buy signal that would be countering to that sell signal, we can zoom in on the shorter term time frame and on that time frame we're a bit or two at least a short term counter trend signal, probably no less than a week or two off. But we don't like to anticipate these signals but rather wait for them to actually come and then we reevaluate the status of our other gauges like those momentum gauges. So it's kind of a weight of the evidence approach and we don't have, in other words, the weight of the evidence right now to give us confidence to add exposure. Exposure. But we certainly wouldn't be surprised to see some stabilization off of that very extremely bearish sentiment reading that we have looking at the Bitcoin Fear and Greed index.
- [11:12]
A
Yeah, that's what I was going to ask because I know your reports. You, you mentioned the Fear and Greed Index and, and it's at extremely bearish levels at this point.
- [11:20]
B
That's right, yeah. And that tends to be, you know, something that really only occurs in these kind of emotional, climactic, low type of environment. So I think we will, you know, in the fairly short term have an opportunity to leverage that oversold reading. But we don't have enough of a trigger quite yet in the momentum gauges.
- [11:42]
A
A couple of other quick follow ups on Bitcoin and then we'll move on to some other assets. One, what do you, when you do see those opportunities for some, some, some redeployment or some new deployment, what do you use to sort of gauge how the pace of perhaps this bump or the momentum behind a tactical balance. And the other thing I'm curious about, I'm sure you've heard the 70 to 80,000 price range is kind of precarious for Bitcoin, as I'm sure you remember, and plenty of people watching and listening it dramatically. Bitcoin dramatically surged through that threshold on the back of Donald Trump being reelected, et cetera, on pretty thin liquidity and went up into like the 80s, 90s, over a hundred thousand, which meant that it was just as easy to kind of fall back because there wasn't that liquidity backstop. It was never created to begin with. So if we're looking at a potential tactical bounce, is there a possibility that because of this thin liquidity that we could, we could see a surge that's more than 5 or 6%, perhaps a little higher, just because of some of the structural, the structural setup of crypto markets?
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B
Well, the easy answer is yes, because you can see, you know, 5, 6% moves in a day and then some. Right. We have one.
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A
Fair enough. Yeah.
- [13:08]
B
But I think it's a good question because it talks about more the character of the trend. And these moves can be pretty dramatic. And what happens in. And this goes for not just bitcoin or cryptocurrencies, but really anything. When you get these steep run ups, like we saw as an example here in late 24, they don't leave much support in their wake because they're kind of straight up. Right. You get the support from consolidation phases like the one that preceded that run up in late 24. And that's in fact why in part, we think there's some support. Support around this current level in this kind of 70,000 area. I'd also add that we never look at support as a precise point, but rather sort of an area because there's just too many market participants to make it precise. So with this consolidation, that's where you can get some really good support. And of course, on the upside, resistance. So I think your question is in part, well, when we see a bounce because it's gone kind of straight down, that leaves not a lot of resistance in its wake until you get back up into the consolidation. So I think it's a completely fair observation that a bounce could be very dramatic in the same way that the downdraft was dramatic. And it's pretty common, in fact, to see tests of support give way to dramatic rebounds. And you almost want to be there if you are long in the very early stages of that rebound, because that first move off the low is often the biggest move. And so it's just, it's hard to time that, as you can imagine though, because you're. If you're waiting for the momentum to shift, sometimes you're adding exposure a little bit late to take advantage of that first push higher. But, but indeed, if you have these sharp down moves to retrace, then there is a lack of resistance in the wake of that down move. So I think it's a good point. Notice also on the chart of bitcoin, there's a character to it where it has these sharp run ups and then kind of plateaus for a while. So it does have the ability to almost maybe move into a basing phase to go more sideways. So it's not always as volatile, of course, as it is at this moment. So it changes character at times. And that. That can be related to any number of things. You know, a macro cycle, it could be political headlines, whatever it may be. But that volatility has its Own cycles in a way.
- [15:42]
A
Yeah, that's a good point. And it's, I mean nobody wants to catch the falling knife but, but you don't want to wait too, too long either. So. Okay, so let's, let's talk about eth. What are you seeing there? And I know that you drew a few interesting contrasts between the setups for bitcoin and ETH over like the short to long term. You make the case that bitcoin is better set up right now, but ETH is poised to outperform into the future. So yeah, kind of. Please talk us through what you're seeing there.
- [16:15]
B
Yeah, of course. I mean the ratio of the two is pretty interesting. It does favor ETH over the long, long term. But of course when you have a risk off type of environment like we have had, then that tends to be better for bitcoin versus E ETH because bitcoin is, is seen often as the, you know, sort of more steady bellwether. You know, it's a little bit more widely accepted lower beta perhaps versus ether. So it's natural to see that bitcoin outperformance and you carry that over to just Ethan broader altcoins in general versus Bitcoin. But the longer term trend does indeed favor eth and, and that to me in a way preserves the potential for the secular bull trend to resurface. Right. So we are seeing this as a cyclical down move, not a secular bearish reversal. So that, that would be one positive long, long term takeaway from that when we look at the long term chart. So the monthly bar chart of ether, you can see it's been a bit more range bound overall than bitcoin and but it has generally stayed directionally in sync over the short to intermediate term time frames. The resulting impact of the downdraft on our indicators of course is negative of late and they still point lower on a long term basis. And like bitcoin, we don't have any big buy signal to highlight at this time. You can see on this monthly chart there's a long term gradual uptrend line that we can draw all the way back to a Peak in 2019 and it connects previous lows on the chart and this trend line is coming into play around. Where is this? It's about currently it's about 1527 if we look out a month. So it's, it's pretty well below. But I think, you know, I think.
- [18:14]
A
We'D have to drop another 25% or so to really kind of threaten it. Unlike Bitcoin, which if we go back to your first chart there, I mean it crashed right through the long term.
- [18:24]
B
Yeah, yeah. And you know, they are certainly capable of that kind of downside volatility before bottom and that the support levels don't act as magnets really. They are more just gauges of potential downside risk. They can give us a sense of the risk reward profile for any given trade. But you can see that the momentum is still obviously to the downside. But just like bitcoin eth is oversold and you could imagine the sentiment data would translate there as well. So it appears just, you know, just by the way it looks pretty extended on the downside. And like we are doing for bitcoin, we're going to be watching for those signs of downside exhaustion which the soonest they could come is in a week and maybe it'll take another week on top of that to really settle in and maybe see an uptick in momentum. And so that's what we're looking out for because of the oversold readings that we do have. So it's, we want the oversold, but we also want the catalyst for this downdraft to mature. And it doesn't have to mature close to that trend line, but at least that trend line is intact to suggest that the secular uptrend is still intact or enforced behind the scenes.
- [19:38]
A
Yeah. What do you think the catalyst looks like? I mean, I mean we all remember back in, I mean 2022 when FTX collapsed and Bitcoin dropped below 15,000 or so. I mean, that was the end of a series of bankruptcies that are still trying to be resolved to this day. And that was really kind of the bottom following out, following out, falling out. Excuse me. But I mean that was also spectacular. I mean that became worldwide news because of Sam A. Freed and everything associated with, with his particular company. Like maybe this is the right time to just talk a little bit about some of the macro trends because there are a bunch of them and they seem to kind of be mostly all bearish in a way. I mean, it's hard to talk about bitcoin without sort of. It kind of has the worst, is taking on like the worst properties of all of its comparisons. It's not acting like gold, even though it's supposed to be digital gold. And it's not trading like a tech stock, except maybe the software ones that are crashing because of fears about AI. It's like taking on the worst properties of each of its comparisons. And that's sort of, I Mean, that's obviously the antithesis of what it's supposed to be. Whereas when things are going great, it has the benefits of being a tech stock and being digital gold and it's sort of issuing both of them. And on top of everything, there's a whole debate about what to make of Kevin Warsh and his, I guess, expected ascendancy to Fed chairman notwithstanding, whatever happens with Jerome Powell and the legal investigation into him and everything associated with that. So, like, I mean, what are you seeing? I know this isn't directly what you focus on, but you obviously follow the news and are on the news quite often and you hear from your clients. I mean, how does all that fit into this?
- [21:24]
B
Yeah, I mean, it's probably when I think about the risk assets broadly, cryptocurrencies are pretty much at the extreme, right? So they're, I think, among the first to get penalized when people are nervous. So there's some of that going on in that, you know, we're seeing downdrafts unfold as well in the equity market, in precious metals, even. So there are downdrafts underway in other risk assets. Gold, as much as it's known to be safe haven, as you know, it has not been acting that way. It's been very much almost like parabolic and it's uptrend until very recently and it seems to be maybe instilled by some of the recent news. You know, on the macro front, the charts won't ever tell you why something is happening, but you can just see the response. And, and that's what's more important to us is, you know, how did Bitcoin respond to Wash? And you know, and where is sentiment at the time and what did it do to price? Did it lead to a breakdown? Which. The answer is yes. And, you know, there is a lot of, I'd say, speculation out there about how the, the dats, you know, the treasury companies, the risk is heightened for them, of course, with this downdraft and all of the leverage that's out there. So, so I understand where the fears are coming from. And then it just becomes a matter of at what point is it overdone in terms of the impact on price. And that's what we try to navigate through these technical indicators, which they're not going to tell us what's going to relieve the market of this bearish sentiment, but they will at least put more probabilities in our favorite. And knowing that we can at least, you know, get a trade out of it on a counter trend basis. But it will likely be a harder year when you know, investors have been shaken by this kind of downdraft. And that probably goes for other risk assets as well. You know, for gold as an example. Gold has some signs of upside exhaustion that of course now.
- [23:31]
A
Yeah, you would have to think so at this point, right? Yeah.
- [23:33]
B
And it's, you know, not a sell signal that we're terribly worried about long term. But it does give you a sense of perhaps gold entering more of either a much more gradual uptrend or trading range, something of that nature. This is a monthly chart of gold that I pulled up and you can see the parabolic nature of the up move. And then you can see also there's a cell signal per those demarc indicators and the first overbought downtrend that we've had since the early stages of that cyclical up move. So there's enough of it which began.
- [24:09]
A
Two years ago it seems like. So it's been a decent amount of time.
- [24:15]
B
Yeah, that's exactly right. So it's been a very good cycle. And, and bitcoin had a great cycle too. And so you know, the markets, we, we know that they do move in trends, that they do also have cycles and there, there's evidence that the cycles are changing, you know, as of this year, year to date already. So it may be just an off year for certain trends and then we can, you know, ultimately have a great buying opportunity to take. So that, that would be the goal is to try to, you know, let these things kind of work themselves out and, and then you can always revisit them when there's just a way to drive like more confidence I'd say from the setup.
- [24:57]
A
Yeah, no, it makes sense. So I mean it seems like just kind of tie a bow and everything and obviously extremely bearish sentiment, bearish charts. But you're not seeing those like those like screaming indicators that we've reached the bottom or this is the time to sell. And that applies to both Bitcoin and eth that we're still a little bit waiting. And I guess it depends on what your time, time horizon is. Again, not financial advice, but if you're a long term investor and you're not planning on touching this for 10 or 15 years, I mean does it really matter if you buy at 60,000 or 50,000? Probably not, but, but if you are more someone that's, that's trying to generate some short term gains, that, that does matter. Especially given as, as you said, oftentimes the first movement is the Biggest one. And you need to get that right. So.
- [25:45]
B
Yeah, yeah. And I mean if, I think you bring up a really good point, if you are very long term and have that luxury, right. To not, not worry about it, I, I still think that secular uptrend is intact. So you're well served generally by staying with a position if you have that kind of 10, 15 year time frame. But then, you know, there is opportunity in the volatility to take advantage of the swings. So it is a good asset class for traders. And I understand why it, you know, it. Everybody's out there looking for opportunities because when you have days where you can get, you know, gains and losses of 8% plus like this, that's, that's opportunity, right. To, you know, take advantage of. And to take advantage of it from more of a trend following perspective rather than actually, you know, making a bet on the fundamental prospects of bitcoin, you're really just trying to take advantage of the volatility more than anything else.
- [26:46]
A
Gotcha. That makes sense. I also want to spend a little time talking about alts beyond, beyond eth. I know you spend time on that in your report, but one of the big themes that we've seen for the last year, year and a half has been like the broader, I think, rotation out of alts. And that's not even withstanding sort of the flight to quality that bitcoin can sometimes represent. Just because altcoins in general, the development, the usage of them has not quite been commensurate with some of the hype and expectations as people in the crypto community have moved into things like prediction markets or meme coins or other things as ways to sort of try to generate additional alpha. And some of these alts, especially outside of like the top couple ones, the XRPs, Salanas, BNB, Tron, have, have started to struggle. So let's talk about that. I mean, kind of what are you seeing in terms of. Of alts?
- [27:42]
B
Yeah, I mean the directional bias is usually the same as bitcoin. Right. But you can find opportunities from a relative strength perspective. And that's why in our research we publish a weekly cryptocurrency compass note. And in that report we have a rotational graph of the top 10 altcoins versus Bitcoin. Because there are rotations that can be informational, they can tell you perhaps where the fundamental trends are strongest. You know, where there's maybe sort of a hot space that you could take advantage of or you know, you know, the flip side of that. Right. And when Something's been run up too far too fast. So the, the relative strength work can be really informational on the altcoin level versus Bitcoin. But I'd say in general, like we have an ass class here that maintains a positive correlation in absolute terms. We have limited price history for a lot of the altcoins as you, as you'd imagine. But this is Solana for one and you can see the downtrend is very much in sync with what we're seeing from bitcoin. And so what I also have found is that they tend to bottom right around the same time and top right around the same time. So I don't think you have to do too much work in a way from a bottom up technical perspective that you can spend the most time understanding Bitcoin and that can inform your bias and your trading for the, the smaller coins. Right. Because you can kind of trust that even though they don't have the same amount of price history and there, and you can't maybe get the, the good long term moving averages and indicators that you want, you can maybe trust that at least pretty similar to bitcoin. And so I think using Bitcoin as sort of the top down proxy for these smaller coins is the way to go, at least for now. That could change. We could see more dispersion and in dispersion there's also opportunity. But otherwise we do like looking for relative strength. And we have seen, you know, to some degree the, it's almost like high beta versus low beta where you see in downdrafts it's almost always, you know, the high beta are going to underperform in that environment, but they're also going to be the ones that you know, sort of accelerate more quickly off the low. So if you are looking to, you know, time the bottom, it might be worth sourcing some of the altcoins because they could snap back in a more fierce manner, albeit holding more risk.
- [30:19]
A
Yeah, this might be a bit of a historical question and I know we have about five minutes left, so we'll, we'll, we'll start to wrap up soon. But timing, I mean you mentioned how some of the alts tend to bottom out around the same time as bitcoin. Higher volatility movements up, down. But do you this going back into the past, I mean do you see movements happening before some of the majors, especially if they're going up, is there anything that could kind of just help viewers, listeners kind of get a better sense of what to look for if they're really trying to be opportunistic.
- [30:53]
B
Yeah, I think it's the rotational work. I do think that you can see some leading indications in ratios. So if you are interested in a particular segment. Right. Of the cryptocurrency market to take that and develop maybe a basket or an index from the coins that you're most interested in and look at them relative to Bitcoin and sometimes you'll see the ratio start to turn before price turns. Right. Like you'll start to see almost some accumulation under the surface through the ratio that then manifests itself in a price turnaround. So that, that could be one way people can leverage that work is, is using the ratios of the various altcoins relative to Bitcoin to look for that kind of uptick, which does sometimes lead price. But most technical indicators, like any other discipline, are lagging. They're going to have a lag to them that's inherent to the way they're designed using moving averages or whatever it may be. But that's okay, that's, it's sort of by design. It's obviously historical prices that we're working with and they can help us eliminate some of the noise. Right. And understand if something's a more meaningful or tradable type of turning point or vice versa. So, so that, you know, ability to smooth out some of the noise I think should be welcome and can help you stay on the right side of a trend.
- [32:26]
A
Gotcha. Okay, so let's start to wrap up here. I tried to fit in as many questions as I could in the time I had you. But I am curious if there are, if there's like one or two questions that you get from clients regularly that I didn't have a chance to ask you.
- [32:43]
B
Well, lately it changes as the markets change. Right. Lately my, my questions have centered around silver, as you can imagine, and around software folks looking for that counter trend opportunity in the same way that they are now for cryptocurrencies. So those are the, the bulk of our questions lately and I think reasonably so, you know, people sort of gravitate to where there's volatility or that's where they might need more input or advice. So with Silver with Gold, with the pullback that we have seen, which is pretty dramatic, especially for something that didn't really previously have that character of going parabolic. Our, our answers have been maybe not, not as welcome as, as the inquirers intended, but you know, the, the pullbacks do look like the start of this kind of newer cycle. Right. And now, you know, if we take that out to software, well, then that will be hopefully to the flip side. Right. So that first oversold bounce I think will instill, you know, it'll help us understand where there is support for these names and you will be able to evaluate the sector in a, in a good way off of that first oversold bounce, because you can see which names are participating and exhibiting leadership off of that first bounce. There can be real information in that type of move. So those are the types of questions we're getting. And it's part and parcel with the VIX finally sort of advancing from this consolidation that is, you know, sort of mired within. So that increased volatility does in a way, increase demand for technical analysis.
- [34:29]
A
Yeah. Well, I think it was Marc Andreessen who, who wrote Software is Eating the World and now it seems like AI is eating software.
- [34:35]
B
So one way to put it.
- [34:38]
A
Anyway, Katie, thank you so much for, for joining us. We'll have to have you back. Yeah, yeah. Thank you to everybody for, for watching and listening. And stay tuned because up next, Larshin will speak with David Capri on ERC8004 and how AI agents are interacting with the Ethereum ecosystem.