Reports

Bitcoin Fundamentals Report #268

Bitcoin's price steals the show, spot ETF news, Gold jumps, Red Sea warfare, What's next for price, and new decentralized mining pool.

December 4, 2023 | Block 819,775

Snapshot of Bitcoin

General Bitcoin Headlines
Weekly trend	Massive breakout
Media sentiment	Positive
Network traffic	Very High
Mining industry	Growing rapidly
Days until Halving	134
Price Section
Weekly price*	$41,964 (+$4,955, +13.4%)
Market cap	$0.821 trillion
Satoshis/$1 USD	2,384
1 finney (1/10,000 btc)	$4.19
Mining Sector
Previous difficulty adjustment	+5.0700%
Next estimated adjustment	+1% in ~5 days
Mempool	335 MB
Fees for next block (sats/byte)	$8.87 (151 s/vb)
Low Priority fee	$8.04
Lightning Network**
Capacity	5089.19 btc (-6.0%, -327)
Channels	60,081 (-1.2%, -704)

Headlines

The Big News for Bitcoin is the Price

I will be covering price in depth down in the price section, but here I wanted to talk a little about this cycle. The thing that hit me this morning when I was staring at the bitcoin chart was how this price pump puts the cherry on top of aligning everything for the bull market.

We have ETFs on deck, Saylor just bought another tranche of bitcoin for Microstrategy setting an unmistakable precedent for other companies, countries like Argentina are becoming more bitcoin friendly, and the pre-recession safe haven trade is progressing perfectly.

As we roll into recession, are people willing to look back and say, "I missed another massive bull market in bitcoin." I don't think so. We could be on the cusp of a massive cycle.

Bitcoin Spot ETF Window Narrows

The speculation is the SEC is doing the paperwork to align a window for group approval of all the spot Bitcoin ETFs. This window is now 8-10 January. It could be the biggest launch of a new product in market history.

SEC is publishing to federal register tomorrow (12/1) the Franklin/Hashdex delays. Quicker turnaround than usual indicates again this is about lining up potential approvals. - Scott Johnsson

Window is officially Jan 5th to Jan 10th. Really this means that any potential approval orders are going to come on either Monday Jan 8, Tuesday Jan 9, or Wednesday Jan 10. Mark your calendars people. https://t.co/8ob8Y6pgU5
— James Seyffart (@JSeyff) December 1, 2023

While everything is coming together nicely, there are still some questions to be answered. Blackrock has still stood firm in their choice of in-kind creates, but the SEC is not budging either, requiring cash creates. There is some speculation that this could split the launch event into two groups.

I don't think that will happen. Blackrock is well connected and wants it their way, but they won't miss out on being in the first-to-launch group. It will get sorted one way or the other prior to Jan 8th.

Macro

Excitement in Gold for once

Gold is benefiting off the same trade as bitcoin, only bitcoin has a massive advantage due to it being less widely adopted and better money.

We should expect gold to rise in the coming market. I still like and hold gold myself, but gold bugs who hate bitcoin are dishonest or dumb.

Gold bugs hoping gold moves like bitcoin are going to get rekt. A 50% move over the next few years is possible (up to $3000), but a 5% move in a day is idiotic. Gold bulls have been taught a painful lesson on this one. Many probably longed the new ATH, and are now trapped.

Remember, back on Oct 4th I said that gold was the most oversold since 2015! This move is not totally surprising based on that. It is not something I'd buy if the dollar strengthens like I expect, until gold hits another oversold condition.

Pentagon Confirms US Warship, Commercial Ships Under Attack In Red Sea

Continuing with my macro theme of an increase in piracy and a decrease in the security of international shipping lanes, which is a big part of my deglobalization thesis, we have more drama kicking off in the Red Sea.

The Red Sea is a massive thoroughfare for global trade, leading into the Suez canal. Over the weekend, we received reports that US Navy ships were shooting down attack drones and missiles launched from Yemen. The drones also were aimed at commercial vessels.

Today, there were four attacks against three separate commercial vessels operating in international waters in the southern Red Sea. These three vessels are connected to 14 separate nations.

These attacks represent a direct threat to international commerce and maritime security. They have jeopardized the lives of international crews representing multiple countries around the world.

This could easily spook insurers. No boat sails without insurance. If insurance rates rise, so do costs, making globalized supply chains feel the stress. As these events happen more and more regularly, we should expect shorter and shorter supply chains, and lower and lower global trade, benefiting more self-sufficient economies (France, Argentina, US) and harming those heavily reliant on imports and exports (Germany and China).

OPEC+ Agrees On 1 Million Bpd Additional Oil Supply Cut, Alongside Extension Of Saudi 1MMb/d Cut, Brazil To Join OPEC+

Reuters once again leaked overnight, moments ago the delayed OPEC+ meeting concluded with the expanded cartel agreeing on an additional 1 million barrels in production cuts, alongside an extension of Saudi Arabia's 1 million bpd in voluntary "lollipop" cuts.

More and more cuts from OPEC+. Initially on Nov 30th, the oil price jumped but has since continued its slide. We must also put the oil price in the context of rising tensions in the Red Sea above. All this and the oil price continues lower. Wow.

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Price Analysis

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Bitcoin Charts

Last week:

As it stands right now, we have to break the top resistance or the channel support by 1 December.

What now? We have reached one of my EOY targets of $42k. There is no structural resistance until $48k. Time-based indictors are starting to come to a head with two days left in the daily TD Sequential and the weekly being already extended passed a green 9 (more on that in the next Proton).

The price has slipped up the volume profile into an area of less resistance. This could cause the price to continue higher with no Schelling points to consolidate sell pressure around. We also have to be aware of the weekly Golden Cross that should come in the week prior to Christmas. As I've said many times, crosses can be a strong magnet for price.

All that said, the probabilities favor price continuing higher over the next week and then softening around the middle of the month. The ETFs are looking more and more likely, so after a mid-month correction, we could be looking at further appreciation into the Jan 8-10 approval window. I do not expect a significant sell-the-news event unless price does get out of control prior, as in approaching the ATH. There may be a slight sell-the-news effect that will be quickly reversed.

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Bitcoin Mining

Headlines

Ocean Mining launches decentralized mining pool

The OCEAN pool distinguishes itself as the first transparent and non-custodial platform where miners receive block rewards directly from the coinbase transaction, eliminating the risk associated with traditional pools withholding payments from individual miners.

They have a great team, including Jack Dorsey, Bob Burnett, and Luke Dashjr.

Ocean is motivated to solve the following:

Centralization of block template construction
Custodianship
Transparency

There has already been some controversy, due to the use of the Bitcoin Knots implementation instead of Bitcoin Core. Luke Dashjr is somewhat famous for his view that ordinals and inscriptions are attacks on bitcoin and he's built that view into his Knots implementation. Knots will actively refuse transactions that are part of inscriptions or carry other data to be stored in the block chain.

I do not have a strong feeling on Ordinals and Inscriptions in the first place. I think the market will sort it out. However, since inscriptions are high fee transactions, it could put the new pool at a disadvantage in acquiring new users. There is a bit of muddying the waters between people that like the decentralization aspect but might not want to lose out on high fees.

It is a brand new development and I'm sure things will change. For me, I love the project. I think the decentralization aspect is much more important than the inscription aspect (but I'm not a miner myself paying for hashes).

Every Bitcoin payment 'uses a swimming pool of water'

This is the newest FUD format for bitcoin, it wastes water. I talked about this one last Wednesday's live stream. It is the weakest attempt at FUD I've ever seen being in bitcoin for >10 years now. If this is all they have, we are in a great place. The anti-bitcoin globalists are collapsing everywhere. I don't think they have the ability to fight bitcoin anymore.

Difficulty

No change to bitcoin's difficulty in the last week. The next estimated adjustment is 1% in 5 days.

Hash Rate

Bitcoin hash rate peaked at or around November 25th. Since then it has been only slightly lower in a typical heartbeat pattern. I expect the recent price movement to allow miners to continue adding hash rate as fast as it comes out of the chip fabricators.

Mempool

The full mempool continues to be a point of discussion in the space. This week, it hit another yearly high. However, the behavior has changed. As you can see the pink slice which is the cheapest 1 sat/byte fees has not expanded, it is the green middle slice of 10-12 s/vb that has been growing. This is not certain, but I think this could signify that the traffic of the last week is coming from organic transactions and not necessary ordinals/inscriptions. That is to be expected in large price moves. If we see a spike it could correspond to a change in trend for price. I'll be watching this.

Layer Two

Lisa Neigut: Reinventing Lightning to Reinvent Bitcoin

Lightning has its issues, and Neigut is focused on fixing them. Although not yet an industry-standard term, Neigut has been working on what she calls "Lightning v2," or version two, since 2019 to make it easier to move money around on the payments-focused protocol.

Bitcoin, the first cryptocurrency, is sometimes derided for being slow to adopt new innovations, a point Neigut contends. At Consensus 2023, for instance, she said the largest blockchain (by market capitalization) is poised for a "Cambrian explosion" of layer 2s that will accelerate adoption and development of the chain, including the one she's working on.

There's three phases to Lightning v2: v2 opens also known as "dual-funding," splicing, and "splice to close." As of right now, the first two phases (v2 opens and splicing) are implemented in Core Lightning and Eclair; v2 opens are days away from being merged into the spec. These are really cool and important updates to Lightning because they allow for cheaper and more dynamic movement of on-chain bitcoin between existing and new Lightning channels.

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That's it for this week. See you again next Monday!!!