E129 Transcript



Today is another fundamentals episode. We’re going to try to dig in and see if we can figure out what’s behind this recent price decline in Bitcoin. We examine all the fundamentals, price, futures market, network activity, mining, and the news cycle. All sorts of things. If you’re new to Bitcoin and Markets, welcome, this is, in my humble opinion, probably the densest information if you can find out there in Bitcoin today. Welcome, let’s get started.


Alright guys, welcome back to show. My name is Ansel Lindner, are we are here for another fundamentals episode. Episode 129, so if you want show notes go to bitcoinandmarkets.com/e129. Today’s a big day for us, this is September 7th, 2018, Jeff and I were starting the Fundamental Report and today’s going to be Issue #1. If you guys haven’t signed up for that, go over to bitcoinandmarket.com/report. That’s going to be a weekly thing, weekly report that comes out. It’s going to be a weekly dose, that you can look at in 4 – 5 minutes, however long you want to dig into these things, and get a good update on what’s going on in Bitcoin. At least fundamentals wise, I think it’s going to be a really big value add for my listeners. It’s a free report, just go sign up for that over there. Also, if you want to support the show, go to Patreon.com/bitcoinandmarkets.

2:15 – Bitcoin Prices

Alright, let’s talk about prices. Come on now, fundamentals start with price, but this isn’t a technical analysis show. I do believe in technical analysis. There’s some discussion in the space about how valuable technical analysis really is and I think there’s quite a bit, because I do think that human psychology follows patterns. You have the typical boom bust cycle pattern that you can follow and glean a lot of information from, and then each type of indicator tells you about the psychology of the market. I do like volume indicators. I like moving averages and other things. By mixing very limited technical analysis, like moving averages and things, and fundamental analysis I’ve been able to be pretty accurate on the price. Of course, I’m not going to call it perfectly, but I have been for months, probably since March, I’ve been saying that we are in a consolidation. We can see that in the chart. February 5th, we hit $5950 about on the charts, now we are at $6300, and just a couple days ago we were at $7700. So it depends on where you pick to call this a bear market or bull market. I just call it a consolidation. $6000 has been holding. I don’t see any reason why it won’t hold. A lot of people are freaking out because we were at $7000 again, and now we’re back down to $6361. But you know, I’m not too I’m not worried about some eminent market crash. There will be some sort of capitulation maybe, this is it, because we have fallen pretty steeply over the last 3 days. I don’t know what that’s going to look like, but hey, we’re still about $6000, we’re still strong, the fundamentals are strong, all the news is strong. I’ll say this again, the MtGox collapse was an existential risk to Bitcoin. People at that time, had a real concern whether we were going to recover, and it might’ve taken 5 years to recover. It took 2 years to recover, but that was definitely a bear market. If we significantly break the low there a $5800 I would consider calling this an extended bear market, but you know if we bounce like say at $5700 and we go back up to 7000 are we in a bear market? I don’t think. We were making lower lows but they are not really much lower. It’s in the general area.

Anyway, OK, price is $6372. Let’s take a look at some other things here. That makes it a finney, which is kind of my denomination I came up with last year, it’s a little bit silly, but I like it, because it’s the dollar denomination of Bitcoin roughly. When we talk about unit bias there there’s a lot of unit bias out there from news that comes in. Bitcoin would still be a victim of that compared to some of these other coins, sitting around $200, $100 or even the sub $1 coins. People think, “Oh I can buy 1,000,000 of those and if they pump then it’ll be a good deal.” So to fight that unit bias I came up with a finney, named after Hal Finney. It’s right in the middle, so it’s a 4 decimal places in and then 4 decimal places from the satoshi, it’s $0.64 roughly. That makes $1 equal to 1.5 finneys, right now, or you can say $1 is 15,600 satoshis. The 200-day moving average is $7760. That has been coming down drastically. Remember, the 200 MA passed $10000 way back several months ago. It started sloping downward and it’s been coming down. The slope on the 200 moving average has kind of flattened out, which we expect to see in a consolidation. 200 day moving average will flatten out a little bit coming back down, and the price will break it. I thought we would touch it just a few days ago when we stopped at 7300 I thought we were going to go all the way up to around 7800 tap that line come back down but we did not. The Mayer Multiple is 0.83, just got up to 0.92, approached that 1, and remember for most of the history of Bitcoin this has been above 1. I think something like 75% of the time, roughly, that the Mayer Multiple has been above 1. The Mayer Multiple is price divided by the 200 day simple moving average.

I have a new statistic I’m putting out here on the show, the halvening is 89,670 blocks or roughly 582 days away. So it’s targeting around April 11th, 2020. Not too far down the road, a year and a half away. As that approaches, it’s going to affect how miners are planning for the next 12 months out. When that comes within 12 months, and miners are making their projections, and there also borrowing fiat to fund their operations, we’ll see how they’re going to be selling these coins that they’re mining. It will change their calculations a lot and make them hold more. So April, roughly, is where we’re going to see all the affect really take hold. A lot of these people, a lot holders out there, bigger holders or even smaller holders, that are looking forward and saying, “It’s only a year and a half away. Maybe I should buy another big one right now, because if I wait another year they’re going to be much more scarce.” That’s on everybody’s radar. Yeah, April 11th, 2020 is roughly when that’s going to happen.

8:30 – Bitcoin Futures

Futures, OKcoin, Sorry Okex. Their September contract is sitting at $6316. I just pulled this a couple minutes ago, so there’s a spread of about, a discount of, $80 on their September futures contract. That would be the end of the month. Remember, this contract actually rolls over, they have 3 products, they have the 3 month, then 2 weeks out that contract actually rolls over and becomes their biweekly contract, and then a week out it rolls over and becomes the front week contract. This September contract is up pretty soon, we’re going roll over to the December contract. The CME futures, the September contract is also at a discount by roughly $50. That is at $6355. Their October contract is sitting at a premium though, the spot price is sitting between the September front month on CME and the October, 2 months out contract. That October contract is $6405. Open interest on CME, which I watch because that shows how many people, institutional type investors or traditional traders, are into this space, that has been coming down. We hit a high of I think around 2900 contracts open interest and now we’re sitting at 2644, a total of only 13,200 bitcoins in contracts on the CME. I did look a CBOE, too, because they have another contract. Their contracts are only one Bitcoin where the CME contract has 5 bitcoins. The CBOE was like 1000 contracts in open interest in each of the next 2 months and then very few after that. It’s right around 2200 to 2500 bitcoins in open interest on CBOE. It is drastically lower almost 10% of what CME’s open interest volume is. Daily volume was very similar between CME and CBOE.

Bitmex futures, September contract, is at $6320, so also an $80 discount. The December contract on Bitmex is $6311, so even more of a discount by $10. That is a difference between CME and Bitmex, I think the 2 biggest players in the futures markets. CME is showing a slight premium 2 months out Bitmex is showing a larger discount in December, on their further out contract. That’s interesting to see, pretty much nobody knows. There’re different types of traders on Bitmex versus CME. Maybe the institutional type traditional traders trade CME futures and they’re seeing this more as a consolidation, and then Bitmex traders might be more of your retail traders in Bitcoin and they are just going to trade the trend. You can see that December contract, that’s why it’s even lower than the September contract.

11:50 – Cryptocurrency Sentiment

Alright, sentiment, this is one of the bigger stories here on price as well. I track this on Bitfinex. They publish their numbers of total contracts, total interest or, what would you call that, total contracts for longs and shorts. They don’t have to have offsetting positions, so you can borrow dollars to go long and borrow bitcoins to go short. Roughly, the equilibrium over the history of this published data has been about 1.4 on the ratio, or 40% more longs than shorts. We had a big dip in August down to the other way, 40% more shorts and longs. Then we had a drastic short squeeze all the way up to that $7300 level that we saw just a few days ago. Then right at $72 – 7300 or so, somebody dumped a huge number of shorts out there, right before Shapeshift make their announcement that they’re going to do KYC and other things. I have this theory that involves all of this around the ultimate bubble popping, shapeshift, insider information, bcash, this large short position. But it’s kind of complicated, I’ll have to talk about that on another show. I do think it all stems from the altcoin bubble bursting and the realization by some of these large whales, that ethereum is dumb. They’re going to start dumping all of these tokens in all of these kind of smart contract platforms. They’re looking for a way to unload and that their risk has just increased. They just realized that their risk is way higher than they thought it was.

Anyway, so shorts, they are back at all time high number of shorts, around 39,000. Longs are sitting at 26,600. As this goes up in price, the shorts will get squeezed, and I can’t wait till that happens. I don’t think we’re going to see much lower, so we’ll probably see some shorts start closing as the price trickles back up towards 7000. These shorts will just peel off and take their profits. They moved their stops – they opened at $7200, they are were going to move their stops into profit. Maybe around $6600 or $6700. I’m just throwing numbers out my ass, but they’re going to move their stops down into profit and as we start squeezing and pushing it back up in price, they’re going to start selling. I can see a return to $7000 pretty quickly, just on that alone. Right now, the overall outlook is negative for the near term. Maybe we touch $6000, but I think, again we’re consolidating. So we’ll probably hit $7000 within the next week or two. Alright that’s my prices section let’s go onto the market.

15:00 – The Market

So in this section, in the market I talked about the network stuff. OK ecosystem, how are measuring this transaction type things, market cap, etc. Bitcoin’s market cap is $112 billion. That has been slowly trickling up. The global bitcoin market cap, that includes all the shitcoins, that is slowly going down. Now we’re at $204 billion. Remember, that as the altcoin bubble pops, the market that the “bitcoin dominance” is going to go up. I think we’re about 55%, but the sky is the limit on this stuff. I don’t think any of these other top 10 or top tier altcoins should be over $1 billion in market cap. Most of them, maybe one or two, should be close to a $1 billion, and then the rest of them should be in the low, $100 million market cap range. So this has a long way, a lot of room to go down.

The maximalist price which is the global market cap divided by outstanding bitcoins is $11,847. Now that is getting close to what I think the next bull target is for Bitcoin. That is the $10,000 mark. If you look at the technical – OK I’m going to bring in a little technical analysis – if you look at the ichimoku cloud, on the weekly, there’s a flat bottom of the cloud right at $10,000. That’s usually a magnet for the price and that’s also going to attract the price, because it’s 50% of the high. So, we have a high at $20,000, so $10,000 is the 50% mark. I think that is going to attract the price over the next couple months. Still we could be 2 months out from that, but that is a near term target in my mind. The maximalist price is right around that $11,800 right now.

All the things (altcoins) are trending down much faster than bitcoin. If you look at a chart of altcoins, the top tier altcoins vs bitcoin, not versus dollars, is just a constant downward trend. Let me pull this up. So, we have another little sell off here going on right now in altcoins. At least the top tier altcoins. I’ll publish this chart on Twitter today. I don’t think this is in the fundamentals report, but I’ll see if I can get it into maybe issue 2 or issue 3, to show this. Anyway, over the last 3 months, all of these coins are down drastically. So EOS over 3 months is down almost 60%, ethereum is down 56%, bcash is down 47%, ripple is down 49%, Litecoin is down 45%, and stellar is the kind of stand out in this top tier and they’re down only 18% versus bitcoin in the last 3 months. Now stellar, I could see on the downtrend, stellar could actually make it up to #2, believe it or not. Because there is this support for it, I talked about this in past already, that there is some support for it, like in Silicon Valley and stuff. So I can see it swapping places with ethereum, but who knows. It’s the least dirty shirt right now. What else do we have in this market section?

The 30 day volatility is sitting at 3.25%. Let me look at a 60 day, it’s also 3.3%. 120 days is even at 3%. But if you go out to the yearly volatility, or what they have on this source I have here, is at 4.75%. So, long term volatility is a little bit higher, but the smallest volatility is the short end, because we are consolidating. It always goes back to that. Also yeah, if you guys want to see the source, there’s a link to the source is in the show notes. Again you can find that at bitcoinandmarkets.com/e129showed.

On-chain volume, over last 24 hours, 1.2 million bitcoins, or $7.9 billion. Average transaction value over that time, last 24 hours, is 5.03 bitcoins, 5.0 bitcoins per transaction. That average includes the change in there, so roughly $32,500 per transaction. The median transaction value, so there are lots of little transactions that pulled a median down, the median transaction size is 0.063 bitcoins, or around $410, and that’s the median. Now if we’re looking at fees, that’s in the next section, but they are really low they’re not even 0.1% of the median transaction value of Bitcoin. If you look at all these other altcoins as well, like the number of transactions are ridiculously skewed in bitcoin’s favor. So, if you do want to make a “dominance index” I would do it on volume maybe. Or at least traded volume. Most likely on on-chain dollar value, it would be a really good metric to judge dominance off of. Bitcoin is by far and away the highest. Even when we saw the bcash stress test over the last couple weeks, the actual dollar value of that volume was very very low. Alright, so, that’s the market and ecosystem type stuff. Let’s get into mining.

21:00 – Bitcoin Mining Metrics

Cool, now this is probably the section that I think the most about. We just had another difficulty adjustment, or re-target, however you want to put that. This one was 4.34% increase. Right in my sweet spot. My sweet spot is between 2 and 5% every 2 weeks. The difficulty should go up 2 – 5%, that is healthy. That includes some increase for technology, and efficiency gains, and also new people coming in and buying miners, just adding raw hash power out there. So, 2 – 5%, and this last one was 4.34%. The adjustment before that was 5%, also in my sweet spot. The time before that was 7%. We’re estimated, 2 weeks from now, again to go up another 3.75%. We’ll see if that holds. If we have a sell off, it’ll probably decline, but if we have a return to round $7000, I’m guessing that difficulty estimate will go up.

Mining profitability is low, and trending down at $0.24 per Th/s/day. That number should trend down, because the difficulty is going up, the hash power is going up. Blockchain is 213 GBs. I put that in there just simply to show comparison between ethereum. Nobody really even knows the size of the ethereum’s blockchain. It’s way over a TB, the current state of ethereum. Which is what they have to “fast sync”. That is approaching the same total blockchain size of Bitcoin, and that is just the “fast sync”. Ethereum has major major major scaling problems built in, by design. It’s not looking good for ethereum.

The mempool is 3.5 MBs. Nothing special. There’s a heartbeat, that goes on with the mempool. The heart beat follows what time of day transactions happen, traditionally over the whole history Bitcoin there are more transactions during daylight hours in the West. So, if you are looking to maybe pay lower fees, or do some smaller transactions, consolidate some UTXOs you probably want to look at doing it during the night time hours in the West, or weekend night time hours in the West. That’s like really low volume on chain. Alright, median transaction fee is $0.27 per transaction. Like I said, it’s like about 0.1% of the median transaction value, so fees are ridiculously low right now.

Yeah, let me just touch on these other things about number transactions. I wanted to say that if you add up all the transactions on those coins bcash, Litecoin, all of these other kind of competitors in this pure cryptocurrency space, barely add up to anything. Bitcoin has a majority of the transactions, especially a majority of the value of transactions, and that’s why I say Bitcoin is dominant. There is no “dominance index”, it’s binary. In network theory there’s going to be one winner, in network theory and monetary theory, there’s also going to be one winner. If you pit an inflationary currency versus a non-inflationary currency, people are going to hold the non-inflationary currency. So, it is going to win. People hold the harder money. That’s one reason why it’s very important to have a capped supply, even though it’s not capped for 100 years still on Bitcoin. They’re still mining new coins, but there is that eventual cap. If Bitcoin has a perpetual inflation, like say we reached a point where the block reward came down to one bitcoin per block, and then one bitcoin per block in perpetuity, now the inflation rate would always trend down and approach zero, because one bitcoin is a smaller % of 100,000,000 units than of 17,000,000, which we’re at right now. The inflation rate, it would trend down, but there would be an attack vector that would open up. An attack vector of making a harder currency. Someone else could launch their altcoin with a fixed supply, and that would beat out bitcoin, because the harder currency is the winner, in monetary theory, and in network theory, a language protocol tends towards one. So, when we say that Bitcoin is dominant that’s because it’s a binary. Both in network theory and monetary theory. There isn’t a 2nd place.

Now I’ve noticed a lot of people starting to understand this position more and more. They might have been blockchain maximalist instead of bitcoin maximalists, or multicoin believers, or pluralists. I mean there’s lots of different names out there for them. Multicoin Capital are the biggest offenders in this regard. A lot of people are starting to see this bitcoin maximalist position as being more correct. Then maybe that’s because, like I quoted earlier, all these other altcoins are crashing, but just makes sense the more you think about it. It makes more sense. The longer you’re in Bitcoin, the more likely you are to be a bitcoin maximalist.

There’s also this idea out there of a multicoin future will look like a bitcoin future. So, you’ll have Bitcoin be 99.9% of monetary value and then you’ll have thousands of arcade tokens. We might have tokens that live on. They might live on for 20 years, but as a share of monetary value, it’s going to be much much lower than it is today. So yeah, we can have multicoinism in the future, but just like today, I mean even in the United States or wherever you are, in Europe, you have your currency euros or dollars, but you also have Chuck E Cheese coins that work in the arcade. You have other smaller little niche things for a business, one business maybe a chain of businesses, you have this currency that you can use in the arcade, but that doesn’t work outside of arcade. We’re going to see that in the future. Bitcoin is the extremely dominant binary winner, and then you have a bunch of these thousands of insignificant arcade tokens. That’s another reason why we’re not going to see blockchains for real estate when I can see tokens for this blockchain application, if there is such thing, or this other blockchain application, because they’re going to have to have a monetary value. If they don’t have monetary value there’s no need for them. There’s no way to keep the network even going in the 1st place, there’s no incentives. The incentive structure cannot stand.

28:30 – Bitcoin Software Development

I also have things that I’ve added to this section. The current release of bitcoin core is 0.16.2. Also, we’re on 0.17, the next major release is on release candidate 2 is out. So, the smartest dudes, the biggest brains in the room, are going over that, testing it, and trying to find bugs in it right now. When I talk about “biggest brains in the room,” I’m talking about protocol developers. Many of them, and Bitcoin has many many protocol developers, that are looking at this code, not like on bcash, where there’s maybe 3 or 4. A lot of things have come up recently, because Greg Maxwell found another bug in bcash, or least in Bitcoin ABC, the client for Bcash, that there was a rate limit. So, even though they’re blocks can go up to 32 MBs there was a rate limit of like 14,000 transactions per block. Even if you tried to fill up the blocks, I think you could get up to about 20 or 22 MBs in microtransactions, and you would be rate limited out. So, you couldn’t even go up to 32 MBs if you tried. You’d have a fork in the network or something like that. Anyway, that’s interesting. That was recent, so Bitcoin is on this RC2 for 0.17. There’re hundreds of people looking at this, testing it, etcetera. One of the biggest things that has been added to Bitcoin Core since segwit has been just the quality and quantity of testing. So, the next major release is going to be 0.17, and that’s estimated at next month, October 2018. Then every 6 months on their “road map” they’ll come out with a new major release.

I’m looking at the Optech newsletter here, and I just want to look at some items. They have notable commits, I’m just going to read this.

“Notable commits this week in Bitcoin Core, LND, and C-lightning.

“Bitcoin Core #12952: after being deprecated for several major release and disabled by default in the upcoming 0.17 release, the built-in accounts system in Bitcoin Core has been removed from the master development branch. The accounts system was added in late 2010 to allow an early Bitcoin exchange to manage their user accounts in Bitcoin Core, but it lacked many of the features desirable for true production systems (like atomic database updates) and it often confused users, so removing it gracefully has been a goal for several years.

“Bitcoin Core #13987: when Bitcoin Core receives a transaction whose fee per vbyte is below its minimum feerate, it ignores that transaction. BIP133 (implemented in Bitcoin Core 0.13.0) allows a node to tell its peers what its minimum feerate is so that those peers to don’t waste bandwidth by sending transactions that will be ignored. This PR now provides that information for each peer in the getpeerinfo RPC using the new minfeefilter value, allowing you to easily discover the minimum feerates being used by your peers.

“C-Lightning now allows you to ask lightningd to calculate a feerate target for your on-chain transactions by passing the either “urgent”, “normal”, or “slow” to the feerate parameter. Alternatively, you may use this parameter to manually specify a particular feerate you want to use.”

So, that subject newsletter can go to become it’s like I say Bitcoin development is moving at lightspeed.

32:30 – Bitcoin Lightning Network Discussion

Next section is lightning. So, the number of nodes is exploding right now on lightning. We just passed 3000 nodes last week, and now we’re almost at 3400 nodes. The number of channels is booming as well, we’re around 12,000 channels. That’s one of the things I’ve been saying, there’s more channels on lightning network than actual total users on ethereum. You can go to sites like dappradar.com and see how many users total over last 24 hours. Which I’ll do that right now. Oh, dappradar has EOS stats now, that’s funny. Here right at top of the page, they have daily users of all the dapps, and today, the 7th of September, we’re down at 4200. So, we have more lightning channels, like 3 times more lightning channels, than all users, and almost as many nodes, as dapp users on ethereum. And that’s just lightning, in beta, oh gosh.

Network capacity recently passed 100 coins again. Remember, there is that big guy that was kind of testing out lightning, and he had like 30 or 40 bitcoins on his node. Then he took it off, so we went from 100 down to like 70 bitcoin capacity. Now we’re back up at 104 bitcoins of capacity. I did some calculation here, and channels per node is 3.54. That’s really good, it keeps going up. More channels per node the better. Some nodes are much more connected than others, but the average is 3.5. Capacity per channel is sitting at 86 finneys, 0.0086 bitcoins, or $54. Capacity per node is 300 finneys, or 0.03 bitcoins. So the capacity per node is right around $200. Cool, lightning keeps going up. There is lots of there’s always a lot of news coming out about lightning, and I’ll talk about those other shows.

34:45 – Bitcoin News, Social and Search Trends

This is my last section here. I always take a look at Google Trends. Also, I’ve been starting to take a look at hashtags usage on Twitter and Facebook and social media stuff, so I will probably be expanding this section out a little bit more, because Google Trends is not too much to report here. Flatlines basically, if you look at the 12-month chart. If you look at the 90 day chart, we seem to have found the bottom. We’re going exactly sideways. We’re off the total lows. I believe that happen back in July of search term interest for the word Bitcoin. Right now we’re sitting at 67 out of 100. There is also a heartbeat here. It looks like during the week it’s trends up, and then on the weekend it trends down. So it’s like up week, down a week, up a week, down a week. That’s it for trends on Google search volume.

Again guys, I just say before I let you go here, I just want to remind you to sign up for the Fundamentals Report at bitcoinandmarkets.com/report. Also, check out the show notes at bitcoinandmarkets.com/e129 and support us on Patreon.com/bitcoinandmarkets. It’s been a little while since I put out content over there on Patreon, a couple weeks, but more is coming very soon. Jeff and I will record another podcast coming up shortly. Catch you on the flip side, peace.

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