Reports

Fundamentals Report #100

July 31, 2020 | Issue #100 | Block 641,652 | Disclaimer

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Vital Bitcoin Stats

Weekly price: $11329 (+$1733, 18.0%)
Mayer Multiple: 1.30
Est. Difficulty Adjustment: +0.1% in 10d
Prev Adj: -2.87%
Sats/$1 USD: 8,850
1 finney: $1.13

Market Commentary

Other than the epic price pumps this week's news cycle has been somewhat slow. There is lots of discussion about Taproot and routes to activation. More on that linked below. A slow trickle of news about central banks' efforts with their digital sovereign tokens. But that's about it, except for altcoin shilling.

It has become abundantly clear over the last month that pseudo-finance (AKA DeFi) is the ICO bubble craze of this cycle. It's stupefying to see people excited about stablecoins and "yield farming" these incredibly risky tokens. Gone is any mention of (d)apps; even the websites for tracking their usage are falling into disrepair. Networks like EOS, ADA, Tron, and NEO have successfully run the Ethereum pump machine away from (d)apps to DeFi apps. This shift won't last either, it's only a matter of a year or two until these new silly apps get cannibalized by these other networks, as well.

The new DeFi trend is gamifying the token protocols themselves. Instead of a centralized game using a "decentralized" token like (d)apps do, these DeFi protocols are the game. Players (investors) need to know the rules and ways to move in the game, e.g. wallets, exchanges, yield farming, collateral, etc. DeFi games' incentive structures are complex and full of vulnerabilities, but as long as the market caps remain low or players stay one step ahead of the hackers, it can function as designed.

The complex incentives of DeFi grew from projects like TheDAO, on through MakerDAO, and today are seen in brand new projects like Ampleforth. They are insecure Ponzi schemes and will share the same fate as TheDAO.

Beware, stack sats.

Other Top Stories in Bitcoin

PlusToken
China arrests 100 people suspected of involvement of the PlusToken scam
Some people speculate the price pump in June of 2019 was fueled by the alleged $3-6 billion in USD scammed from people in China from the PlusToken scheme. Ergo on twitter, who is tracking the Bitcoin tied to PlusToken, points out the arrests were announced after most of the bitcoin was dumped on exchanges.

Security tokens
tZERO CEO Saum Noursalehi Provides Update on Company Progress
In a very under-reported development, tZero is downsizing. The subsidiary of Overstock "accounts for approximately 95% of security token trade volume and 80% of total token dollar value." They've had to decrease expenses by 45% year-on-year, slashed the number of employees, and cut pay of executives. This is the state of security token hopes, not good.

Civil Asset Forfeiture
$2 Billion USD in cash seized from 30,574 travels at U.S. Airports from 2000-2016
If you need another reason to convince someone on bitcoin, check this report out from the "Institute for Justice". Nearly half of seizures were due to failure to report; over two thirds of total seizures did not indicate a link to criminal activity and with only 1 in 10 people being arrested. Using bitcoin is magnitudes easier to travel with when compared to physical fiat or gold, especially if you are going thru a checkpoint of sorts. How much money do you think other countries seize?

Twitter Hack
Three people are arrested in the twitter hack
This news is breaking today with limited information coming out so far. A 19 year old in the UK, a 22 year old in Florida, and another unknown juvenile have been arrested.

Price

Weekly BMI | 0 : Neutral

The breakout in price is now well-established. There's no indication of ever returning to prices below $8k, and probably $9k barring a market liquidation event like March.

The key factor on the chart at this point is the overbought conditions on the daily. When price travels up so quickly conditions can become overbought, which calls for a slight pull back or consolidation phase. If we look at the beginning of the bull rally in 2019, the initial spike in April was followed by 35 days of consolidation with a slight upward drift, until the next leg up.

Ominously, the overbought condition is shared across many assets, like altcoins, gold and commodities, and is mirrored by the dollar being massively oversold. This condition will not last much longer. The exuberance is most out of control in Ethereum, which as detailed on our member letter this week, is in dangerous levels on most longer time frames and on many indicators.

The broader market conditions (bitcoin, stocks, bonds, and commodities) are not the same as 2019's breakout. Back then, Ethereum was in a strong down trend vs bitcoin and not as overbought vs USD; Gold was stable, continuing the slow climb it started in 2018; and the dollar was in a year-long rising channel. The last 2 weeks may be nothing more than a broad market bear rally, and we're about to see the end of it. In that case, Bitcoin should hold up better than March, and outperform everything else.

Mining

On Monday, July 27, the difficulty adjusted -2.87% and the next adjustment is estimated for 10 days from today, fluctuating between +/- 1%.

The mempool continues to be elevated, currently about 65 MBs of transactions are waiting to be confirmed (or 60 full blocks). If you need to get a transaction in the next block or two, you will have to pay over 150 sats/b. Be sure to check a site like Johoe's Mempool Stats to verify the fee needed if you are unable to wait, because most wallet fee estimators to inaccurate.

Below is a great visualization from @ChartsBTC of how the bitcoin block subsidy and fees that make up the daily bitcoin block reward change over time. How many more halving before the fees match the subsidy?

Development

There's been lots talk about Taproot, a protocol upgrade that can be implemented via a soft fork, being in the final stages of development and ready for implementation. The last major upgrade was the very contentious SegWit where the chosen activation process amplified the debate. This upgrade is different in nature due to it being non-contentious. Aaron Van Wirdum wrote an article that discusses how bitcoin might be upgraded next and here is one from Bitmex Research. Both must read posts.

Stablecoins / CBDC / Altcoins

Tether Dominance : 8.4% (-1.2%)

Some quick commentary on the Tether dominance above. It is measured using the market cap of Tether versus the Total2 value on Tradingview. This measurement was as high as ~11% last month and has since steadily declined. The overall Stablecoin dominance, which includes many top competitors to Tether and which we include on our member letter, is holding up slightly better, but generally stablecoins as a percent of the altcoin market cap is going down. There has been a rotation into altcoins for the moment, but when the next sell-off comes, stablecoins will likely make new highs as a percent of the altcoin market cap. We predict stablecoin dominance could hit 20-25% by the end of the year.

Below shows the continued strength of Tether versus it's competitor stablecoins.

Miscellaneous

Here's another big picture update regarding price action from @ChartsBTC. Next week we will have another monthly Red Dot added to the Stock to Flow chart from Plan B/100TrillionUSD. Things are heating up!

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