Reports

Bitcoin Fundamentals Report #151

This week's newsletter takes another look at typical cycles in bitcoin, price analysis, mining, and tether reserves.

A weekly newsletter summarizing important sectors in bitcoin
by Ansel Lindner and Jeff See

Bitcoin in Brief

Weekly price	$32,270 (+$272, +0.8%)
Market cap	$605 billion
Satoshis/$1 USD	3,104
1 finney (1/10,000 btc)	$3.22
Median fee confirmed (finneys)	$0.24 (0.08)
Market cycle timing	Beginning second half of bull market
Weekly trend	At critical resistance
Media sentiment	Neutral
Network traffic	Low
Mining	Slight recovery

Market Commentary

Lyle Pratt on twitter had a great observation. He says,

"What if the bitcoin chart is a continuous series of mini-pumps and the whole Mt.Gox crash just threw off the rhythm for a few years? What if the halving cycle is a myth?"

This is very reminiscent of what we have been saying for years, that MtGox was a unique event that likely should not be considered within the bounds of a model. We revisited this idea just two weeks ago in the member letter Models of Long-term Cycles - Bitcoin Pulse #114.

Previously, we proposed that this bull market may, in fact, be a double cycle like 2013, but it never occurred to us that the double cycle could be the norm. It makes sense, we still have so few cycles to go off of. Gox caused a non-typical top and bear market, then the scaling conflict in 2016-2017 caused a non-typical bull market.

As we are seeing right now in the traditional markets with a stalling of reflation and roll over, its not as simple as major event -> major recovery, 1 -> 2, over and done. There are phases through which prices move. We should not expect each halving cycle for Bitcoin to be one large smooth 4-year ramp. More likely, mini-cycles will be within the 4-year cycle, and the 4-year cycle will be within a 10-year cycle, and so forth.

Many patterns in Technical Analysis attempt to model these phases and fluctuations, granted on shorter timeframes, but the idea is very similar for the yearly timeframe we are dealing with here. The two that jump to mind are bull and bear flags, along with Elliot wave.

Prices fluctuates around a mean or larger trend. That larger trend for traditional financial system right now is a deflationary grind, while the larger trend for bitcoin is expansion and world domination.

We cannot say bitcoin has a "normal" cycle, however since we know more of the variables in Bitcoin than for traditional alternatives, namely Bitcoin's supply schedule, it gives people a schelling point, or some data of interest that we think others will use to create an investment thesis. It is no wonder then, that the 4-year halving cycles have dominated bitcoin's price in the first 12 years of its life.

In the future, the halving cycles may lose their primary position to other things, like calendar year or general boom/bust cycles, but for the time being the dominant driver of cycles is still the halvings, and price fluctuations around the trend will likely manifest in more than one smooth ramp in future cycles.

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Quick Price Analysis

Weekly BMI | 1 : Slightly bullish

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Price got a little boost this week from the Elon/Dorsey hangout, right up to resistance. This is a very critical level to breach. If we fail to breakout now, new lows are likely in the future.

The last few days have been relatively positive for price and sentiment. Several of the hurdles this month have passed (GBTC unlock) and there is a general feeling of relief the bottom held. Corrections in bitcoin typically end in large wicks to the downside, giving people only a few hours to swoop in buy the bottom, but there have been plenty of times that corrections work out sideways before breaking higher again. Dec 2019, Jan 2019, Mar-Apr 2016, etc, to name a few.

Support at $30k is very stout. We do not expect price to move lower for any significant period of time, and likely $30k holds from here.

Mining

Previous difficulty adjustment	-4.81%
Next estimated adjustment	+0.5% in 7 days
Mempool	0 MB
Fees	1 sat/byte

The bottom for hashrate looks to be in. The difficulty adjusted last Saturday, moving down -4.8%, and the next adjustment is estimated to be slightly positive at +0.5%. At the time of writing, the mempool is being completely cleared with each block, meaning you can transact for 1 sat/byte (<$0.25).

CBDC / Stablecoin / Altcoin

USDC has now joined Tether in publishing the breakdown of their reserves. Back in March, Tether released the below pie chart of their reserves. As you can see, they are backed 75% by cash and cash equivalents, 2/3rds of that being commercial paper. Commercial paper is relatively low risk due to its short term nature and high quality borrowers. However, at 50% of the portfolio it certainly raised some eyebrows.

This last week Circle did the same for their USDC. They too have commercial paper, so that minimized some of the critical reaction to Tether. However, at only 9% for USDC it is much less that the 50% for Tether. They do not breakdown the cash equivalents at all, including the note: "Cash Equivalents are defined as securities with an original maturity less than or equal to 90 days in accordance with generally accepted accounting principles (US GAAP)."

We'll write more in the future on this topic, but that will suffice for an introduction. Bottom line: Tether is solvent and very profitable. The FUD never stops.

Here is a video with some guys from Tether talking about their reserves. It is interesting. They cannot answer too many question directly because of the precarious nature of their relationship with financial regulators around the world. The minute they give details, their accounts will be frozen and their partners harassed.

LOL #Eth has been giving the Ethiopian flag for the Olympics.

Miscellaneous

Some updates on GBTC...

JUST IN – Rothschild Investment Corp. tripled its #Bitcoin position this July, adding over 100,000 Grayscale shares pic.twitter.com/VEhIZCK3wy
— Bitcoin Magazine (@BitcoinMagazine) July 20, 2021