Bitcoin Fundamentals Report #182

A weekly newsletter summarizing important sectors in bitcoin

by Ansel Lindner

This week...  Breaking down the US Executive Order on bitcoin, Ukraine donations, defi comes to Bitcoin, price analysis, mining news, and some macro charts.

In Case You Missed It...

• (Fed Watch) Luke Gromen on Tectonic Shifts in the Financial System and Oil - FED 85
• (Podcast) A Little Bitcoin Game Theory - E237
• (Livestream) We are now livestreaming Fed Watch on Tuesdays
• (Op-Ed)

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Market Commentary

Hello Bitcoiners!

Other than the Executive Order, it was a slow week for bitcoin news. However, I was able to find a few good stories and give my insight on each.

Happy birthday to my little buddy!

Let's hit this week's top stories...

WH Executive Order on Bitcoin and Digital Assets

The much anticipated Executive Order on bitcoin and digital assets dropped this week without many surprises. It outlined exploratory research on the affects of bitcoin on the financial system and the economy.

The one thing that was a slight surprise was the language around CBDCs.

My Administration places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC.  These efforts should include assessments of possible benefits and risks for consumers, investors, and businesses; financial stability and systemic risk; payment systems; national security; the ability to exercise human rights; financial inclusion and equity; and the actions required to launch a United States CBDC if doing so is deemed to be in the national interest.

My take on this Executive Order is probably unique. I have been watching this exact CBDC dynamic very closely for years. I've watched other countries and central banks pursue pilot projects, watched their conferences where they discuss CBDCs, and read their papers. CBDC rhetoric can be summed up as a very abstract claim to potential benefits and calls for more research. This has gone on for years. No clear benefits have been shown, only a reiteration of a clear bias about potential benefits.

My opinion is that these central bankers know there is no real benefit of CBDCs over and above the current system in regards to money and payments. The quiet part that they cannot say out loud is the benefit of a CBDC is control. There is no benefit for money and payments. In fact, money and payments will be hampered by CBDCs because it will make inflation, MMT, freezing and seizure much easier.

Powell and the Fed know this. I covered a speech given by then Vice Chair and Head of Supervision at the Fed, Randal Quarles, last year. In that speech he demonstrated a complete understanding of the technology and subjects involved. As far as I'm concerned, that speech was the death knell for a US CBDC. Very much worth reading the transcript, because he details every important point so well.

To conclude, I emphasize three points. First, the U.S. dollar payment system is very good, and it is getting better. Second, the potential benefits of a Federal Reserve CBDC are unclear. Third, developing a CBDC could, I believe, pose considerable risks.

If the Fed has done the homework, and there's no real benefit to a CBDC, why is the administration talking about it now? Well, there are two possible reasons, and both might be true at the same time.

1) Globalist Davos interests desperately want the US to come to a different conclusion on CBDCs than the Fed already has, because they want the control. The administration (a multi-stakeholder entity) has some people in it that are aligned with Davos (Clinton types and Neocons).

2) The administration is yielding to the pressure of the globalist Davos crowd with this EO, but has no intention on following through with any implementation. They are simply placating the globalists to a point.

My overarching model of the situation is that the US is slowly and inescapably turning away from the globalists and returning to our Western Hemisphere, non-interventionist past. Powell's anti-globalist position is most clear, and since he represents Wall Street, that means American financial interests, the big movers and shakers, are much further along in this process than the political class.

I highly doubt the US will have a CBDC, but think it is likely other countries do.

$100 million in "crypto" donations to Ukraine

This is a weird story. Apparently, $100 million in "crypto" donations to help the Ukrainians have been sent to Kuna, the Ukrainian exchange. We only have the word of Alex Bornyakov, Ukraine’s deputy minister at the Ministry of Digital Transformation for this total. The funds are reportedly being used for fuel, food and non-lethal weapons like bulletproof vests.

I'm highly skeptical of this story. First, I don't think most bitcoiners are this gullible. The MSM narrative that this is evil Russian aggression is totally false. Russians were being shelled in Donbas and fresh water supplies had been cut off from cities in the Crimea for years. Ukraine built dangerous biolabs and welcomed research like in Wuhan, Ukraine was threatening to join NATO and the EU, and host missiles pointed at Russia, and the Zelensky government was installed by the West in the first place. Russian military operations are very measured and strategic with an express goal of not disrupting civilians or infrastructure in Ukraine. They didn't even destroy broadcasting or internet in the country. Also, Russia has not cut off gas to Europe! These are not the acts of an evil aggressor. How much has been raised for the people of the Donbas?

Second, we only have the word of a Ukrainian official, of the most corrupt government in Europe, a government that has carried out false flags in their own country, on their own people, and perpetuated blatantly false stories in the press. Not a guy I'd place a lot of trust in.

Third, Canadian truckers were only able to raise $1 million, but Ukraine was able to raise $100 million??? No way.

Fourth, Ukraine has oligarchs too, with billions of dollars in bitcoin and "crypto". It could simply be a few of them who donated (maybe even Vitalik, LOL). Perhaps, there was a deal struck during the recent legalization of bitcoin in Ukraine that these rich oligarchs would donate "crypto" in the case of invasion. Who knows?

I don't know anyone who donated to the Davos puppet regime in Ukraine.

Bitcoin Defi Getting Huge Investment

Defi (decentralized finance) is a misnomer. All projects other than Bitcoin exist on a spectrum of centralization. There isn't a single project, typically classified as "defi", that is actually decentralized, or that delivers what it claims.

That's pretty harsh I know, but very few, if any, of these altcoins are honest attempts to make a workable product. They are money printing scams. Some might do a few things autonomously, but they can only do that in a completely sanitized environment. The minute they're tested by a real world hack, they show their true centralization as founders/developers freeze the network and even adjust balances.

We know defi is mainly a money printing scam because they aren't built using bitcoin as their unit of account. They always print their own tokens for a system that basically doesn't work. Of course, trading these scam tokens on exchanges still works. It is a minimum for an honest defi project to use bitcoin as the platform's unit of account.

Finally, we have growing interest in this direction. Porting any lessons learned from the scammy altcoin token space back into bitcoin based defi could teach us a few things.

Okcoin, along with the Stacks Accelerator and Stacks Foundation, said it launched what they're calling Bitcoin Odyssey, an initiative to put money into teams building BTC-based smart contract applications.

Overall, I'm not bullish on defi in general. I think it is a misapplication of the decentralization meme. Some middlemen are good, they are experts that increase efficiency, reliability and speed. Things that defi claims to do can be done better and more cheaply with centralized solutions, but centralized solutions are regulated. Therefore, defi is a lie to not only print money, but also to get illegally get around regulation.

Anyway, if there is something beneficial to defi, it will be found by building on bitcoin. It is good news that there is some funding to explore legitimate defi applications.

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Quick Price Analysis

Bitcoin Daily Chart

This week I've adjusted some of my support and resistance areas according to the volume-by-price indicator. As you can see, the blue bars on the left show how much volume has been traded at each price level, versus the typical volume indicator that shows volume by time.

The behavior we expect is for the higher volume areas to provide support or resistance, since traders will typically wait for price to clear those areas before entering/exiting a trade. Also, we know they have acted as psychological levels in the past, so we can expect them to do the same in the future. Therefore, price should be attracted to the valleys between spikes in volume. I call this "filling in".

There is a spike in volume starting almost exactly where we have seen resistance in the last couple of weeks, around $46,000. The zone below price, from $34 - $38,000 also shows high volume support.

I predict price to hold the lows from January, and remain bottled up in this range this week.

I am concerned about the two lower highs month and the fact that price has spent more time in the lower part of this pattern (below the dashed line in chart below). So, there is a minority risk of price breaking to the mid-30k's. More likely is a bullish recover back to $45k.

Another chart I'd like to offer this week is bitcoin vs the S&P 500. We've heard for months now that bitcoin is correlated to stocks and that bitcoin is a risk-on asset. I have been skeptical of that, and think bitcoin will once again prove to be uncorrelated. We are already starting to see a divergence.

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Mining and Development

Mining News

Bitcoin friendly firm VanEck has launched a new ETF that invests in bitcoin miners (ticker DAM). This is VanEck's second exclusively bitcoin ETF, and they have been working for years to get a physical bitcoin ETF approved by the SEC.

This is the second bitcoin mining ETF that I'm aware of, following Valkyrie’s bitcoin miner ETF (ticker WGMI) last month.

The U.S. states of Georgia and Illinois are both looking to introduce tax incentives for cryptocurrency mining, according to legislation filed this year.

Georgia is offering tax-free energy for bitcoin mining, while Illinois is extending other tax incentives.

Bitcoin mining is the industry of the future, promising to balance energy consumption and strengthen grids. Bitcoin mining is also the single best thing to happen to green energy financing in history. As more carve outs are made for attracting the bitcoin industry to the US, the less likely any regulation will significantly hamper bitcoin adoption here.

Difficulty and Hash Rate

Mempool

Here is an overlay of the mempool on price for the past 3 months. I've highlighted spikes in the mempool corresponding with price reversals. Only one of them has been a bottom.

Macro

Despite all the inflationist hype around the death of the dollar, inflation at 40-year highs (FYI it is CPI "consumer price index" that is at 40-year highs, not "inflation"), all the calls for a multi-polar currency world, the dollar is rising during the Ukraine conflict. This means the dollar is consolidating its control.

The currency that is in real trouble is the Euro. It is at the end of its lifecycle. They have an imminent debt crisis, horrible demographics, and upside down socialist governments.

Gold spiked but didn't break record highs and has a nasty weekly candle brewing. I have been expecting gold to go higher along with the dollar, in somewhat of a surprising correlation. I think that might come to an end soon, because the reallocation demand has probably peaked for now.

Oil is the one thing that hasn't performed as I predicted a year ago. It ran up to the third top like I was expecting, but really took off due to the Ukraine situation. Now, I think it is extremely overbought, and long-term should settle around $50/bbl.

It took 2 years to go from zero price to $120, it shouldn't take that long on the way down.

I 100% disagree with the "peak cheap oil" narrative. Oil hit zero just two years ago!! We have more oil reserves today than ever, and demand is stagnant and will probably fall in the next several years as the world enters a prolonged depression. People do not have the income to pay for higher energy and gasoline prices. That means consumers will have to drop other purchases, spiraling down the economy.  The recent war time premium should also dissipate soon enough, and Russia wraps up Ukraine and there's no long-term quagmire.

The chart just looks like a parabolic blow off top to me, very similar to 2008. Bubble territory. It's dangerous to call the top in a bubble, because price could run up to $200 before crashing. But a crash is coming, the fundamentals guarentee it. We have not entered a new paradigm of high priced oil. It took 12 weeks to fall 45% in 2018, and 6 months to fall 80% in 2008 (not shown).

That's it for this issue. Have a great weekend. See you next week!!!

A

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March 11, 2022  |  Issue #182  |  Block 726,890  |  Disclaimer

Meme via: Unknown

* Price change since last week's issue