Bitcoin Fundamentals Report #195

This Week‌

CPI reaction, Lummis and Bitcoin regulation in the US, price analysis, much needed optimism, mining news, NY mining ban is so dumb, ATH hash rate.

In Case You Missed It...

I appreciate all the clicks and views. Please check out Fed Watch playlist on YT as well as the podcast feed.

• (Fed Watch) Bitcoin Pro w/ Dylan LeClair - FED 96
• (Fed Watch) Supply Chains by the Numbers - FED 97
• See associated post for charts to FED 97
• (Bitcoin & Markets) Energy Crisis and Recession | A Reaction to Peak Prosperity - E243

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Market Commentary

How to Interpret the CPI

I get that my interpretation of CPI and inflation is not the mainstream opinion, but I don't care. I'm the Renegade Bitcoiner. When I see supply shocks being the sole reason for price increases and not money printing, I'll call it out.

I'm not saying price increases aren't happening or that they aren't horrible, they are both, but it is very important to point the finger at the right thing, else you will be manipulated.

I admit, I've been wrong on the exact numbers, but not the content of the price increases. It is still not due to money printing - ie inflation. I did not expect the Russia conflict to last this long. In fact, I expected it to wrap up about 60-90 days, and it is going on 110 days now. At this time, it appears the military goals of Russia are about complete, we could see a peace negotiated by the 180-day mark. When that happens, there should be a dramatic effect on the market.

Okay, back to US CPI. It came in this month at 8.6% YoY and 1.0% MoM, with Core at 6.0%, 0.6% respectively. I'm very surprised by these numbers. They are far above the professional forecasts of 8.3%, 0.7%.

This pretty much blows my timeline out of the water for lower CPI and a Fed pause on rate hikes. I was predicting that CPI would fall rapidly over the next few months, and the market would bottom because it could smell the dovishness coming.

What I missed was the intensity and length of the supply shock, I did not misidentify the cause of CPI rises. Oil prices are directly linked to all other prices in the economy.

Compare this to a supply shock in oranges. Only prices of direct substitutes like apples would be affected. However, when oil's price goes up from supply shocks, it trickles down quickly to other prices, notably transportation, fertilizers, and food.

'Do not look at our evil sanctions on Russia, our boot on US oil's neck, and the fact that we locked you down for a year+, look at the money printing.' - globalists

The CPI is high, but not due to money printing. It is high due to supply shocks perpetrated by the globalists.

Nature of a credit-based system
In a credit-based money system, money supply (credit) has to rise to allow the economy to service all the debt. Periods of soft credit growth have a tendency to escalate into runaway deflation. So, while we do have mild money printing, it tends around the "neutral rate" or the lowest rate of inflation to keep everything level, and keep a deflationary cycle from kicking off. CPI is not money printing.

I'm not promoting this system, I'd rather have sound money, but bitcoin is not ready yet. It's getting there. Give it 4-5 more years.

I'm fighting so hard against the false inflationist narrative because, right now, our choice is a bad recession if the the attacks on the economy via sanctions and regulation continue, or kicking the can back to 1% growth and inflation. No need for the Fed at all, just remove the sanctions and let the market heal itself.

Lummis Bitcoin Regulation Proposal

Bitcoin ally, Senator Lummis from Wyoming, released a draft of an overarching regulatory framework for bitcoin (and <cough> altcoins) this week.

Here are the highlights:

• Promotes bitcoin to be used as a medium of exchange
• Enshrines the Howey test
• But creates a new kind of halfway asset between a commodity and security, "ancillary asset"
• If there's no ownership rights to profits of the project for an altcoin, but it relies on managerial and entrepreneurship roles from the founders, it must file disclosures twice a year with the regulator (CFTC or SEC is unclear)
• SEC can sue if they think it is a straight up security
• Puts mining in a positive light, and requests studies of positive effects
• Mining profits are not income until converted to government currency
• Bitcoin in 401k's is supported
• Increases burden on exchanges to enforce altcoin disclosure requirement, in other words, exchanges will find it less profitable to be a bucket shop for scams
• Privacy and self-custody of your bitcoin is protected

I think this is a good first step as a draft. However, our most pressing regulatory issue should be to separate Bitcoin from altcoin scams (crypto). And yes, all altcoins are scams. They rely on founders and centralized companies, they don't do what they promise to do, and often are straight up Ponzi schemes.

Any regulation that does not specifically separate Bitcoin from altcoins is a step backward in the fight against the perceived substitute status of altcoins for bitcoin.

This is only a first public draft of this bill and at least a year away from a vote. If the mid-terms are as vicious against the globalists democrats as expected, there could a majority of bitcoin advocates in Congress - or at least people friendly to the idea of bitcoin - in order to pass it.

Quick Price Analysis

"Price is the only thing that matters." So, let's take a look.

Weekly chart

You can see, last week, we squeaked out a green weekly candle for the first time in 9 weeks. Wow, it's been an epic down trend in bitcoin.

Right now the weekly candle is red, due to the CPI print this morning, but there is a good chance that we can rally this weekend above $30k to make it green once again.

Daily chart

A busier chart here. I'm trying to show the similarity between last June's price action and this June. It was a nearly perfect match until this week, when price did stay elevated compared to last year.

There are still many things that are eerily similar about these two time periods, so I wouldn't say the comparison is completely useless at this point. However, we have deviated from the pattern of last June, showing more support!

But let's zoom in a little more on the daily chart.

I will be watching this channel closely. A break of the bottom won't necessarily spell disaster, because there has been support in the high $20k's. It will be hard to break $26k going down. However, a break above the channel will likely lead to more upside. It will be easier to break $34k than $26k.

The risk is not symmetric. There is greater volatility to be had if price rises, and whales always seek out volatility to make money.

No damage was done by the CPI print at this point. If bitcoin can hold the channel this weekend, we might see a breakout attempt next week.

Price Conclusion

My primary conclusion is similar to last week:

I'm still a bull, it just depends on the time frame. In the next few weeks, anything could happen, but when we eventually get a bounce it's going to be with lots of momentum to the upside.

The headwinds I mentioned last week, namely altcoin drag on the market, inflation hysteria, and a broad economic slowdown, have gotten worse this week. Ethereum continues to slide against bitcoin (chart below) even with their upgrade coming up. Ethereum inflation is the main juice that keeps the lifeblood of altcoins flowing.

Unfortunately, the inflation hysteria got a big boost today with the CPI numbers. But, perhaps the people who have been selling bitcoin because of the correlation with stocks are exhausted, ie nothing left to sell. The sound money narrative might also become slightly more dominant.

Lastly, the broad economic slowdown is intensifying. It is becoming more and more obvious every day. The oldest consumer sentiment measure has hit an all time low. Lower than the Great Financial Crisis.

This looks bad, but UMich sentiment lows correspond to lows in the market, not to getting worse, meaning the economy is about as bad as it will get. We survived the GFC, we can easily survive this. It's always darkest before dawn, so I'm expecting some good news here soon.

My prediction for the coming week is mixed leaning bullish.

Mining and Development

Mining News

The bitcoin mining moritorium in New York is still taking many of the headlines. These noobs have not even checked the language of the law. Bitcoin miners do not "validate" transactions, they order them into the block. Validation is done on nodes.

Anyway, like all dumb politicians, banning bitcoin mining will actually hurt their progress toward their renewable goals in New York. Bitcoin mining was THE MOST clean energy industry they had, using 80% renewables. The State's goal is 70% renewable by 2030. 🤦‍♂️

Difficulty and Hash Rate

HUGE spike in hash rate this week, despite price looking droopy. Difficulty increased 1.29% and is currently estimated to increase another 5% in 10 days.

Difficulty and hash rate primer
I realize it's been a while since I've broken this down to simple language for new people to the newsletter, so here we go.

Hash rate is the number of calculations every second in bitcoin mining around the world. You'll hear this number usually in "Exahashes per sec" EH/s. One Exahash is one quintillion hashes, a hash is one cycle of the SHA-256 crypto algorithm. The current hash rate is 240 EH/s.

You might also hear "Terahashes" because that is what the speed of an individual mining box is measured in. You can buy a new top-of-the-line mining rig that puts out 110 TH/s for around $5,000. There is a million Terahashes in one Exahash.

The hash rate of the network cannot be directly measured, but can be estimated by the block speed and difficulty. Hash rate is much more volatile than difficulty, going up and down depending on how many miners are working at any one time.

Difficulty is a programmed number by the Bitcoin software. The way it works cannot be changed. If blocks come in faster than 10 mins on average over 2016 blocks, the difficulty will adjust upward mathematically to bring the average block time back to 10 mins. The same if blocks are too slow.

Difficulty moves slowly, it changes about every 13-14 days. It is the purple stairstep line in the above chart.

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

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June 10, 2022  |  Issue #195  |  Block 740,243  |  Disclaimer

Cover image: @mattcsnow

* Price change since last week's report