Bitcoin Fundamentals Report #309

October 14, 2024 | Block 865,650

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Snapshot of Bitcoin

• Hurricane Milton

Last week's content was affected by hurricane Milton. We were very lucky and I'm back to 100% in regards to content. Expect live streams and blog posts to return to normal.

• MtGox Disbursement Timeline Extended 1 Year

For months we have been talking about this major repayment by MtGox. These repayments are being made in bitcoin, leading many to the conclusion that there will be significant selling to cash out. I previously reported that this concern was overblown, and so far, we have not seen any notable selling.

It appears they are having trouble getting all their coins distributed, because the recipients have not completed the required procedures to receive payments.

• Microstrategy Stock Surges, 250% Over Its Bitcoin Value

This latest surge in MSTR is bringing all the skeptics out of the woodwork. Seemingly without knowledge of the underlying, they are calling the 250% premium to NAV a sign of a bubble. However, they should know, bitcoin can close that distance by going up quickly.

This is a big blind spot for TradFi, who might expect bitcoin to act like gold. It would be unthinkable to expect a 250% rally in gold in just a couple of months, but with bitcoin, it’s possible.

MSTR might be overvalued, but you can't use a simple premium to NAV assessment to gauge that. MSTR can access capital at 0.625% and are buying bitcoin by the billions of dollars worth. They have a successful software company behind it, which profits roughly $1B per year. They are currently up double on their bitcoin investment.

Despite this, I wouldn't recommend buying MSTR here, bitcoin is likely the better play in the short term as it catches up. There will be a time when the premium is much lower.

• Kamala Pushing Equity In Bitcoin

"Kamala Harris's campaign says she will ensure crypto investors "benefit from a regulatory framework so that Black men and others…in this market are protected."

This is DEI cranked up to 1000. First, FEMA said they will use disaster relief to promote equity, essentially saying they will not help white people. Now, we have this.

I take this as a sign of weakness, not strength. They are hemorrhaging the black vote.

• Craig Wright Sues Bitcoin Core For $911 BILLION!??

I don't have much to say about this. We all know Craig Wright is a fraud and will sue anything that moves. Looking forward to countersuits to stop this man from ruining people's lives.

Macro

• More China Stimulus

The Chinese stimulus a couple weeks ago, spiking China's stock market the global markets in general, started to fade rapidly last week as expected.

Where most macro pundits get this wrong is focusing on an outcome instead of the reason. Why is this massive stimulus needed? Because their economy is in serious trouble.

This initial spike wore off as specifics about the specifics of the government plan were lacking. However, it is starting to become more clear. It is being reported that up to 6 trillion yuan ($846 billion) will be injected into the largest banks to save them from collapse.

Also, this morning and CCP guest on Bloomberg said that the planned stimulus will be enough to cover a local government deficit of 10% GDP! This is massive. Since we know that government stimulus simply masks the problems and doesn't fix anything, they are doubling down and entrenching their broken model here. Very very bearish for the future of the Chinese economy.

• September CPI Only Looks Like It's Rising

Headline
MoM — 0.179% vs 0.1% expected and 0.187% in Aug and 0.155 in July
YoY — down to 2.4% vs 2.4% expected, down from 2.6% in August

Core
MoM — 0.31% vs 0.2% expected, same as Aug's 0.28%
YoY — 3.26% vs 3.2% expected and 3.27% in Aug.

You won't see those second or third decimals in the MSM. Instead, you'll see the headline "0.2% vs. 0.1% expected." They also won't mention that there was a slight decline in MoM. The MoM prints are right about the 0.167% needed to annualize to 2%. There was a very slight increase in Core MoM, but generally flat. Nothing to signal a reacceleration of CPI.

You won't see this either. Shelter is finally starting to cool as well

Shelter was 0.2% MoM from 0.5% last month.
All items less shelter was +0.12%.

• Dollar Rises

After many weeks of the dollar threatening to break down, it has started to rally once again. Curiously, right along with bitcoin as well.

The DXY is now approaching overbought territory, so a slowdown or consolidation is likely soon. I expect the DXY to return to the top of its range throughout the rest of the year.

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Bitcoin Charts

Price this morning hit $66,264.

Last week:

THE level to break is the top of the pattern and making a new higher high above $66,500. Once that happens, there is nothing stopping price from slipping all the way up to $70,000.

Shorts, which are sweating at $70k, will try to defend the $66,500 level again, but they will eventually get squeezed.

I predicted that the crucial $66,500 level would be broken last week. I was a little early on that one, but now the price is finally there and attempting to break out. Today's strong move is likely driven by high inflows into the ETFs, creating massive pressure.

On the weekly chart we can see the 50-week MA and the trend line pitching price. How close the US elections are on Nov 5th also becomes crystal clear, only 21 days to go.

On the monthly, we can see that despite the painful sideways consolidation, we are only slightly behind schedule according to the halving. But for the election cycle and the time since the previous cycle low, we are still right on schedule. I highlighted last election's Uptober.

An extra chart for you from @tboydsto on X. It appears he aligned the cycle bottoms and extrapolated standard deviations accounting for a power law type exponential decay, meaning each cycle is less strong. His 1 standard deviation range one year from now is $165k all the way up to $950k. I would emphasize the lower part of that range.

If MSTR is any indicator we could see some fireworks in the bitcoin price. Last quarter's 13Fs showed MSTR as an alternative for large pools of capital to get exposure to bitcoin instead of the ETFs. Notably, we saw central banks, sovereign wealth funds and national insurance firms buying MSTR. If the recent spike in MSTR is due to a spike in demand from those groups, it is only a matter of time until is is translated into the spot price—even if we have to wait for MSTR to issue more debt securities and buy the bitcoin themselves.

I was expecting bitcoin gains sooner in the month, with a brief cool off immediately leading into the election. We'll have to see if that comes about; we have two weeks left in Uptober.

Overall, the weight of fundamentals and price pressures is upward. The pressure for a breakout is building. MSTR's pump is likely not a bubble, but a sign of growing demand. October is historically a positive month for bitcoin, and there is a significant amount of liquidity pulling the price toward $74k. I wouldn't be surprised to see a strong breakout this week to the $70-74k range.

MUCH MORE detailed price analysis, including short, medium and long-term forecasts on Market Protons!

Headlines

• Morgan Stanley urges CIOs to explore Bitcoin mining stocks amid rising energy prospects

Wall Street giant Morgan Stanley’s global head of research recommended chief investment officers (CIOs) to consider adding Bitcoin (BTC) mining stocks to their portfolios as new opportunities emerge in energy infrastructure, VanEck head of digital assets research Mathew Sigel shared in a social media post on Oct. 14.

The recommendation, included in a recent briefing sent to CIOs of major asset management firms, highlighted how new mandates for data centers to incorporate additional power generation could drive demand for energy-intensive industries like Bitcoin mining.

The report suggested that these mandates could spread across multiple regions, expanding the scope for new investments in natural gas-fired plants and nuclear power.

• Bitmain Rolls out New High-Efficiency Bitcoin Mining Machines, Topping 319 TH/s

The Chinese application-specific integrated circuit (ASIC) producing giant, Bitmain, has debuted its latest bitcoin mining machines. The new machines include the air-cooled Antminer S21+ and the water-chilled Antminer S21+. This comes hot on the heels of Bitmain’s announcement of the next-gen U3S21EXPH unit, a liquid-to-chip miner with a jaw-dropping 860 TH/s.

The latest additions to the Antminer lineup range from 216 TH/s to 319 TH/s, with the air-cooled model clocking in at a power efficiency of 16.5 joules per terahash (J/T). The hydro-cooled S21+, which delivers a more hefty 319 TH/s, shines even brighter with an efficiency of 15 J/T, according to Bitmain’s specifications.

Hash rate and Difficulty

Hash rate has fallen since the difficulty adjustment last week of 4.1%. Difficulty is very near an ATH, however, the estimated next adjustment is -2%. This can change rapidly with a big move higher in price. Bottom line for mining is that it's very healthy considering an 8-month consolidation in price that has dragged on painfully, much longer than expected.

Mempool

The mempool is finally showing some signs of life. Interestingly, the recent spike in fees happened on Oct 11, last Friday. The price did reverse on that day, but it was not a significant breakout. The mempool in this case was a leading indicator of near-term volatility, in this case upward volatility.

• Uniswap launches its own layer-2, Unichain

This is not a Bitcoin Layer 2, but it is a significant blow to Ethereum. Uniswap is already a Layer 2 exchange protocol for tokens, but is launching a secondary Layer 2.

Unichain is part of Optimism’s Superchain, an interoperable network of layer-2 scaling solutions built using Optimism’s technology stack.

The more things get extrapolated away from Ethereum, the fewer fees stakeholders will get, and the more redundant Ethereum becomes. The base layer is effectively competing against the higher layers now. I think this is a consequence of a couple things: 1) Ethereum has too much technical debt to be flexible, and 2) Ethereum has cut off much of its inflationary stimulus.

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Disclaimer: The content of Bitcoin & Markets shall not be construed as tax, legal or financial advice. Do you own research.

* Price change since last report

** According to mempool.space or 1ml.com