Bitcoin Fundamentals Report #317

December 9, 2024 | Block 874,008

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Snapshot of Bitcoin

MicroStrategy Continues to Accumulate Bitcoin

Another week, another massive bitcoin purchase by MicroStrategy (MSTR). They now hold 423,650 BTC, representing more than 2% of the total bitcoin supply.

Amazon to discuss holding bitcoin

It is unlikely that any of these companies decide to add bitcoin to their Treasury at this time, but the Overton Window has been opened. Eventually, they will do it—everyone knows it. This makes the possibility of starting now more realistic.

Czech Republic passes sweeping bitcoin protections

A new bill has passed in Prague affecting bitcoin:

1. Bitcoin is taxed the same as stocks, no capital gains tax after 3 years
2. Local bitcoin businesses have a right to a bank account
3. Legal clarity on MiCA regulations from the EU

Can't see video? Link to tweet here.

David Sacks appointed as Bitcoin and AI Czar

David Sacks, a prominent crypto bro, has been appointed as the Bitcoin and AI Czar. While not a bitcoin purist, all incentives eventually align with bitcoin's growth. This is overall a friendly pick for the bitcoin industry. Contrary to concerns about government crackdowns on bitcoin, the US government is becoming more populated with bitcoiners.

David Sacks is part of the PayPal mafia, part of the very early team that included Elon Musk and Peter Thiel.

Powell gets bitcoin right!

It was big news last week when Fed Chair Powell was asked a question about bitcoin challenging the dollar, and he said that bitcoin did not compete with the dollar, but instead, was a competitor with gold.

Interesting, he got this exactly right. Bitcoin is to the dollar like gasoline is to gallons. The dollar should be considered a measurement of an underlying asset. If the dollar was ever under existential threat from bitcoin, it could simply be backed by bitcoin, like it was once by gold.

The major takeaway from this comment is however, that bitcoin is seen by the elite as a real thing, a real competitor to gold. The "digital gold" meme has worked. With gold's global market cap of $20 trillion, that means bitcoin's $2 trillion market cap has some growing to do.

El Salvador makes bitcoin voluntary to secure IMF loan

This news makes little sense. El Salvador simply had to say that they would make bitcoin acceptance voluntary for businesses, instead of how it is today where bitcoin must be accepted everywhere as legal tender.

Perhaps, the IMF's goal was to effectively take away that legal tender status, but they didn't accomplish much of anything. If businesses have paying customers using bitcoin, they will continue to voluntarily accept it.

There is one possibility I see, and that is the IMF thinks people are only using bitcoin because they are being forced to use it. They are so deluded that they think by making if voluntary, the people will be able to express their true feelings and not use bitcoin.

Macro

CPI This Week

The Cleveland Fed's Inflation Nowcast is estimating 0.26% MoM for November. Nearly identical to October's 0.24%. That is above the 0.17% target that get's 2% YoY.

You can see on the MoM chart below, that there remains a downward bias over the last 18 months.

I am still expecting CPI to come down in the near future. However, with US GDP doing well, the CPI might stay elevated slightly longer than I've anticipated. We are in no danger of a "reacceleration" of inflation, but 2.5-3% might drag on a little longer as lots of capital flees China and Europe into the US.

China is falling apart

China's economy continues to grind into crisis. I've said for a long time that their basic problem is that they economy was a centrally planned export driven model, dependent on a now bygone era of globalization.

To save their economy they have to switch to a domestic consumption based model, however, that does not fit with their communist style government. Therefore, they have hit a decision point, boost domestic consumption and lose communism, or double down. They are trying to double down.

The reason they cannot boost domestic demand is because it requires loosening control. The minute they do that, there will be massive capital flight, brain drain and the people thinking, 'maybe, we don't need these communists in control.'

No, instead they will almost certainly govern harder. They will try to dictate consumption and production, inevitably leading to more malinvestment and misallocation of resources. Things will get worse and worse, until change is forced by the people.

El Salvador announces massive gold finds

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Bitcoin Charts

Last week:

My base case for this week remains consolidation sharing characteristics with the October 2023 pattern, but with the most likely scenario of a breakout by the end of the week.

We did break through the $100k level last week, however, it did not result in a rapid rise afterwards. Price teased us by breaking to $103k and then continuing its consolidation.

The Oct 2023 pattern has remained nearly perfect. The longer we hover around $100k, the stronger the volume support will be once we break above it. It could be that we never dip below $100k again, once we move up to $120k or so.

All dips will be bought as new companies follow MSTR's lead. Jetking out of India is the latest in this regard. They are a relatively small company with about a $5M market cap. I expect this to catch on in India, perhaps faster than the US, due to the continued collapse of the rupee.

Genius Group is another small company that is buying bitcoin. They are an AI company which also makes sense. Bitcoin will be the way AI interacts with the market. AI can earn and control bitcoin, and get market signals from prices in bitcoin.

While these and others are relatively small companies, their combined impact is significant. They also move the narrative forward. This strategy is not just for large bitcoin companies, it's for the little guy as well.

Bitcoin miners RIOT and MARA are also buying hundreds of millions of dollars in bitcoin regularly. And giants like Microsoft and Amazon are considering adding bitcoin to their balance sheets.

If you go back several months, much of the news was about large sellers of bitcoin. For example, a German state sold 50,000 BTC and MtGox was distributing 150,000 BTC. Now, all that is reversed. There are no sellers in the headlines, only buyers. The speculation last week on X that the US government was about to dump some bitcoin has come to nothing, as expected.

My base case for this week remains consolidation sharing characteristics with the October 2023 pattern. While price has broken the $100k mark, we are waiting for price to really take off to the next higher range. As price hangs around just under $100k again, there is a chance we see a slight flash crash down to $90k or so, right before a rapid recovery and new highs. Be careful with leverage!

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

Headlines

RIOT Follows in MSTR and MARA's footsteps, offers convertible notes to buy bitcoin

Bitcoin Miners Move 85,503 BTC, Price Unaffected – Here’s Why

Santiment states these mining wallets have now transferred out 85,503 BTC, valued at $8.56 billion, over the last 48 hours.

Generally, increased outflows from miners could indicate a bearish shift in price momentum. However, the team at Santiment postulates the recent BTC offload should be considered a net-neutral signal with no inking on Bitcoin’s price movement. 

This notion is based on Bitcoin miner balances showing a weak correlation with price for the majority of 2024. Moreover, non-mining whales and sharks continue to accumulate Bitcoin signaling confidence among investors in the asset’s profitability despite miner activity.

Hash rate and Difficulty

Hash rate has remained incredibly stable the last several weeks. Even as price breaks $100k, it seems as though miners are maxed out for the time being. The largest public miners are busy raising money to buy bitcoin outright. This flat behavior is something I'm going to be watching over the next couple of weeks. If hash rate does not spike on the next price breakout, there might be a bigger story here.

Mempool

The mempool has increased this week with significant numbers of transactions paying higher fees. This is behavior that we expect during excitement in price. People are moving lump sums of bitcoin to and from exchanges, and tend to be fee insensitive.

I stripped out the cheapest fee transactions to show the action this week more clearly.

NSTR

In Case You Missed It...

My latest posts

• I have been releasing standalone videos for blog posts now. Please check them out and drop a comment!
• Endogenous Money and Bitcoin: A Shift in the Monetary Order
• Macro Rundown Amid Bearish Shift, As Bitcoin Approaches $100k - Premium
• MicroStrategy’s Bitcoin Blueprint Isn’t A Hunt Brothers Silver Scheme - FORBES
• What Trump’s Ross Ulbricht Pledge Could Mean For Other Campaign Promises - FORBES

Hold Strong!

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* Price change since last report

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