Fundamentals Report #129

Let us keep you up to speed on bitcoin. This issue has software development news, price analysis, mining news, and market trends.

Fundamentals Report #129

February 19, 2021  |  Issue #129  |  Block 671,312  |  Disclaimer

Written by Ansel Lindner and Jeff See

This week's Bitcoin & Markets content

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Bitcoin in Brief

Weekly price $54,800   (+$7142, +15.0%)
Satoshis/$1 USD 1,825
1 finney (1/10,000 btc) $5.48
Stock to Flow (new supply to existing) 463/d 1.676
Mayer Multiple (ratio to 200 d MA) 2.70
Est. Difficulty Adjustment 1.16% in 2 hours
Previous Adjustment -2.54%

Market Commentary

Despite the surging bitcoin price there are a couple other stories within bitcoin that have been overlooked in recent weeks. We will concentrate on two: Taproot and Umbrel.

Bitcoin Upgrade Taproot

Taproot: a bitcoin software upgrade consisting of powerful yet simple cryptographic tools that help make bitcoin's programmability more expressive while minimizing byte sizes.

Taproot is the first major upgrade to bitcoin since the very controversial Segregated Witness (Segwit) in 2017. The bitcoin community went through a very significant debate about that upgrade, and that experience has led to this upgrade being handled with extreme care.

One of the issues with Segwit was the type of activation it used. Segwit used an unnatural mechanism that changed the power dynamics of the underlying decentralized network, by giving not just miners but mining pool operators nearly sole discretion. Miner were expected to signal readiness for the upgrade by using a specific value for a specific bit in the blocks they produced. Not until 95% of blocks had this bit would the network upgrade. This gave any centralized pool operator with more than 5% of the hash rate veto power.

To solve this dilemma, the community (not the Core developers) produced a patch that allowed nodes to force miners' hands and signal that bit by August 1, 2017. On that day 100% of blocks were signaling for Segwit. It was a tramatic experience for the community, and taught us not to use that mechanism again.

For Taproot, though it is less controversial in general than Segwit, is going with a new activation mechanism, a proposal of which was just released.

  • 2021 March 17-31: Full node software released with Taproot activation deployment.
  • 2021 July 23: Economic majority has upgraded. Miner signalling begins to indicate preparedness to protect the economic minority who haven’t upgraded yet.
  • 2 weeks after 90% of hashrate signals: Taproot activates. Economic majority enforces, while miners protect the economic minority until they upgrade as well.
  • 2022 August 1: Entire economy has upgraded.

Introducing the Umbrel App Store

Umbrel is a little know project that we hope gets more awareness in the near future. It is a self-hosted piece of software you can download and install on your own computer to run bitcoin apps. Easily run a bitcoin node, lightning node, BTCPay Server and more. Umbrel is like Android for bitcoin.

This week they announced the Umbrel App Store.

The Umbrel App Store is live with seven amazing open-source applications available at launch, and many more coming soon.

Starting this very moment, you can become your own payment processor with BTCPay Server, setup multi-signature custody of your funds with Specter Desktop, run your own blockchain explorer with BTC RPC Explorer, chat over the Lightning Network with Sphinx Relay, loop in and out of Lightning with Lightning Terminal, and manage your funds on the Lightning Network with Ride The Lightning and ThunderHub.

Soon you’ll be able to run your own Lightning Network server for BlueWallet, Dojo server for Samourai Wallet, self-host, and partition your Lightning wallet into multiple accounts with LNbits.

This is a very exciting project and we will keep you updated on new updates as they come out. We wish them best of luck!

Quick Price Analysis

Weekly BMI |  1 : Slightly bullish

Bitcoin's price is really moving quickly. Not a day goes by without hearing of another well-respected investor or billionaire buying a stake in bitcoin. Recently, outfits like the Montley Fool did a complete 180 and bought a little bitcoin, Blackrock, the world's largest investment firm is "starting to dabble in bitcoin," and 5% of finance executives surveyed plan to hold bitcoin on their balance sheets this year.

All this new money has to chase less and less bitcoin, so the price will obviously rise. We could see explosive growth in the next couple of months, but nothing goes up in a straight line forever. As price doubles, there will be people taking profits and selling into FOMO (fear of missing out, panic buying). As price goes up, their selling power goes up, too. That is why bitcoin is a sawtooth pattern up.

Where are on that pattern? The two weeks prior to this week saw a 17% and 25% gains respectively. This week, so far, is a 12% gain. As it sits now, price is slowing down slightly. Therefore, this time next week, price should be higher, perhaps in the $60k range, but over the next few days, we expect a slight pull back. The weekend could see a couple red daily candles.

We should not expect 25% gains each week, like we had last week. 5-10% per week is a very fast pace and something we can view as sustainable throughout the bull market. Having realistic projections will enable people to confidently hold during the inevitable 30% pull backs along the way.

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The difficulty is estimated to go up 1.25% at approximately 4pm EST today. As described in last week's report, we suspect mining hardware is hard to find on the market otherwise miners would be adding hashrate at a much faster rate, as much as their budget would allow.

The mempool is the busiest it has been in over 3 years, since the 2017 peak. It hasn't cleared since the middle of December 2020. Below we show the two week view with the estimated fees at the time of writing. A 100 - 120 sats/byte fee (~$20) is needed for a transaction to be picked up in the next block.

Johoe's Bitcoin Mempool Statistics

The next image shows the mempool stretching back to 2017 with the fees paid during the peak in sats.

The mempool growing may look a little scary but the fees are far more manageable than 2017. SegWit adoption allows more transactions per block and Taproot will do the same when people start pay-joining in pools. One last chart showing the payments and blocksize going back to 2017, for comparison with the long term mempool chart immediately above. You can see, blocks in gray are bigger than 2017 and the number of transactions in blue are hitting ATHs.

Stablecoins / CBDC / Altcoins

Altcoins have been extremely boring over the last few months. Of course, they are pumping along with bitcoin. The most illiquid smaller coins pump the hardest, but are also the biggest scams. There has been a significantly smaller number of new scam coins this bull market as compared to 2017. But large scams continue to live on at higher valuations.

Ethereum, for example, is hoping to fake it until they make it. The insiders believe if they can get to a certain level of development and acceptance, then it will eventually become self-sustaining and grow into a decentralized autonomous network (which it is not today). However, nothing ethereum has promised in its 5 year history has come true, and they are now plagued by high fees and a never-ending update cycle to the mythical ETH2.0. It's at least a race against time, and, in our opinion, a non-winnable one.

For the most part, altcoins exists exclusively in the shadow of bitcoin, in what we've called "bitcoin's wake." The wake of a boat creates drag, and altcoins have hugged right up against bitcoin and move forward by dragging off bitcoin. It is notable this time that their pump has not been a titanic breakout against bitcoin as it was in 2017. This bubble cycle will likely be muted and the next one even less. Eventually, everyone will understand these are pure speculative gambling, not viable decentralized projects.


Tether Dominance: 5.24%

The tether dominance has been shrinking even though Tether is adding an average $2-300 million in circulation daily. A low dominance of 5% speaks to highly illiquid altcoin market conditions. Altcoins always exist on a very precarious edge between crashing and pumping.


Aggregated open interest in bitcoin futures has more than quadrupled since October 2020, from $4 billion to $18 billion. Almost all of it is bitcoin settled futures. The only major exchange with cash settled futures is the CME.

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