Bitcoin Fundamentals Report #227

New debate in bitcoin about Ordinals, more people coming around to bitcoin as money, price analysis, recession analysis, mining and lightning news

Bitcoin Fundamentals Report #227

Snapshot of Bitcoin

Click headings to jump to section (links fixed this week)

General Bitcoin Headlines
Weekly trend Losing Bull Momentum
Media sentiment Negative
Network traffic Average
Mining industry Huge recovery to bull
Price Analysis skip to Summary
Weekly price* $22,715   (-$255, -1.1%)
Market cap $0.440 trillion
Satoshis/$1 USD 4,386
1 finney (1/10,000 btc) $2.27
Mining Sector
Previous difficulty adjustment +4.6833%
Next estimated adjustment +0% in ~12 days
Mempool 9 MB
Fees for next block (sats/byte) $0.38 (12 s/vb)
Median fee (finneys) $0.35 (0.154)
Lightning Network
Capacity 5,319.96 btc (+0.6%)
Channels 74,584 (+0.6%)

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  • There is a growing debate in the bitcoin ecosystem about "Ordinals"

I haven't dived deeply into "ordinal theory". I'm including this in the newsletter because it is a topic of debate in Bitcoin this week. The basic idea is tracking and attaching significance to individual satoshis (the smallest unit of bitcoin).

My initial reaction is, it relies on a third party and doesn't need bitcoin's network at all to make it function, other than attaching the bitcoin brand to the significance of the "token". It is like colored coins, improbable that it catches on, and if so, Bitcoin's incentive structure would keep it from hurting the network at all.

You can look into it more here.

  • Ray Dalio, long time anti-bitcoin billionaire, now seeing bitcoin with a seat at the table in money competition
  • Neil Howe, author of the Fourth Turning, confused on bitcoin

In the video below, Neil says, "a non-sovereign currency in a time of crisis is a non-starter". I appreciate the rhetorical balance of that statement, but he fails to see we aren't talking about a currency, we are talking about money, as Dalio above hits on.

Money in every 4th Turning has been non-sovereign in the sense that it was gold or silver, which isn't derived from a sovereign. In a period of "crisis", where globalization and trust are breaking down, it is exactly the "sovereign" requirement that will sink modern money backed by trust and globalization, in favor of a non-sovereign global trustless asset.

  • Anti-bitcoin Crypto Founders like Brian Armstrong changing their tune

Armstrong refused to use the term "bitcoin" for years unless in a derogatory sense. That's miraculously changed recently.

  • New Bull Market or Bull Trap Before Further Downside?

This is the undertone in the bitcoin ecosystem right now. Quite a bit of disbelief about this recent reversal out there.

Psychology of a Market Cycle chart
Psychology of a Market Cycle

Macro headlines

  • The Pernicious Belief in Dedollarization and Rise of Global South and East Persists

I don't have a specific link for this headline, other than Zoltan's recent post of FT which I did a live stream on this week. This belief is harmful to those who hold it. However, it gives us alpha over them.

Dedollarization is vastly overblown. Unless countries want to break their cast off a misset fracture with a hammer, they will continue to use the dollar, or go to a neutral commodity money like bitcoin for reserves and international settlement. Going to another, far worse, far more political currency like the Chinese Yuan is idiotic. (I wanted to say rip the bandaid off, but that didn't sound harsh enough)

We talked about Japan on this week's Fed Watch linked above. The BOJ is paying banks to buy JGBs of all maturities, not just the 10Y which is the target of their yield curve control.

The BOJ indirectly encourages third parties to purchase government debt or corporate bonds through the operations. Through it, commercial banks can get long-term loans from the central bank at a rate that’s lower than bond yields.
The Bank of Canada delivered another hike [...] but said this could be the peak for the current tightening cycle as inflation is expected to “decline significantly” in the months to come. - emphasis added
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Price Analysis

The best January in bitcoin since 2013! The difference being minor, 44% in 2013 vs 43% at current prices. But overnight last night, it was up 45% at one point making it the best January in bitcoin history.

Bitcoin daily chart showing January returns
Bitcoin daily chart showing January returns
Bitcoin monthly returns
Source: Coinglass via Coin Telegraph

Last week, I was calling for a correction "before long"...

I expect a correction in the price to roughly the $20-21k level before long. You could say, the price of bitcoin will hit $21k before $30k. - Issue #226

That would look like this...

Bitcoin IF we test $21k before next leg chart
Bitcoin IF we test $21k before next leg

What we saw this week was a slow motion over extension of the price in my opinion. The correction I am waiting for could still come this week, but another possibility (say a 50/50 at this point) is detailed below.

Daily chart

The bearish divergence continued to expand this week. While it is true that divergences can continue for a while, what they do is limit the upside with a pressure toward correction.

A 89.26 on the daily RSI is EXTREMELY high, making it very unlikely the market can make another similar move before a correction.

Bitcoin daily chart with RSI bearish divergence
Bitcoin daily chart with RSI bearish divergence

While last week I said, "it is highly unlikely that RSI will get back to 89 before it falls below 70," I've done more comparison. MANY similar RSI peaks in bitcoin's history are followed by an correction that drifts upward while RSI falls to 50. Upward correction sounds silly, but it is a consolidation/correction in the ultra-bullish bitcoin market. See examples below.

Upward corrections in 2019, as RSI drops to around 50
Upward corrections in 2019, as RSI drops to around 50
Post-covid recovery, bitcoin daily chart with upward consolidations and RSI around 50
Post-covid recovery, bitcoin daily chart with upward consolidations and RSI around 50

If this holds, RSI would have to come down through lots of minor dips. In total, that could take another couple weeks, after which we attack $29k.

That would look something like this, with an upward consolidation, then another break out...

Bitcoin IF we consolidate upward, fake out to break out chart
Bitcoin IF we consolidate upward, fake out to break out

And of course we have the golden cross coming...

Bitcoin daily chart with 50 crossing above the 200-day moving average
Bitcoin daily chart with 50 crossing above the 200-day moving average

Weekly Charts

We are hanging out right on the volume-by-price spike. This level holding support favors the second IF chart from above, where price drifts higher as RSI is consolidating.

Bitcoin weekly chart with volume-by-price
Bitcoin weekly chart with volume-by-price

The chart that should give you some pause is this weekly with the downward sloping trend line in black, and the "death cross" of the 50 and 200-week moving averages.

Bitcoin weekly chart with trend line and 50 and 200-week moving averages
Bitcoin weekly chart with trend line and 50 and 200-week moving averages

If we zoom out, we see this has only come close to happening once before in bitcoin's history, back after the MtGox bear market. Note, however, that it was marked by a break out.

Headwinds and Tailwinds

Recession is still on everyone's mind, but people are pointing to recessionary indicators that have already hit their most bearish, and yet, no recession.

My call remains that we will get crashing GDP but also crashing "inflation" indices, leading to a slightly positive real GDP for 2 or 3 quarters of 2023. I won't say we will certainly avoid recession, but I think it is likely we avoid a major recession.

Like bitcoin, stocks are causing lots of disbelief out there right now. Stocks are very correlated with bitcoin at the moment, because they are both seen as a "risk on" asset class. Of course, this will ultimately prove "transitory" for bitcoin as it's role in reserves and as money takes hold.

S&P 500 weekly chart, with 50 and 200-week moving averages
S&P 500 weekly chart, with 50 and 200-week moving averages

As you can see above, the S&P 500 has broken its 50-week moving average and trend line.

Below, if we look back to the Dotcom and the GFC recessions, we can see that the chart did not break the 50-week until much later, after the 50 was far below the 200-week. Once it broke it with authority, the recession was over.

S&P 500 long term view of 50 and 200-week moving averages
S&P 500 long term view of 50 and 200-week moving averages

Lastly, for the stock market, on the daily, the 20, 50 and 200-day moving averages are crossing in a Triple-Golden Cross(TM). This has not happened in the last 40 years.

S&P 500 daily chart with 20, 50, and 200-day moving averages
S&P 500 daily chart with 20, 50, and 200-day moving averages

The dollar is showing some signs of life. The weekly chart shows a nice little rounded bottom.

I expect the dollar to recover in a way that is not that stressful to global financial markets. The stock market has bottomed and is moving higher for now. A marginal rise in the dollar to set the new range won't be as bad for the market as the 2022 dollar wrecking ball.

US dollar DXY weekly chart
US dollar DXY weekly chart

Price Conclusion


The daily and shorter timeframes are signaling need for consolidation.

A technical move to reset indicators would be ideal, with strong support around $21k.

Those cautioning about the bull trap will be able to load up their shorts on a small dip, priming the market for the next short squeeze.

The "most anticipated recession in history", became more anticipated this week. I believe it is unlikely to be severe. The low growth, low inflation environment we are returning to is bullish for financialized assets like stocks and bitcoin.

Dollar turning back up. Even if we do see a reversal in the dollar, it will NOT be a repeat of 2022's "dollar wrecking ball". This gives risk assets the monetary room to run.

Overall, risk of a downside surprise has declined to almost zero. I expect a upward correction and reset in RSI to 50 within two weeks, after which time, the bitcoin price will rise to $29k.


  • Bitcoin miner revenue shoots up 140% from the bottom

From only $9.9 million/day on Christmas Eve to $23.8 million/day now. We should expect that to double again in 2023.

Bitcoin miner revenue estimated
- WGMI’s January rally puts it roughly 25% ahead of the second-best performer
WGMI Bitcoin miner ETF chart, up 107%
WGMI Bitcoin miner ETF chart, up 107% in January

Difficulty and Hash Rate

Hash rate has literally gone off the chart on my usual source. But we can find bitcoin hash rate on Tradingview as well, and what can I say... it's BOOMING!

Bitcoin network hash rate skyrocketing
Bitcoin network hash rate skyrocketing

Sipa's chart below still shows the difficulty in purple, hitting a new ATH!


Hash ribbons have crossed and flashed the BUY signal. They continue to break out!!

Lightning Network

The famous crypto entrepreneur Jack Mallers’ digital payment provider Strike partners with payments giant Fiserv, the parent company of Clover, to enable Bitcoin Lightning network payments.

I have mixed feelings about integrations like this. In general, I'm neutral because when bitcoin adoption comes, it comes. Pilots like this can confirm negative stereotypes for bitcoin. As Jack points out, this is a 90-day trial period where they will gather data. Most likely, and I hate to be a downer but, this will show very little lightning/bitcoin usage.

The good part about pilots like this are they help builders, UX designers, etc improve. So, the next pilot will be even better.

This is good work, hard work, work worth doing, but it's part of a much longer process.

Statistics for Lightning are steadily climbing and pilots like this one show there is interest out there. Integration will be a breeze once bitcoin hits $1 million and people want to spend their bitcoin.

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


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January 30, 2023  |  Issue #227  |  Block 774,377  |  Disclaimer

* Price change since last week's report