Bitcoin Fundamentals Report #241

Bitcoin and Macro headlines of the week, including bitcoin mining, price and Lightning network.

Bitcoin Fundamentals Report #241

Jump to section: Bitcoin headlines / Macro / Price / Mining / Lightning

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Snapshot of Bitcoin

General Bitcoin Headlines
Weekly trend Attempting to bounce
Media sentiment Neutral
Network traffic Extremely High
Mining industry Stable
Price Section
Weekly price* $27,505   (-$356, -1.3%)
Market cap $0.532 trillion
Satoshis/$1 USD 3,640
1 finney (1/10,000 btc) $2.75
Mining Sector
Previous difficulty adjustment -1.4511%
Next estimated adjustment +2% in ~2 days
Mempool 186 MB
Fees for next block (sats/byte) $4.11 (107 s/vb)
Median fee $3.50
Lightning Network**
Capacity 5,392.63 btc (-1.1%, -58)
Channels 71,936 (-1.1%, -824)

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From MASSIVE news last week to obscurity the next, the Ordinal debate has close to disappeared this week. It hasn't been replaced by much either. There is growing anticipation of the Miami conference this week, discussion about the SEC crackdown and crypto scammers fighting back, and lastly,

  • Miami Conference, Bitcoin 2023

I will be in Miami this week, appearing on the news desk with Bitcoin Magazine. Hope you will be coming, or watching the Live Stream!

The timing of the conference is spectacular. Right at the start of the bull market. The headline speakers are really going to make waves, like Robert F. Kennedy Jr., Tulsi Gabbard, and Zoltan Pozar.

My hope for the conference is we can drive the narrative wedge between "crypto" and "bitcoin" deeper.

  • Trying to keep the inscription hype alive with staking

Ordinal hype is evolving fast to stay relevant. Now pump and dumpers are trying to bring a staking scheme to bitcoin ordinals. LOL

The ordinal crazy has slowed way down. There were a rash of ordinal inscriptions that went missing from wallets. I tried to find the original tweet I saw reporting this but couldn't. It seems to be a normal problem though. You spend $1000 bucks on an inscription monkey image and it goes missing the next day. You reap what you sow, I guess.

Ordinals are not over, they will continue at a low level for a long time, but it is possible we've hit the peak insanity for the time being.

  • Back and forth with Marty Bent

I got in a little hot water with Marty Bent this week. I was scrolling that huge-time-suck called Twitter, and I saw a post for one if his recent episodes of Tales From The Crypt with @profstonge.

He used hyperbole I think is damaging by saying our economy is "destroyed". To Marty's credit, he came onto the Telegram channel and we discussed it a little.

My take is simple: Government intervention is bad, but it has not destroyed our economy. We are materially much better off, global population has skyrocketed and poverty collapsed. Culturally, we are in trouble, but again, not destroyed.

Why is it damaging to say the economy is "destroyed", even if it is used in a somewhat muted sense? Two reasons, 1) it is empirically not the case and will lead to nonoptimal choices/behavior on our part, 2) it makes us look like we are in an echo chamber. I saw this from 15 years as a gold bug before finding bitcoin, you increasing rely on more complex conspiracies to explain why your beliefs differ from decades of empirical outcomes.

  • US Chamber of Commerce comes out in support of Coinbase

Read through parts of this Amicus brief from the Chamber of Commerce on the live stream Friday. They are on the side of fraud here. It is one big legal filing full of whining.

I'll pull out 3 claims from this briefing here.

1) There's "no clarity" argument. Answer: Wrong. Gensler and the SEC has clear laws and precedence. These altcoin scammers just don't want it to apply to them. Coinbase sold unregistered securities as a business model, even building a whole "education" course teaching false information about blockchain and calling pure defi scams as legit "innovation".

2) "Innovation will go offshore." Answer: What innovation? If, on the odd chance, you get a reply to that question, ask, "why do they need a token?" See, there is no productive innovation in "crypto". Bitcoin is a different story, the innovation is decentralized consensus and digital scarcity.

3) There is "harm created by the SEC delay" on clarity. Answer: There is clarity, you just don't like it. There is likely much more harm caused by scams. How many billions went up in smoke last year thanks to just a few major scams in the space.


  • CPI, PPI and SLOOS

Big week last week for numbers. The CPI came in marginally below expectations. 0.36% m/m and 4.9% y/y. PPI continued to crash (seen as upstream CPI) 0.2% m/m and 2.3% y/y.

SLOOS (Senior Loan Officer Opinion Survey) showed more tightening of lending standards and crashing loan demand.

If you cross check these data with regional bank failures and things like the oil price crashing to sub $70/bbl again, we get the clear picture of an economic slowdown/recession. The question is does "inflation" drop fast enough to keep Real GDP positive? I think it might.

After the stunningly surprising upside surge in April, The Empire Fed Manufacturing Survey has collapsed back to reality in May, crashing 42.6 points to -31.8 from +10.8 (dramatically worse than the -19.0 expected). Outside of the COVID lockdowns, this is the biggest MoM drop ever.

My bottom line is we are entering the back half of "transitory".

New home purchases in 40 major cities tracked by data provider China Index Holdings were 22% below pre-pandemic levels in 2019.

...In the first four days in May, second-hand residence sales plunged 44% by area from a month earlier...
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Price Analysis

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Last week's Market Pro letter was delayed. Not much price action. I'll be getting a VERY important issue out tomorrow, so subscribe to be ready for that drop!

Last week

The red box is where several important support levels come together and the most likely place for a bounce if there is a further sell off.

We have a bounce, now whether or not this is THE bounce that will take us back into the red band remains to be seen. $29,000 is emerging as an important level to crack to bring this back into imminent bull territory. Going into a big week for bitcoin announcements at the Bitcoin 2023 conference, I think the chances for breaking out are higher than the chart leads us to believe.

Bitcoin daily chart
Bitcoin daily chart

Overall, the down side is still limited IMO, with a stop loss level of $26,000. Any major dip here would be an excellent opportunity to buy the dip!

The stock market is flat and boring. The economic numbers are on the bad side, but crashing CPI is keeping things on the level. That was my main forecast for this year, a race between crashing CPI and crashing nominal GDP. So far, 30 days at this level for the S&P 500.

S&P 500 chart
S&P 500 chart

The boat is lopsided right now. You know what happens when everyone is on one side of the boat? It flips. Small investors are the most short ever, all waiting for the most anticipated recession in history! We could be about to see a major short squeeze that will disappoint all the bears.

We are currently on the back side of "transitory," meaning, CPI and easy money is over, a return of the deflationary pressure is here, and the Fed will pivot. Everyone laughed at those preaching the transitory/deflationary truth the whole time, now they are seeing what it means to have a credit-based system.

This is truly the best possible situation for bitcoin IMO. A return of a deflationary pressure to the economy will force the new money into narrower points in the economy. This is where we get asset price inflation from.

The rest of the year, we should see rates falling naturally, making housing more affordable. This will also be a bad environment for starting or expanding a business unless you are large well known brand, focusing credit onto them, and having the large companies lead a rebound in the stock market.

This also leads to the world toward a monetary substitute as the dollar shortage squeezes people everywhere, a path that leads right to bitcoin.

Much more on the upcoming issue of Market Pro!



  • China may be back in the Bitcoin mining game

I saw this this week, China shut off mining, but turned it back on while no one noticed. We have to also take this in the context of Hong Kong trying to open its doors to bitcoin once again, as reported several months ago now.


Many people are saying this is yet another piece of evidence showing that bitcoin mining is becoming a geopolitically important industry.

This tiny Raspberry Pi Zero does get a little bit of support from an Ant Miner, a USB peripheral which is optimized to run the SHA256 hashing algorithm and solve the complex mathematical operations needed to “win” the round of Bitcoin mining. [...] there’s no reason other than extreme statistical improbability that a single one can’t work on its own.

Difficulty and Hash Rate

Bitcoin mining is stable, stable and stable. The slight negative difficulty adjustment as estimated last week is now positive by +2% in 2 days from the time of writing.

As I often say, bitcoin miners are exposed to a completely different side of the bitcoin market. A side of brick and mortar entrepreneurs, regulators, power companies, wholesalers, etc. Therefore, we can get a whole different insight into the market by watching hash rate versus price. Right now, it is telling me that the fundamentals are very strong.

Bitcoin difficulty and hash rate chart


The mempool size is similar to last week, however, you can see the color change. The highest paying transactions are all worked through and confirmed, while there is a large pool of medium fees now about to get confirmed. Size the same, fees down.

Why does this work? Because people plan accordingly, and people decide they can wait a little longer.

Bitcoin mempool chart 3M

Lightning Network

Slower week for Lightning Network news after last week's firestorm.

Jack is pressed on the recent ordinal controversy and the scaling of the Lightning Network. He answers in a familiar way to people familiary with my positions, Lightning Network is working and will continue to evolve with demand.

Specifically brings up channel factories and using Lightning with statechains or sidechains. I think the mixing of Lightning with sidechains is an exciting concept. This is not an altcoin, because it uses bitcoin as the monetary unit. No need to print your own token and be an unregistered security on bitcoin with real "innovation".

  • Lightning Network capacity and channels both decline this week

IMO the reason we saw a noticable drop in both bitcoin capacity and number of channels this week for lightning was the high fee environment. As pointed out last week, this is still problem for LN when it comes to opening and rebalancing channels.

The cutting edge development is happening exactly on these problems. It is only a matter of time until we see channels opening from Liquid during high fee periods, and if fees remain persistently high, which is necessary long term.

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

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May 15, 2023  |  Issue #241  |  Block 789,884  |  Disclaimer

* Price change since last week's report

** According to