Bitcoin Fundamentals Report #255

BIP300 debate, mining's energy consumption revised down, China starting to bully bad sign for BRICS, Liquid open sourcing code, price analysis and mining news.

Bitcoin Fundamentals Report #255

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

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Snapshot of Bitcoin

General Bitcoin Headlines
Weekly trend Droopy and boring
Media sentiment Neutral
Network traffic Elevated
Mining industry Solid
Days until Halving 224
Price Section
Weekly price* $25,907   (-$189, -0.7%)
Market cap $0.504 trillion
Satoshis/$1 USD 3,860
1 finney (1/10,000 btc) $2.59
Mining Sector
Previous difficulty adjustment +6.1657%
Next estimated adjustment -1.5% in ~1 day
Mempool 187 MB
Fees for next block (sats/byte) $0.58 (16 s/vb)
Median fee $0.54
Lightning Network**
Capacity 4756.57 btc (-0.8%, -40)
Channels 66,748 (-0.05%, -38)

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Headlines

  • Bad News

I have some bad news. Fed Watch has been cancelled by Bitcoin Magazine. I'm trying to work out a deal to change it into a weekly column on their site, but no word on that yet. I plan to continue it as a special episode type on Bitcoin & Markets.

  • September Price Forecast Competition!!

One of the perks of being a supporter of my content is the ability to enter the monthly price forecast competition. Forecast the price at the end of the current month and the closest to the actual monthly close wins $20 in sats over Lightning!

  • Bitcoin Energy Use Revised Down

Daniel Batten is a great follow. He is trying to install bitcoin miners at landfills to capture the methane produced. He's been on the front line of this debate.

As it turns out, the energy estimates that have been used to attack bitcoin for years have been overstated by A LOT, 67.6% to be exact.

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Full report here.

"The backbone of our previous CBECI methodology was the assumption that every profitable hardware model released less than 5 years ago equally fuelled the total network hashrate. This, however, led to a disproportionally large number of older devices compared to newer ones in our assumed hardware distribution"

…we decided to thoroughly re-examine the ASIC mining hardware distribution generated by our previous CBECI model and cross-check the results against other metrics from publicly available data. We found that more recently released equipment appeared to be underrepresented, and equipment nearing the end of its lifecycle was overrepresented.
  • Bitcoin BIP300 Debate

This debate is getting progressively more heated. I'm not following it enough to give a play-by-play, but I'll attempt to summarize the important parts. It's a little all over the place, but that's where I'm at on this. Conclusion at the end.

Paul Sztorc is a long time bitcoiner with a pet project called drivechains for a very long time. I think it predates the scaling debate of 2016. The economics of drivechains have been debunked many times. They fundamentally change miner incentives and the security model of Bitcoin.

To get around this criticism, Paul must believe 1) miners are in charge anyway, and 2) the security model of bitcoin is fundamentally broken because of fixed supply and decreasing block subsidy. Those things also happen to be pillars of the thoroughly humiliated Bcash and altcoin ideology.

Enter Andreas Brekken. He is a big bcash scammer who obviously doesn't understand how bitcoin works, but loves attacking it. Brekken has a company called Sideshift AI and seemingly is funding Paul's company LayerTwo Labs to pump Drivechains.

Brekken completely looking a fool
Brekken looking a fool

The Drivechain soft fork was coded by Luke DashJr of segwit fame. Luke has disavowed drivechains, saying it was a just a job. Paul is out there pumping this idea hard because he now has $3M in funding from bcash attackers.

The plot gets lost a little with D. Bailey of Bitcoin Magazine jumping in on the side of Drivechains. He has been a huge supporter of Ordinals and other scammy projects recently. He also was called out for not understanding the basics of economic nodes vs miners.

Back to the main narrative. Many high profile bitcoiners have come out against Drivechains as horrible, and Paul continues to make tweet after tweet promoting this as a way to kill shitcoins by putting shitcoins on top of bitcoin. Altcoins exist to scam people. I assume many of the people know they are scams but are just gambling. Drivechains won't stop that.

LayerTwo Labs had a job posting for a "meme lord" as a way to meme drivechains in to existence. They are trying to manufacture popularity. Of course, they are getting destroyed by the internet anyway. Others like Bailey are claiming this is popular with miners, and proceeds to get destroyed by Pierre who points out he's totally fabricating that support. Udi is in on it, too. Basically, Drivechain support is a collection of questionable people.

This is the best take I've seen yet. Martindale points out that the recently added taproot allows for building off-chain drive chains. Therefore, the only reason to go with BIP300 is to mess with the base layer incentives. This is an attack, plain and simple.

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Overall, this is a tiny debate compared to the 2016-2017. I will restate that I think it has only caught traction because of bitcoin's languishing price. The Drivechain side is using the promise of value appreciation to hide their attack.

The alignment of personalities on separate sides of the issue are almost a clear line of bitcoiners vs bcashers/altcoiners. They lost hard in 2017 with a hard fork attempt, and now they are funding a soft fork attempt.

I am not worried about BIP300 because the game theory doesn't work. One tangential idea that has popped up is from Jimmy Song, who has proposed a hard fork to bitcoin that would make soft fork attacks like this impossible. IDK how that would work, but the idea is at least new and kind of interesting.

BIP300 is dead-on-arrival. It is a great reminder of bitcoin security model and incentives, and yet another way to weed out malicious actors in the space. Those who should know better but are still promoting drivechains are malicious. Take note.

Macro

  • BRICS Infighting

Just last week the BRICS were expanding and threatening to kill the dollar by launching a new currency. Don't forget all the concern peddlers talking about a commodity backed super-currency from the BRICS and the Dying Dollar Empire. They've been exactly wrong for decades, and they will remain wrong and peddling in fear.

This week, the BRICS are having a breakout on infighting. China published a map showing a lot of Indian territory within China's borders. You can't make this stuff. up. They can't agree on their borders, but some how they will agree on a currency and monetary policy?

I think the Euro fried people's brains. The Euro successfully launched, so people assume the BRICS can do something similar. But the Euro isn't doing so well after only 25 years, and Europe was much more aligned than the BRICS.

Areas China claims that actual belong to India
Areas China claims that actual belong to India

Below is the 2023 edition of the "standard map of China". Notice also the South China Sea line. Five countries have now complained about the map, yet Russia has remained silent on the aggression of their ally.

I will restate my prediction that the BRICS would be better off without the CCP.

China's 2023 edition of the standard map of China
Map released by China causing problems
  • Euro use collapsing

This chart is incredible. It shows use of Euro in international payments crashing. Just last year, we heard that the US dollar was dying because the Euro was nearly used as much. Things are changing rapidly.

If this chart doesn't make you question the Dollar Derangement Syndrome, nothing will I guess. The Euro is much closer to collapsing as a currency than the USD.

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Price Analysis

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Bitcoin Charts

Last week: $26,096
This week: $25,851

Bitcoin has become a stablecoin. It looked as if it could breakout along the lines of the diamond pattern I highlighted last week, but then went right back into the holding range. There is not much to say about price other than this cannot go on much longer.

Fundamentals are extremely bullish, yet price is not budging. Price is acting completely contrary to the fundamentals at this time.

Bitcoin daily chart with 50 and 200-day

I wrote about possible manipulation on Market Pro last Friday. If manipulation is happening, it is not free. It could also be that this market is gripped by apathy. I'm feeling it as I write this, there is very little "life" in this market right now.

The upcoming "death cross" should attract the price toward it this week. At that point, if we get a rejection once again, price should head straight for a test of $25k.

The weekly chart is looking very weak, too. I would not be surprised with a test of the 50-week MA, but anything could happen. The next deadline for the ETFs brings us into Q4. Depending on when the delays were logged with the SEC, it could be on Friday the 13th or Monday the 16th.

If there is manipulation happening to accumulate, they have to keep it going until then. That is an expensive endeavor IMO. There is much more volatility potential to the upside IMO, with bitcoin rushing off exchanges, pleb DCA continuing, and large allocators with cash on the sidelines. Any dip will be bought aggressively. Therefore, to make money off volatility, up is the path of least resistance right now IMO.

Bitcoin weekly chart
Bitcoin weekly chart

Saw this chart on Twitter and thought it was interesting. This indicator is showing a clear market bottom occurred back with FTX.

Bitcoin bottom is in
Bitcoin bottom is in via @CryptoCon_

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Mining

Headlines

I wrote about this above in the headlines, but this news is making headlines around the ecosystem.

The university’s 2022 power estimate was also adjusted down by 9.8 TWh, from 105.3 TWh to 95.5 TWh, putting Bitcoin’s electricity consumption that year in roughly the same league as U.S. tumble dryers (108TWh).

Stronghold is apparently wanting to burn tires in Pennsylvania to mine bitcoin.

Stronghold spokesperson – Naomi Harrington – told the media outlet that substances like tire fuel “are especially needed when the quality of the coal refuse is low in energy content.” She also revealed that Stronghold has already obtained a permit to test the use of tire-derived power and now aims to secure authorization to use 78,000 tons of it.

They mix the tire material with coal dust to produce the needed electricity. The coal dust could cause problems on its own, so Stronghold is doing a good thing by using it for something positive. Waste tires are also bad for the environment. This could be a good thing all around, but it sounds so bad. It is a PR nightmare really.

Difficulty and Hash Rate

Bitcoin's difficulty has not adjusted since last week. The latest was a +6% to a new ATH, despite the price situation. Last week, the upcoming adjustment was estimated to be -6%, but this week, it has decreased to only -1%.

That is a huge vote of confidence from the people in the ecosystem with the deepest, widest exposure to major economic forces.

Bitcoin difficulty chart
Bitcoin difficulty chart, source

Mempool

The mempool has taken off this week. Mempool action typically picks up around periods of higher than normal price action. This could be a sign that something is about to happen. Overall, this does affect fees, but they are still quite cheap. The network is functioning fine.

1-year chart of mempool
1-year chart of mempool, mempool.space

Lightning and Layer 2

Long time reader will know that I am very bullish on sidechains (not drivechains). I think Liquid provides a template for nations to adopt a bitcoin standard AND have a control over their nuanced rules. The next phase of CBDC development, which is as a dead-end right now, is central banks and nations realizing what sidechains like Liquid can offer. It gives then the ability to "back" a CBDC with pegged bitcoin.

It's not ideal, but as Morpheus tells Neo, there is a difference between knowing the path and walking the path. Sidechains like Liquid allow central banks and nations to walk the path to bitcoin adoption without acknowledging it.

This week, Blockstream open sourced the Liquid code. HUGE!

As of today, the Liquid Network’s functionary source code is free and open-source to the public. The release allows anyone to audit the code that runs the functionaries and to create their own Liquid-like network with similar features, such as Confidential Transactions and asset issuance.
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That's it for this week. See you again next Monday!!!

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September 4, 2023  |  Issue #255  |  Block 806,233  |  Disclaimer

* Price change since last report

** According to mempool.space