Fundamentals Report #99

Fundamentals Report #99

July 24, 2020  |  Issue #99  |  Block 640,600  |  Disclaimer

Bitcoin Vitals

Weekly price:  $9596  (+$436, 4.8%)
Mayer Multiple: 1.16
Est. Difficulty Adjustment: -5.8% in 3d
Prev Adj: +9.89
Sats/$1 USD: 10,421
1 finney: $0.96

Market Commentary

Bitcoin's price is the biggest story of the week, but we will touch on that below in the Price section. The next most important narrative in the space is the rise of the Central Bank Digital Currencies (CBDC). We've written about our thesis for a year or more, CBDCs will dominate this bull market cycle of bitcoin and we will be able to watch regulators and bankers learn why this isn't a payments issue and why the don't need a block chain.

These are the efforts to highlight this week alone:

To get a feel for what's going on behind closed doors at all these central banks, take a look at this BIS report from March this year.

Other Top Stories

OCC allows banks to hold cryptocurrency assets for safekeeping
This is absolutely huge news for bitcoin. However, banks holding single private keys does threaten to make centralized honey pots which are vulnerable to government or hacker action. Imagine a bank getting ransomwared. The Office of the Comptroller of the Currency:

"We conclude a national bank may provide these cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency," Jonathan Gould, senior deputy comptroller and chief counsel, wrote in the letter, which was addressed to an unnamed bank that had sought the opinion. "This letter also reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law."

Researchers Say Ransomware Attacks on the Rise as More People Work From Home
A topic that perpetually flies under the radar, ransomware is a big source of demand in bitcoin and it's been increasing over the last few months. You could even interpret the Twitter hack in the light of ransomware. Twitter discovered a major weakness in their security, and it cost them very little. Courting ransomware hackers might become a source of relatively cheap bug bounties.SEC Commissioner Hester Peirce’s "soul searching" over Howey Test
This story isn't particularly big news, we've heard it from Hester before, but we believe this is akin to the other side of the CBDC coin. The authorities know all these "crypto" projects are exactly illegal securities, but they don't want stifle what could be useful technological development.

Our recommendation for the SEC is simple. (1) Be honest (crazy right?), call a spade a spade, say these "crypto" projects are centralized securities and are being fraudulent when they characterize themselves as decentralized. Actually give the public some actionable information! And (2) say they will not be enforcing the archaic SEC regulations as to not limit innovation. Pretty simple.


Weekly BMI |  2 : Bullish

We got our break out! Last week, our stance increased to Bullish for the first time after being only Slightly Bullish the 2 weeks prior, and Slightly Bearish on issue #95 on June 26th. These calls nearly perfectly traced the development of this pattern, and when put in context of our overall post-halving consolidation call, we've performed very well in the last few months.

Price and volume are in great shape at this point. We are likely to see a few more days of positive price movement up to $10,000 before hanging out there for bit. It's possible that bitcoin follows the altcoin rally (here we include gold and silver as altcoins), but it's more likely bitcoin takes its time. We expect a struggle with $10,000 as stocks rollover and test the recovery narrative.

For more detailed charts and analysis on price, subscribe to our member letter the Bitcoin Pulse.


Hash rate has remained steady this week, but a slightly slower pace. The estimated adjustment is -5.8% in 3 days.

The growth in the mempool is developing story. Since the break out on 21 July, wait times and fees have spiked. However, the mempool size and fees are below the spike around the halving in May and very far below the ATHs back in Dec 2017.

This is fertile ground for FUD as we can see Ethereum suffering from right now with gas fees. But in bitcoin, we have a secret weapon, Lightning Network. If congestion continues to worsen, expect hype around LN pick up.

Courtesy of Johoe's Bitcoin Mempool Statistics

Stablecoins / CBDC / Altcoins

Tether Dominance : 9.6% (+0.1%)

Let's take a look at the Ethereum situation. There's tons of hype around stablecoins as the future of ethereum at this point. They've done a pretty good job changing the narrative now for a third time.

First up, the value of volume on Bitcoin, USDT and ETH. This year has seen a spectacular rise in Tether ERC-20 volume. And what is Tether's primary function? Arbitrage and trading, telling us there's growing speculation in the space or at least growing positioning getting ready to pile into a breakout. There's also news from some remittance providers that USDT volume has exploded for their business.

The key point is that ERC-20 Tether volume doesn't necessarily translate into ETH value. We've seen this game before, Tether was on Omni protocol and the use of the Omni token dropped to nothing. Tether was forced to take over the maintenance of that entire protocol.

Courtesy of glassnode

Next altcoin chart is again from glassnode. (Check out their website to support them and tell them The Fundamentals Report by Bitcoin & Markets sent you if you can) This chart shows the explosion in gas price on ethereum. This has increased average transaction fees to $0.30 and pseudo-finance transactions to as high as $50.

We've seen reports that app makers are upset about this and starting to look at other networks, saying this leaves room for another network to unseat Ethereum. The rise of Tether and maybe a couple other stablecoins on Ethereum also threaten to crowd out finance apps themselves. If the growth of Tether continues, which it doesn't seen to be slowing, sentiment will quickly turn for the ethereum network.

The other option is to raise the gas limit, which is likely at some point soon, but that puts extra stress on the bloated state and nodes. There's no easy solution for ethereum at this point, and the long awaited ETH2.0 seems further off than ever.

Courtesy of glassnode


Here is an image from an excellent report called "In the Network: Bitcoin Q2 2020" by Formal Verification using glassnode's exchange balance data. These balances may be seen as honey pots in the eyes of hackers or governments, or as readily available liquidity in the eyes of traders. It is also interesting to watch the trends as exchanges evolve, become hacked/attacked, or experience issues. If you are interested in on-chain data and analysis then we recommend checking the full report out.

Courtesy of Formal Verification

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Written by Ansel Lindner and Jeff See