Brief weekend update on BTC. Network Hash has collapsed by 30+% resulting in high fees and very slow transactions. The reason for the hash collapse? Chinese miners who rely on hydro power are no longer receiving plentiful cheap energy as China enters the dry season. The increase in energy cost results in less profitable miners shutting down and a collapse of hash rate. This seasonal adjustment recurs every year although you can see the cycle is more dramatic each time.
If miners turn their machines off because electricity is more expensive this results in less processing power, delayed transactions and higher fees. Examples below:
BTC vs BSV fees. While BTC fees are over $8 for a 20 minute transaction BSV is running zero confirmation instant transactions for less than a penny.
While this issue on BTC is temporary and relief should come in ~3 days when the network adjusts for the new lower hash rate the problems shows the precarious nature of the BTC network and small blocks. Any increase in transactions or reduction in hash results in a slow and expensive network that is unusable for all but the super rich or super patient.
Shockingly, the BTC team thinks this is what Satoshi intended when he designed Bitcoin.
Never interrupt your enemy when he is making a mistake.
Finally, here is a rich bit of comedy gold showing how disconnected the BTC crowd is from Bitcoin.
12 years ago, Satoshi Nakamoto dropped a 9-page bomb on the global financial system.
If you had 1 billion dollars how much due diligence would you do before opening 8 or 9 figure positions?
I’m curious because some of the largest investments I see in BTC defy logic. Sure, if you’re a crypto kid in your mom’s basement YOLO’ing BTC is fine, but if you have 9 figures in a public company’s treasury I think *some* caution would be in order.
The quickest way to become a millionaire is to start with a billion dollars and invest in BTC.
Let’s start our examples with quotes by Michael Saylor and Raoul Pal.
Some have asked how much #BTC I own. I personally #hodl 17,732 BTC which I bought at $9,882 each on average. I informed MicroStrategy of these holdings before the company decided to buy #bitcoin for itself.
That’s $175M in personal money put into BTC. But this investment is based on what?
#Google is what happens when we pool information energy on a software network. Everyone understands this. #Bitcoin is what happens when we pool monetary energy on a software network. Few understand this.
Ah, the classic “Few understand this” ending to a crypto tweet. Very sage. This guy must really know what he’s doing and is definitely not succumbing to meme cults!
But wait, let’s do a few minutes of due diligence on this “monetary energy on a software network”. Let’s start by taking a look at BTC and it’s 1MB blocksize capping throughput at 7 transactions per second.
At 7 transactions per second the maximum number of transactions per year is: 220,752,000
7 x 60 x 60 x 24 x 365 = 220,752,000
Between his personal and business holding Saylor has ~$600M invested in BTC. So, Saylor has nearly $3 invested for every transaction that could possibly be transacted on BTC operating at maximum capacity in an entire year! If 1 billion people wanted to make one BTC transaction it would take almost FIVE years. I guess he must really understand network effects! Maybe I am not included in the “few understand this” group, but I’m trying!
Which scenario has a greater network effect:
One person sending $1 billion for a $3 fee
One billion people sending a penny for 1/1000th a cent each?
Contrast 7 transactions per second BTC with BSV’s unlimited scale. Two different models, two very different futures.
Despite my being confused by Saylor’s love of BTC I like Saylor’s style. He’s all in on BTC between 9800 and 11,100 with a big stack and he is a relentless shill. I don’t think his investment will last long but I give him style points aplenty.
Let’s see what Raoul Pal at RealVision has to say:
Bitcoin's performance is SO dominant and SO all-encompassing that it is going to suck in every single asset narrative dry and spit it out.
Never before in my career have I see a trade so dominant that holding any other assets makes almost no sense.
I like Raoul. He’s a smart guy and I agree with most of what he says about Bitcoin, except that he thinks BTC is Bitcoin. Has he not done his homework? He’s a Macro guy, shouldn’t he have a full picture before diving in and advising his clients to be committed to BTC?
Maybe some due diligence into this area and how to reconcile the problem with mass adoption would be in order before dropping your entire portfolio into BTC?
~ The Mempool ~
The Bitcoin Mempool has been a hot topic of discussion lately, as transaction volumes have been increasing, causing congestion in the network, and driving fees higher.
Bitcoin was designed with a very specific economic model. Mess with Bitcoin, as BTC had done, and that model breaks. If these money guys don’t get the technical aspects I’d assume they’d at least understand the economics.
But let’s give these Billionaires some more time to get the big picture. They are early. They’re completely wrong, but early, so they’ll be fine. Bitcoin is a complicated subject. It draws on many areas of expertise. I had the technical background to get the gist of Bitcoin from the start and I spent over a year in 2012 ridiculing Bitcoiners before I saw the bigger picture. There is a steep and never ending learning curve to Bitcoin and IMHO Saylor and Raoul have a lot to learn.
I am a contrarian on BTC. I’ve been unabashed about this for 2 years. It’s not easy being the contrarian when I wake up and BTC has gone up the entire market cap of BSV, times two, overnight. But there’s nothing about BTC that makes sense as a dominant world currency. It’s crippled.
As a comparison, from my view most of the world is holding NKLA while I’m sitting on a bag of TSLA.
Let’s turn to Mike Novogratz:
On a risk adjusted basis, $BTC is an easier bet today than it has ever been. It’s being de-risked daily.
Is that so? BTC just implemented Schnorr signatures and Taproot to increase “privacy” and scaling. But in reality this adds more technical debt to BTC and takes it further away from the genius design of the original Whitepaper. The BTC devs took a once in a lifetime invention and turned it into a Frankenstein so they could force your transactions through their second layer transports (for a small fee of course).
There is mounting legislation addressing privacy and money transfer. Just about any “privacy” feature runs afoul of these regulations. How does a money guy like Novogratz not know this? It beats me.
Satoshi saw all of these pitfalls and designed Bitcoin to be publicly traceable, pseudonymous, honest money.
But I digress.
Let’s address the popular Store of Value argument:
Oh boy, this is a good one. Let’s take all of the features and advantages of digital money and smart contracts and NEVER use them. Thinking BTC becomes more valuable because no one uses it is a special kind of logic. And guess what, BSV has the same scarcity features as BTC plus scalability/usability.
BTC may have a great bull run to finish the year but it’s not a long term solution. It doesn’t scale.
With these institutions and billionaires lining up behind BTC you’d think it’s game over for BSV, right? Probably.
Oh, and one more thing…. Peter McCormack, who was sued for libel for calling Craig Wright a fraud, has declared intent to stop defending his case. What did his legal team see that had them drop their vigorous defense?
“SCA ONTIER LLP, Dr Wright’s solicitors, have confirmed that Mr McCormack’s legal representatives have informed them of their client’s intention not to continue defending the libel proceedings, which proceedings will now continue to their natural conclusion.”
Fri Oct 9, 2020 11:47am ESTComments Off on One Chart
This chart presented by TAAL’s Jerry Chan at last week’s Coingeek conference sums up the investment thesis for Bitcoin SV. Full presentation here.
This chart represents the point when the BSV mining network is being sustained by transaction fees rather than by block rewards. Keep in mind, the block rewards in Bitcoin are programmed to decrease every four years. Sustaining the network with a massive volume of low fee transactions is crucial to the design of Bitcoin.
This moment when transaction fees exceed block rewards underpins the entire economic model of Bitcoin. If the network cannot be sustained by transaction fees it is doomed to fail. There can be two models for this: low transaction volume and high fees or high transaction volume and low fees. Which of those two models do you think has a future?
In a few decades when the reward gets too small, the transaction fee will become the main compensation for [mining] nodes. I’m sure that in 20 years there will either be very large transaction volume or no volume.
– Satoshi Nakamoto
There were several businesses at the Coingeek event that shared their views on running BSV as their global database due to scalability. Here’s one example:
Note the chart above indicates the crossover happening in Q1 2021 at roughly 75 million daily transactions. That’s ~100x the daily transactions on BSV today. Is this foreshadowing something we don’t know?
Let’s say it like it is: it’s been a tough six months for bullish BSV traders.
I am reminded of the market adage:
The market can remain irrational longer than you can remain solvent.
Irrational is an understatement.
We are living in an upside down financial world: Black is white. Buying bankrupt company stock is a foolproof money maker. TSLA valuations are greater than the rest of the auto industry combined. Closed economies are bullish. Staked DeFi tokens can pay 75% returns in perpetuity. Public company CEO’s are buying mass quantities of BTC.
This is Idiocracy applied to the Financial World. Like frogs in a slowly boiling pot of water we have are numb to how crazy the markets have become. Fool’s Gold indeed.
Fear, uncertainty and doubt are an investor’s worst enemy. I’ve had all three in ample quantity the past few months.
Fundamentals are difficult to keep in focus when the world is upside down. In the face of this I have double checked my math and reviewed the models. The fundamentals for BSV remain sound.
BSV is definitely battered but not beaten.
The Mayer Multiple indicator for BSV is nearing a buy signal again. I have written about the Mayer Multiple signal here and tweeted about it multiple times during the last down cycle of BSV.
The CEO of MicroStrategy shared this info on Twitter today:
On September 14, 2020, MicroStrategy completed its acquisition of 16,796 additional bitcoins at an aggregate purchase price of $175 million. To date, we have purchased a total of 38,250 bitcoins at an aggregate purchase price of $425 million, inclusive of fees and expenses.
This amounts to an acquisition cost of ~$11,111 per BTC.
The strategy of putting cash reserves into one of the most volatile assets in existence is questionable for a public company. It’s even more questionable when all that money is thrown into a coin that is limited in blocksize to 1MB, dependent on non existent 3rd party solutions for scaling and recently had transaction fees exceeding $1,000.
But don’t take my word for it. Here is an excellent video series that any serious investor, including MSTR, should watch before throwing money into Crypto.
Last night Mad Money’s Jim Cramer was redpilled by Anthony Pompliano (Pomp doesn’t understand Bitcoin but he can talk in reasonable soundbites from a financial background). I viewed this as a bullish event as I expected post redpilling Cramer would be using his daily pulpit on Mad Money to urge viewers to move 1-2% of their portfolio into crypto. Say what you want about Cramer, he’s a hell of a salesman and has a large viewership. Unfortunately, less than 24 hours after his Bitcoin epiphany, Cramer called the Speaker of the House “Crazy Nancy” then went full Boomer mode defending himself on Twitter. Welp, I expect he’ll be in the penalty box a while. Let’s see if he feels like sticking his neck out on Crypto when CNBC deems it safe to put him in front of a camera again.
Looking at market technicals, I am skeptical on a BTC rally. BTC must break $11,400 to avoid putting in a lower high. If that happens then I’ll sit up and take notice. Sentiment seems to be all over the map.
While BSV fundamentals destroy BTC head to head the price action has been disappointing. BSV has a big conference starting end of September. This will be the opportunity for BSV to disclose some of the secret projects that have been held close to the vest. Or, a nothing burger. Flip a coin.
The wild card, as always, is our completely ridiculous stock market bubble and fiat printing. Anything is possible.
Sun Sep 13, 2020 12:06pm ESTComments Off on BORING
The daily 200 EMA of BSV has moved $10 in six months, from 180 to 190. This is a difficult environment for short term trades. Due to this, the BSV price has been pretty boring to watch but the progress on development continues rolling forward. From a technicals standpoint, BSV is flirting with support at 160. Seems a visit sub 140 is back in the cards even if temporary. Potentially a bigger dip if broader markets continue downward.
The biggest BSV focused conference in NY gets underway Sept 30. I was planning to attend but it’s now moved to being mostly virtual. Big announcements expected.
Eventually the market will catch up and be pricing BSV for its forward potential.
On the comic relief side, here is a 3 day chart of Yearn. Yearn is a DeFi project that went from $3,000 to just under $40,000 in a month. When DeFi crashes I think it will affect the entire market, including BSV.
In other news, I’m visiting Southern California (San Diego). Future plans are to return to Puerto Rico and travel in the future. My passport is expiring soon so I am entering the queue for renewal. State Dept is quoting turnaround times in months. This may not matter if borders remain closed for rest of the year.
Bitcoin SV price has under-performed BTC by 20% in the month of August. This price lag has caused a few interesting comments and articles to be published pondering what is holding BSV back.
Bitcoin SV is a protocol on which developers have built a competitive ecosystem of applications. BSV is designed to comply with legal requirements while scaling with near zero fees. Many people don’t know this approach is novel and unique in Crypto. Most coins are avoiding the work of legal compliance and have taken the shortcut of building an ecosystem on top of Ethereum. It’s the “go fast and break stuff” mentality of dotcoms where developers are king. However, this doesn’t work when building Money 2.0 and a new Internet.
The Bitcoin SV road is not short or easy.
Part of this development process has been the interaction of independent developers and nChain, the 800lb gorilla in Bitcoin SV development. nChain has been building a patent fortress. Craig Wright, the nChain Chief Scientist, has filed filed copyright claims on the Bitcoin whitepaper and is in litigation with multiple parties to prove he is Satoshi Nakamoto. Legal proceedings move at a glacial pace and Bitcoin lives in the fast paced intersection of finance and tech. The legal proceedings have dragged on for over a year and we haven’t even seen our first patent battle. Like it or not, the uncertainty of these proceedings has had an effect on Bitcoin SV.
Despite the patents, copyrights and lawsuits independent developers continue to build new applications that can only run on Bitcoin SV. Just today I discovered this:
While new applications like this are becoming a common occurrence there is still a feeling of frustration on Twitter regarding Bitcoin SV’s place in Crypto. BSV is like a Ferrari tied to a tree.
Several BSV bulls have publicly made statements about where BSV is falling short.
This article by Joshua Henslee examines why tokenization on BSV has been a non starter despite the transaction capacity, ease of token creation and low fees. For those who don’t know, tokens can represent anything on BSV, from Chuck E Cheese game tokens to fiat backed stable coins to land titles.
It seems to me the developers in Bitcoin SV have been focused on the right things: creating profitable businesses. However, it also seems BSV has not been a friendly environment for projects like DeFi. Personally, I view DeFi as a short lived financial instrument to extract money from plebs but it certainly brought a lot of attention and volume to Ethereum. And whatever DeFi’s long term prospects or legal issues projects like DeFi are better off on a scalable and affordable platform like BSV than on ETH.
Developers and investors are asking why BSV is the bridesmaid and not the bride. In response to Henslee’s article cited above BSV investor Calvin Ayre tweeted:
This is not an open revolt or a dissolution of the foundation of Bitcoin SV like we see happening on Bitcoin Cash (BCH). BSV is evolving. The unwritten rules are being questioned. This is a good thing.
BSV already has the most diverse application ecosystem but now there is a new willingness to have every project welcome to use BSV as their underlying protocol without judgement.
In short, we’re not in Kansas anymore Dorothy.
Now the question that remains is….
BSV may be ready for the world but I don't know if the world is ready for BSV.
The current throughput of BTC is 7 transactions per second. That’s 420 tx a minute. ~600,000 a day. For a global network? How do 7 Billion people use a payment network that can only process 600,000 transactions a day?
Ethereum is doing nearly double that number of daily transactions but is also having a lot of problems with scaling and transaction costs. Ethereum tx chart here.
Here is a log chart of BSV transactions in red:
Twice BSV has exceeded 2.2M transactions for a day. This is still not enough and BSV needs exponential growth. The war is not won but the daily battles of transactions and blocksize are starting to tilt one way.
BTC does not scale and other than a few handwaves at Liquid and Lightning Network there is no plan for BTC scaling.
The importance of scaling and recognition of BSV as the King Without a Crown is not a popular opinion but you can’t dispute the numbers and the facts.
And that is the investment thesis of the decade put as simply as possible: BSV scales.
There is a lot to unpack in this post. Let’s begin with addressing a few world events and a brief discussion of money.
There are volumes of books about monetary theory. For this conversation I am going to sum money up as “the product of any one person’s work”. You may store that work product (accumulate money) or use that stored work product to purchase other products (spend it). In essence, money is the result of your work product, or the value you provide in the world.
So what happens when the Government prints money and gives it to banks, companies and individuals? After all, aren’t they issuing money to people without them working for it?
The answer is the Government is counterfeiting your work product. You work for your money but the Government prints it for free. When the money presses go BRRRRR they are counterfeiting work product. Think about it. GDP stands for Gross Domestic Product. As a Nation our GDP is based on the product we produce. It’s that simple.
The value the Government claims for free by increasing the money supply without a link to production occurs in the devaluation of the dollars you earn. They have counterfeited your work product.
In ancient Rome the Roman emperors would clip edges off of coins as a way to collect taxes. Then they would take those clipping and melt new coins. This was not taxation, this was monetary manipulation. This was the original counterfeiting! They took your stored labor and used it to counterfeit new money without a link to production. In the digital age we have replaced coin clippings with quantitative easing.
This fundamental issue of money is underlying the public unrest. People understand they are stuck in place or backsliding in quality of life but it’s been difficult to pinpoint why. Wages are stagnant, consumer prices are up but the markets are doing great! Something stinks, but we didn’t know exactly what it was. That dead fish smell is the deepening money pit we are falling into as a nation. The Government has been counterfeiting your work product for decades. It’s worse than that though. Since the USD is the world’s reserve currency the Fed has counterfeited the entire planet’s money supply. For every laborer that digs a hole the government prints the equivalent money and disburses it to those in power directly or via subtle means. Except now in this late stage game it’s becoming less subtle!
You may have recently heard of the Cantillion Effect. This simple rule states that when new money enters a system it is not evenly distributed. Those who touch the money first gain the greatest benefit. The average Joe Citizen suffers as the benefits of the counterfeited labor (new money) the Government created is redistributed unevenly. Your earned dollars are paying for the counterfeited dollars the Government gives to banks, corporations and slush funds.
Your work harder for less in return. Meanwhile, those nearest the Cantillion effect build wealth at a pace that matches the counterfeiting. Given the recent 6 trillions stimulus these must be good times for those banks, corporations and funds nearest the Government printing presses!
As a friend of mine once said, “If I had your money I could burn mine”. That about sums it up. Your tax dollars and earnings, your entire stored wealth, is a mirage. It’s all tied to and controlled by the Government who use your life’s work to steal value for themselves and their cronies. You are nothing but coin clippings to be melted into new gold bars for the elite.
OK, that was bit over dramatic, but you get the idea. The issue is that money is not tied to work. Without this correlation those who can print money can control the world. This is human nature and why empires eventually collapse. An empire may start out on a solid foundation but eventually enough entropy enters the system that the system falls apart. Given our iterations of money over the centuries an the repeated rise and fall of empires we have not been able to separate money from human nature.
We don’t have an honest system to reward one for the value provided that is not also subject to the booms, busts and cycles of human nature.
Many people consider Bitcoin to be an Internet meme or the latest Internet ponzi. I was a Bitcoin skeptic for years. I followed Bitcoin for a few years but only as a technological curiosity before buying. I was blinded by the mockery of this new Magic Internet Money and it prevented me from doing the due diligence to understand Bitcoin for myself until years later.
Once I began studying Bitcoin I fell down a very deep rabbit hole and have been there ever since.
The information available on Bitcoin is biased depending on source, including my own blog posts.
Do your own research. Bitcoin is an IQ test.
Meanwhile, here’s your theme song for stocks in 2020.