Happy Anniversary ATH! - Unqualified Opinions

we've missed you; here's the bull case for 2019

I just did a 20 minute segment on Bloomberg TV (well, kinda, it was on periscope because Brexit coverage kicked us down a notch), where I was asked to be the “bitcoin bull” in a discussion that took place on the first anniversary of Bitcoin’s all time high.

[FWIW, I rather enjoy being asked to be the bear when markets are frothy, and the bull when people are getting the shit knocked out of them.]

It was a good discussion, but I wanted to share the notes I jotted down on the way over to the session since I only got to a few of them.

Because it kinda made me feel better about where the industry could go from here. Consider this a mini-looking back, and looking forward piece. I’ll do a full review of my 95 theses for 2018, and maybe even a batch of new ones in the new year.

As expected, Bitcoin, Ethereum, and ICOs dominated the conversation, and XRP shills dominated the chat box on Periscope.

My Notes on Bitcoin:

  • I’m not worried about bitcoin right now. I’d get a little worried if we fell behind the 2013 ATH. It would wipe out two years of gains. It would be a big psychological blow for many. I don’t buy that “sell a kidney if it goes to $900” crap. It will be a not fun time if we break the triple digits again for BTC.

  • We LOVE the new Realized Value to Market Cap ratio released by Coin Metrics last week. It makes intuitive sense to us, and it’s difficult to game. It also just fell to the lowest level since Jan 2015 (the last market cycle bottom).

  • On the other hand, Bitcoin has de-risked quite a bit this year.

    1. Enterprise infrastructure is a good thing (and been discussed ad nauseam).

    2. The BCH community is thoroughly destroying itself after swallowing a few rival bitcoin whales and large mining operators. With Bitcoin SV and Bitcoin Cash (ABC) now trading *combined* at less than 5% of BTC, the OG crypto’s demonstrated anti-fragility is at or near an all time high. Maybe the only thing that can stop BTC are governments at this point.

    3. Lightning is a growth miracle in an awful market. I’m a bull. It’s gone from command line code over the summer when our team spun up our own lightning nodes, to a burgeoning ecosystem. Network capacity is up 45% in the past month, and channel growth up 25%. Small base, nice early slope. We’ll keep tabs on it. 

  • Mining concerns are overblown.

    1. The death spiral thesis is dumb. Our friends at CoinShares pegged the all-in break-even level for the average mining operation at $6800 (Opex + Capex) in an excellent research report, but average operating break-even is about half that (miners will keep the rigs on at $3400 even if it’s ROI negative because they already have the sunk cost of the equipment). Even if we went lower, downward difficulty adjustments will bring the ecosystem into equilibrium, and you won’t see a mass shutdown, because miners aren’t going to declare bankruptcy overnight. 

    2. The mining centralization / 51% attack argument is dumb. Even if Bitmain were hostile (I don’t believe they are), they cannot afford a suicide mission right now where they attack the main chain. History will determine whether Bitmain’s hefty BCH bet cripples the company, but they do not strike me as a business that can or will take more political risks right now. Other miners are waiting in the wings, anyway, and would be very willing to take Bitmain’s place in the ruthlessly competitive chip mining market.

    3. The environmentalists’ argument against bitcoin energy consumption is understandable, but again, faulty. From CoinShares: almost 80% of mining is now running on clean energy. If anything, bitcoin may be pushing clean energy innovation forward because miners have an economic incentive to squeeze as much capital efficiency out of their operations as possible. Others may scoff at that logic, but I’m a believer.

For the rest of my hot takes from this morning, check out the 20 minute Bloomberg video with Joe Weisenthal and others in their crypto crew.

For the rest of my notes, and our fully baked thoughts on the whole industry - predictions for Ethereum, ICOs, security tokens and more - you’ll have to sign up.

Subscribers will get that edition in early Jan. Everyone else, you’ll have to hear about it through the grapevine.

For all our free readers, Happy Holidays! We’ll see you back here in January.

For the subscribers, see y’all tomorrow.


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Best of the Rest - What We Missed Last Week

Every weekend, we dig through the past week’s posts from crypto’s other great sources of content to see what we missed in our own weekend reads.

Here’s us curating the curators:

Who Controls Bitcoin Core? - Jameson Lopp
(h/t Token Daily)

Phenomenal post. Jameson Lopp takes on the question of “who controls the ability to merge changes on Bitcoin Core?” with a deep dive into the history and inner workings of the Bitcoin codebase. While anyone is free to propose a change to Core, only a handful of maintainers are able to merge changes. Maintainers are those that have built sufficient social capital over time, but even then they rely on consensus from the community when it comes to deciding what code to add. Because Core is simply one implementation of Bitcoin, users unhappy with its direction can simply fork or chose another implementation. In practice, this right to exit is an expensive one to exercise (by design). Still, despite a handful of maintainers doing the monotonous work of merging code commits, anyone can propose changes to Core or use the software that best meets their needs.

Bitcoin & Ethereum: Prices are Down More than the Fundamentals - Chris Burniske
(h/t NLW)

As crypto prices continue to fall, Chris Burniske takes a look at the underlying fundamentals of Bitcoin and Ethereum, crypto’s two largest decentralized ecosystems. Using fundamental measures like number of transactions, transaction value, gas usage, and hash rate Burniske provides some interesting insights. One, BTC and ETH network values are down 81% and 93%, respectively, while daily transaction volumes are only down 41% and 52%. Crypto lacks the valuation frameworks of traditional finance, but Chris is at the fore of analyzing how rational markets may one day behave.

Four Eras of Blockchain Computing: Degrees of Composability - Jesse Walden
(h/t Circle Research)

Crypto networks benefit from the bottom-up growth of shared infrastructure, allowing developers to build on top and create higher level applications. Jesse Walden refers to this as “composability” and lays out a mental model for four blockchain eras by levels of composability. In the first “calculator” era, blockchains are application specific and have limited composability (bitcoin); whereas in the “mainframe” era, early network effects due to composability—pooled security, userbase, data, and running code— come with diminishing marginal returns (ethereum). The upcoming “server” era could ultimately pull the industry forward by allowing developers to “roll their own full-stack ‘app chains’” (cosmos, polkadot); but the “cloud” era will be turing-complete and have scalable composability (ethereum 2.0? dfinity?). In the coming eras, all will benefit from greater collaboration, creativity, and choice on the internet.

Did I miss something?

Send me the link, your twitter handle and your best imitation compression algorithm write up. If I like it, I’ll include your bit next issue (with attribution).

Podcast Recap

🎧 ICYMI on the Messari podcast, Katherine sat down with Circle Research's Ria Bhutoria to talk about her research process (how long it takes to write her excellent reports, and what the most frustrating parts of the process are), and Circle’s latest report on prediction markets. What are prediction markets, how do they work, what are the advantages and challenges of decentralized prediction markets, and what does current usage look like.

Listen and subscribe to all of our podcasts— on Apple Podcasts here, Spotify here, and Google play here.

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