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July 5, 2021
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Hi Everyone,

We'd like to wish a very happy Fifth of July to all our U.S. readers.

Even though Independence Day was yesterday and I'm sure we all saw the video evidence of Mark Zuckerberg's celebration in our respective feeds, it just wouldn't be a U.S. holiday if there were no day off, so banks and markets are generally closed today, even though everyone seems to be working anyway.

The crypto markets have been extremely flat lately, but that hasn't stopped bitcoin from erasing three flatter days' worth of gains this morning.

The Sunday morning pump that took place yesterday was pretty cool, but most of us have learned not to trust these wonky weekend movements.

One significant thing that did happen over the weekend, but has not had any impact on the price, was Bitcoin's largest-ever difficulty adjustment.
For those of you who are new to the space, don't panic!

This record-breaking adjustment was well anticipated in advance and is a lagging indicator. In short, what we're seeing is the Bitcoin network adjusting itself to the loss of China's hashpower.

For a great explanation, please listen to this CoinDesk podcast from Nathaniel Whittemore.
Order of operations

What's most interesting to me is the order of events surrounding the recent China ban. This is true capitalism at work.

In this graph we can see bitcoin's price (in blue), the hash rate (yellow), and the difficulty for reference (in white).
Looking at the chart in this format, we can compare the timeline of events to how the network reacted in real time.

A = May 4. First reports of Chinese-based mining pools migrating away from China are released.

B = May 13. First signs of panic start to show in some parts of Western social media. Elon Musk tweets that Tesla will no longer accept bitcoin.

C = May 21. Chinese government issues official guidance stating their intentions.

It wasn't until June 4 that China's mining exodus news made headlines in Wired and more mainstream headlines persisted throughout the month of June, bitcoin's most volatile month since April 2020.

Not noted on the chart, but certainly noticeable, is bitcoin's highest-ever price point on April 14. Those who've been following closely no doubt recall the power outage in Xinjiang province that caused some 25% of bitcoin's hashpower to switch off overnight.

There is no doubt that single event set in motion the entire chain reaction of events leading to the ban, the Musk tweets, and the broad pullback.

It is quite a coincidence indeed that the Coinbase direct listing happened the same day of April 14, marking the high of the hype cycle with a grandiose new NASDAQ ticker.
Technically

Technically, all this is good news. There was a lot of hype in the market, and it's good to see that cool off.

Many had viewed the centralization of bitcoin mining in China as being toxic for the network. Though it may have been better to see it leaving gradually, it's good that mining will now be more decentralized going forward.

The ultimate feature in my mind, however, is that the hash rate, which in my opinion was on an unsustainable path, has now cooled off.

I expressed my concerns in a televised interview even before the April 14 mining accident and in writing a BMJ Newsletter, which was titled Boiling the Oceans. It's quite awesome to watch the invisible hand at work.

For now, bitcoin has established a reasonable trading range between $30,000 and $40,000 per coin. It has had some trouble breaking into the top half of this range however in the last couple of weeks.

As analyst Imran Yusof writes, more important than the Death Cross itself is one of its components, the 50-day moving average (red line), which we're just testing now.
A strong break through that line would be quite bullish, and it could likely lead to a test of the top of our range.

Failure, however, could lead to more FUD and a deeper pullback.

The third option is of course that we get a lukewarm break above, and that would probably lead to further sideways nonchalance. Let's see how this plays out.

Have a wonderful rest of the long weekend, or a good Tuesday morning for those of you on the other side. :)

Best regards,







Mati Greenspan
Analysis, Advisory, Money Management