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The Wolf Den #544 - Miners, Markets And Madness

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July 19 · Issue #544 · View online
The Wolf Den Crypto Newsletter
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In This Issue:
  1. Miners, Markets And Madness
  2. Bitcoin Thoughts And Analysis
  3. Altcoin Charts
  4. Legacy Markets
  5. 3AC Bought A Yacht - When They Were Already Broke
  6. Binance Flips Coinbase
  7. Jed McCaleb Is Finally Done Dumping
  8. My Recommended Platforms And Tools
Miners, Markets And Madness
The price to mine a single Bitcoin varies widely from miner to miner. First-time miners plugging in their new rig from eBay are paying a very different price than seasoned miners who have contracts with Bitmain and run massive operations.
There are levels to this game.
A JPMorgan analyst presented a report recently stating that the average price to mine Bitcoin dropped to $13,000 in the month of July, from $24,000 in June.
Two things to note: first is that I will assume these numbers are imperfect, but that they are roughly correct. The report said they were calculated “using daily price data, hash rate, and difficulty from bitinfocharts.com to infer an implied efficiency estimate of mining hardware.” The second important point (which I touched on above) is that this production cost probably does NOT reflect the average miner, who has been unable to sink millions of dollars into R&D for the most cost-efficient setup. This figure applies to the major miners like Marathon, Hut8, and Riot. Not Craig down the street.
Although I’m excited that Craig is into mining.
Anyway.
“The decline of the production cost estimate has been driven almost entirely by the decline in electricity use as proxied by the Cambridge Bitcoin Electricity Consumption Index (CBECI).” In other words, more efficient technology has drastically lowered the price to mine a single coin. 
So is this bad?
Well if you read the report, you might be inclined to believe so. Here’s some bearish analysis included in the report: “while clearly helping miners’ profitability and potentially reducing pressures on miners to sell Bitcoin holdings to raise liquidity or for deleveraging, the decline in the production cost might be perceived as negative for the Bitcoin price outlook going forward. The production cost is perceived by some market participants as the lower bound of Bitcoin’s price range in a bear market.”
In short, if the cost of mining a Bitcoin drops drastically, there’s reason to believe that the spot price will follow. And this is exactly where the controversy lies.
According to basic market theory, efficient markets should naturally arbitrage out major discrepancies. But we are not just talking about the price of Bitcoin and it’s varying price on multiple exchanges. We are also talking about mining, an arguably separate entity. Both the spot and mining markets must be accessible, competitive, and available to be efficient. They are separate, but intertwined.
If you believe that they are so deeply intertwined that one has to act based on the other in an absolute manner, the following logic applies.
If the market is efficient and if the price to mine a single coin is much cheaper, then, in theory, Bitcoin’s price should decrease or the price to mine a Bitcoin should increase. Logic suggests that if the profit margins are currently very high, miners will buy more rigs, open up more shops, and squeeze the gap. To achieve this, miners may sell their Bitcoin now more aggressively to buy more rigs in order to capitalize on the opportunity. Furthermore, they may also sell their coins to pad their books with cash because the past few quarters have been rough. Many may still capitulate.
This would shorten the gap.
And on the other side, there’s also the fact that the hash rate can quickly rise because of the incentive, thus bringing up the difficulty, and lowering the profitability per rig. Mining would become far more expensive.
This would also shorten the gap.
These are all ideas, basic ways in which the market will naturally arbitrage its inefficiencies out. If I had a definitive conclusion I would gladly have written it here, but there is none. The one point worth making about Bitcoin is that nothing necessitates a specific price except buy and sell orders. The network is a deeply intertwined system in which no single variable is pulling all of the strings. The inefficiency won’t last forever, as is the case with all opportunities. Something likely has to give.
Bitcoin Thoughts And Analysis
WEEKLY CHART
The story now is the 200 MA, the red line. I have discussed it repeatedly, as it is considered a key level on charts in almost every market. The drop to this line, while massive, was truly a mean reversion for Bitcoin. We want to be back above it, not below it. Hard to get bullish when we are below, but it has now officially been tested as resistance for the first time. Let’s see if it can break.
Altcoin Charts
I do NOT share signals in this section. I share setups and charts that I am watching, in an effort to help show you how I view a chart and what criteria would be necessary for me to consider taking a trade. NEVER blindly buy something because it is listed in a newsletter or posted on twitter. You need to have a plan when you enter a trade. These are just ideas, and are almost always “if, then” scenarios. If a certain set of things happen, then I would consider a trade.
ALGO/USDT
This was a chart request on my stream yesterday, so I decided to take a deeper look. Altcoins are still VERY RISKY right now. I will not be trading at the moment, largely because of my funds tied up on Voyager and hesitancy about the market.
That said, there are two local ranges in blue and red, and ALGO appears to be exiting the red into the blue. That should give a target of the top of the blue range, assuming the red range is flipped to support. You can also see that ALGO has already broken the first descending black line.
The real party should start with a break of the major descending resistance, which is still somewhat distant. So this is just a local trade, not a full trend reversal.
For now, the immediate target would be 50 cents, with an expectation of resistance around the EQ of the blue channel - 42.5 cents.
Remember, any sudden move by Bitcoin will invalidate almost any altcoin idea.
Legacy Markets
Apple-Led US Reversal Leaves Asia Facing Soft Open: Markets Wrap - Bloomberg
Key events to watch this week:
  • Earnings this week include Netflix, Tesla
  • US Treasury Secretary Janet Yellen visits South Korea. Tuesday
  • Reserve Bank of Australia releases July minutes. Tuesday
  • UK Chancellor Nadhim Zahawi and Bank of England Governor Andrew Bailey speak at event. Tuesday
  • Bloomberg Crypto Summit in New York. Tuesday
  • Bank of Japan, European Central Bank rate decisions. Thursday
  • Nord Stream 1 pipeline scheduled to reopen following maintenance. Thursday
Some of the main moves in markets:
Stocks
  • Futures on the S&P 500 rose 0.9% as of 6:43 a.m. New York time
  • Futures on the Nasdaq 100 rose 0.9%
  • Futures on the Dow Jones Industrial Average rose 0.7%
  • The Stoxx Europe 600 rose 0.2%
  • The MSCI World index was little changed
Currencies
  • The Bloomberg Dollar Spot Index fell 0.7%
  • The euro rose 1.1% to $1.0253
  • The British pound rose 0.6% to $1.2019
  • The Japanese yen rose 0.4% to 137.57 per dollar
Bonds
  • The yield on 10-year Treasuries was little changed at 2.99%
  • Germany’s 10-year yield advanced five basis points to 1.26%
  • Britain’s 10-year yield declined three basis points to 2.13%
Commodities
  • West Texas Intermediate crude fell 0.8% to $101.77 a barrel
  • Gold futures rose 0.1% to $1,712.20 an ounce
3AC Bought A Yacht - When They Were Already Broke
wassielawyer
1/ Had a chance to skim through this document. Interesting points (which I will go through in more detail):

(1) The yacht
(2) Why 3AC went under
(3) Kyle / Su being uncooperative
(4) Tai Ping Shan https://t.co/aHHaO4ZfUQ
The extensive details of the degeneracy of Kyle Davies and Su Zhu are now available, in the form a 1,157-page court affidavit. You can read it HERE. If you’re like me and just want the highlights, then refer to the thread above.
The most brutal part of the whole story for creditors is the story of the yacht. Apparently, Kyle and Su bought the yacht and intended it to be the biggest in all of Singapore. But this was no ordinary yacht, because it was bought with borrowed funds - even after they were defaulting on their loans,
What absolute assholes.
As a Voyager user with funds locked on the platform, it is very hard to read that the loan that sunk Voyager was likely used to buy a boat. The boat was never even delivered!
So do I now own a fraction of a half paid for yacht? At least I would have a good story for my kids.
Here are more details:
db
3AC juice, dive into 1,000+ pages of degeneracy

https://t.co/WtfafWV4yh
What continues to amaze me about the entire saga is just how many smart people were suckered into lending 3AC massive amounts of money. Genesis gave them $2.36B! What were these guys telling these companies to convince them to give them money?
The Block
BREAKING: Crypto lender Genesis lent $2.36 billion to Three Arrows Capital

by @RyanJamesWeeks & @Yogita_Khatri5

https://t.co/vzErreyraX
I look forward to a resolution to all of this and for the market to heal. I can only hope that things are different moving forward, but humans have a tendency to repeat their mistakes.
Greed is a helluva drug.
Binance Flips Coinbase
Binance Dethrones Coinbase as the Exchange With the Most Bitcoin Holdings
Coinbase has held more Bitcoin than any other exchange since 2014 - until now. Binance just passed Coinbase at the 600K Bitcoin line. Impressive. Binance is only 5 years old and missed the first mover advantage that Coinbase had. That being said, Binance has done a much better job of going global, while Coinbase has been predominantly a U.S.-based exchange.
Jed McCaleb Is Finally Done Dumping
Jed McCaleb empties XRP wallet after eight-year selloff
After leaving Ripple in 2014 to found Stellar, Jed McCaleb was left with a HEAPING mound of XRP tokens - 9 billion to be exact. McCaleb made it clear that he did not want the tokens, so he started selling his fortune. On-chain data showed that the wallet containing the $XRP was named Tacostand, which we can now say is officially closed for business. The reason it took so long was because there were certain withdrawal conditions McCaleb had to meet in order to sell. $XRP fans should be excited about this one - that’s a huge amount of supply finally removed from the market.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to “Buy,” “Sell,” or “Hold” an investment.
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