Your favorite trader is saying Bitcoin (BTC) bottomed. At the same time, the top on-chain indicators and analysts are citing the current price range as a generational buy opportunity. Meanwhile, various crypto and finance media recently reported that Bitcoin miners sending a mass of coins to exchanges are a sign that $17,600 was the capitulation move that pins the market bottom.

Theres so much assurity from various anon and doxed analysts on Crypto Twitter, yet Bitcoin price is still in a clear downtrend, and the metrics dont fully reflect that traders are buying every dip.

A critical component of BTC price that many investors often overlook is the condition and sentiment of Bitcoin miners, which is exactly why Cointelegraph had a chat with Rich Ferolo of Blockware Solutions and Will Szamosszegi of Sazmining Inc. to gain clarity on whats happening in the mining industry and how this might impact market sentiment going forward.

Cointelegraph: Is the bottom in for Bitcoin? The price touched $17,600 nearly two weeks ago and its starting to feel like the fund-driven capitulation armageddon might be over. Thoughts?

Will Szamosszegi: Its impossible to say whether or not Bitcoin has hit a bottom. In general, I recommend a dollar-cost-averaging strategy to people: Just buy however much Bitcoin you feel comfortable with on a consistent schedule. Weve seen drawdowns even bigger than this before such as 93.7% in its early days and 83.4% in 2018. Bitcoin has always made gains over any four-year period in its history.

CT: Currently, Bitcoin is trading below the realized price and below miners cost of production. The price also dipped below the previous all-time high and the hash rate is dropping. Typically on-chain analysts pinpoint these metrics hitting extreme lows as a generational purchasing opportunity, but is it?

Rich Ferolo: Blockware has done a lot of research on this and weve calculated the breakeven price from machines as far back as the s9 from 2016, at $.07 per kilowatt, the breakeven is $38,000 for a s9. Youre going to see older machines coming off the network eventually. For the s17s, at $.07 cents per kilowatt, BTC needs to be at around $18,000.

Newish machines are more efficient and while difficulty and the hash rate adjustment are trending down for current generation machines, anything above 90 terahashes (TH/s) can make it. Anything below 34 watts per Terahash is inefficient.

One factor to consider is that the value of machines is going down. Even if BTC price starts to go up and theres a symbiotic relationship between price and the macro factors impacting Bitcoin price and prices throughout the wider-crypto market.

Machines are hard assets and the big aspect of mining is the machine. Bitmain and MicroBT adjust prices as BTC price goes up. This is a hard asset that, in a way, earns yield on a daily basis, the same way that BTC does.

If youre in the long game, you dont care about the current price of BTC. Just because the BTC price goes down doesnt mean all the miners will go down also. Its more about survival of the fittest. You need to be aware of the macros, but its not as bad as one might think. There are different perspectives and situations depending on what size outfit youre running. Big public companies have a lot of operational factors to consider, but their operational costs (OPEX) inflate their overall cost even if they get $.05 per kilowatt. Their model is different from the analytics of the average miner outside of the public user.

CT: What is the state of the BTC mining industry right now? There are rumors that leveraged miners could go under, inefficient miners are turning off and equipment is being sold 50% to 65% lower than 2020 to 2021 prices.

Whats happening behind the scenes and how do you see this impacting the industry for the next six months to a year?

RF: I agree with all of your observations. Were at a price consolidation point currently and the market is cleaning up the amount of mining debt that exists. If you can hang on and keep mining, it might keep the hash rate and difficulty at bay. Blockworks believes that there is a severe lack of infrastructure in the space. To have infrastructure, you have to have an incredible amount of CAPEX to get going. Theres been and still is a lack of infrastructure.

Regardless of the machines that are there, theres not a lot of space for hosting. From the broader standpoint, youre going to see a lot of capitulation, insolvency and excess machines. I know a lot of the big players are putting a pause on funding for miners. Thats a plus for people wanting to get in the space, but we predicted a 60% hash rate increase in 2022 when things were booming. And, as the s19XPs come into light, the hashrate will go up.

WS: Many veterans in this space have grown accustomed to these cycles in the Bitcoin ecosystem. Historically, you see the hashrate decline following the price doing the same. In drawdowns like this one, newer miners typically wash out, while the network fortifies. Over the next six months, mining will become more competitive, as bigger players may consolidate and buy miners at a discount.

CT: Exactly why is now a good or bad time to start mining? Are there particular on-chain metrics or profitability metrics that miners are looking at or is it just a no-brainer that Bitcoins current pricing makes mining attractive?

Lets say I have $1 million cash, is it a good time to set up an operation and start mining? What about $300,000 to $100,000? At the $40,000 to $10,000 range, why might it not be a good time to set up at home or use a hosted mining service?

RF: Regardless of the size of the investment, I dont think any of those values frankly would warrant you wanting to set up infrastructure at scale. A million bucks worth of machines at $5,000 per machine will get you 200 machines, almost a 0.6 megawatts worth. 1 megawatt of power is equal to 300 machines. Housing 200 machines is way different than housing 2 to 10 machines. To diversify $1 million to $300,000, or 60 machines, thats where you want to start looking at hosting, assuming youre all in on mining.

I treat mining as a hedge, so Id take 60% of the capital and buy machines and 40% buy spot BTC, or 60% CAPEX for machines, 20% for OPEX and 20% for spot BTC. This is a broader place to think about hosting. $100,000 gets you 20 machines, so you could apply the same strategy. Most residential homes cant handle that much power demand. Theres a threshold of at-home mining power capacity so youd have to consider how much power you can get to your house without shutting down the neighborhood.

The $10,000 to $40,000 range is more amenable to at-home mining. If your power rate is fixed at $.10 or below you could pull it, depending on where the price is. $40,000 will get you about eight machines. Thats more doable, to be honest. Its about 24.4 kilowatts per hour for eight machines if you start from four to five machines and test the waters. Its almost like dollar-cost-averaging into machines and buying them if prices continue to drop.

Related: Buy Bitcoin or start mining? HashWorks CEO points to attractive investment yield in BTC mining

CT: Does BTC price dropping below its all-time high for the first time ever have any significant future ramifications on the fundamentals of the asset and industry?

WS: The fundamentals of BTC are unchanged, which is why I still expect BTC to evolve into a global reserve asset. The industry, on the other hand, will learn from this crash: Do not be overleveraged and do not offer yields that leave you vulnerable.

RF: Great question, I think from where were at now, it was expected based on where people (retail) had bought in the previous cycle. Smart money expected a long bear market to happen, but what has shocked everyone is when and how fast it happened. The mysterious long-awaited blow-off top never happened.

Crypto has a lot more exposure and a lot more bad press due to recent implosions and well see more because the news loves bad press and its easier to generate. For those who believe in BTC, theyll ignore it and it's the opportune time to buy and invest in the space, especially once all the bad energy is cleared out.

Lots of people have probably sold the bottom and wont be back, but this is just the basic market dynamics.

CT: The networks next reward halving is approaching in 676 days. In your view, how will this alter the landscape of industrialized mining and the amount of equipment required to solve an algorithm which becomes more difficult to compute with each halving?

RF: Halving events tend to induce miner capitulation. Im surprised that the current hash rate hasnt fallen further. Were not seeing the sharp decrease that was expected before like 20% to 25%. This happens because older-generation machines have to unplug and the rewards dont match the cost but the expected hash rate increase that comes with each halving means older-gen machines benefit in the short term. Miners unplug when OPEX is unfavorable and then plug back in when the time is right.

WS: Miners will want to reduce their costs, as half the reward in Bitcoin may render many mining operations unprofitable (assuming a constant Bitcoin price in United States dollars). Mining equipment will continue to improve in efficiency and miners will continue to seek out the most cost-effective energy sources. Halving is one of the many genius features of the Bitcoin network because it washes out inefficiencies.

Disclaimer. Cointelegraph does not endorse any content of product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.

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Bitcoins bottom might not be in, but miners say it has always made gains over any 4-year period - Cointelegraph

The price of Bitcoin BTC is down 55.55% year-to-date and that has led to the speculation that it is dead and its price will never recover. In the past year, it has fluctuated between a high of $68,789 and a low of $17,708, supporting its extreme volatility and giving Bitcoin critics ample evidence to support their claim that Bitcoin is no longer viable.

A Uber Eats currier wearing a protective mask passes in front of a Bitcoin exchange shop in Krakow's ... [+] city center. On Saturday, April 18, 2020, in Krakow, Poland. (Photo by Artur Widak/NurPhoto via Getty Images)

According to Bitcoin content website 99 Bitcoins, 17 credible news sources and celebrities have announced that Bitcoin is dead in 2022, with the latest article coming from American Left-based magazine Jacobin.

If the price of oil -another commodity- crashed by 55.55% in six months, would you say that oil is dead? Any reasonable stakeholder in the oil market would consider the fundamentals of the oil market, such as demand, supply, government policies, competing energy sources, and so on. If all of the factors turned out to be relatively positive, the price drop would begin to look like an opportunity. So, what are the most important Bitcoin fundamentals to keep in mind?

This refers to the total amount of computing power used by the Bitcoin network. It assists Bitcoin stakeholders in estimating the network's level of decentralization and security. According to digital assets company Blockchain.com, the Bitcoin hash rate has been in a bullish trend and it reached an all-time high on June 12, 2022.

This indicates that the amount of computing power dedicated to supporting the Bitcoin network is trending close to its all-time high and that the Bitcoin network has never been more secure.

When Bitcoin's price fell below $20,000 two weeks ago, some miners were mining Bitcoin at a loss, according to cryptocurrency ranking platform CryptoRank.io. That is, the cost of mining one Bitcoin was significantly higher than the price of Bitcoin. So, why would miners push the hash rate to an all-time high when the value of each Bitcoin mined was close to or less than the production cost?

Bitcoin's supply is limited to 21 million coins. The total supply of Bitcoin, however, is slightly more than 19 million, with the remaining two million yet to be mined. Around one million bitcoins mined by Satoshi Nakamoto have never left their initial wallet and are assumed to be locked forever.

People have misplaced the private keys to their Bitcoin wallets over the years. If the keys are never recovered, the Bitcoin stored in those wallets may be lost forever. This means there are a lot more Bitcoins out of circulation. This makes Bitcoin the hardest asset to obtain because it is costly to produce more (read mining), and there is a hard market cap of 21 million.

Institutional adoption of Bitcoin is on the rise, and more institutions are looking to add some level of Bitcoin exposure to their balance sheets. This is an indication that supply is going to get tighter.

This refers to a second layer built on the Bitcoin network that allows Bitcoin transactions to take place outside of the blockchain. It speeds up transactions and reduces transaction costs. The Lightning Network solved Bitcoin's scalability issue. The world can use the Lightning Network to execute millions of Bitcoin transactions per second and make micropayments at extremely low transaction fees.

According to Arcane Research's The State of Lightning Volume 2 report, the Lightning Layer is rapidly becoming the technology behind Bitcoin becoming the internet's native currency, as the number of users grows exponentially and the number of lightning transactions approaches 4,000 Bitcoin.

Paco De La India, an Indian travelling to 40 countries in 400 days using only Bitcoin, is one of the best examples of the Lightning Network's power. He is currently on day 282 and frequently uses Bitrefill to spend Bitcoin on the Lightning Network. Bitrefill is a fintech company that allows you to buy products and pay for services by taking your Bitcoin equivalent and paying the vendor in their native currency.

Governments all over the world are softening their stance on digital assets and putting in place regulatory frameworks to capitalize on this technology. While some governments, such as El Salvador and the Central African Republic, are pursuing full-scale adoption, others are simply regulating cryptocurrency exchanges and taxing cryptocurrency gains.

The most notable regulations are Australia's two spot Bitcoin ETFs (exchange traded funds), Binance's Dubai license, The Purpose spot Bitcoin ETF in Canada, and the European Union's current legislative package to govern digital assets.

A majority of corporations that are looking to add Bitcoin exposure to their balance sheet are not able to do so because of their respective governments ban on Bitcoin transactions or lack of a regulatory framework.

As more jurisdictions lay down a regulatory framework for digital assets, more institutions and individuals will have the confidence and proper structures to adopt Bitcoin and other digital assets.

The above-mentioned factors havent reasonably changed negatively to support a massive price drop. There are other factors affecting Bitcoin such as the correlation with equities, that could be used to explain the massive price drop, but the fundamentals relating to the Bitcoin network and its uses seem to be improving over time. Clearly, the factors discussed above indicate that Bitcoin is not dead.

Cryptocurrency exchanges may also have contributed to the massive price drop by practicing rehypothecation and selling paper bitcoin to unsuspecting clients. The recent moves by major crypto exchanges limiting clients' ability to withdraw their assets indicate that clients claims on exchanges are higher than the assets held by the exchanges.

Disclosure: I own bitcoin and other cryptocurrencies.

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Is Bitcoin Dead? Here Is What The Fundamentals Are Showing - Forbes

A mild sense of hope emerged among Bitcoin (BTC) investors after the June 18 drop to $17,600 becomes more distant and an early ascending pattern points toward $21,000 in the short-term.

Recent negative remarks from lawmakers continued to curb investor optimism. In an interview with Cointelegraph, Swiss National Bank (SNB) deputy head Thomas Muser said that the decentralized finance (DeFi) ecosystem would cease to exist if current financial regulations are implemented in the crypto industry.

An article published in The People's Daily on June 26 mentioned the Terra (LUNA), now renamed Terra Classic (LUNC), network's collapse and local blockchain expert Yifan He referring to crypto as a Ponzi scheme. When asked by Cointelegraph to clarify the statement on June 27, Yifan He stated that "all unregulated cryptocurrencies including Bitcoin are Ponzi schemes based on my understanding."

On June 24, Sopnendu Mohanty the chief fintech officer of the Monetary Authority of Singapore (MAS) pledged to be "brutal and unrelentingly hard" on any "bad behavior" from the cryptocurrency industry.

Ultimately, Bitcoin investors face mixed sentiment as some think the bottom is in and $20,000 is support. Meanwhile, others fear the impact that a global recession could have on risk assets. For this reason, traders should analyze derivatives markets data to understand if traders are pricing higher odds of a downturn.

Retail traders usually avoid monthly futures because their price differs from regular spot markets at Coinbase, Bitstamp and Kraken. Still, those are professional traders' preferred instruments as they avoid the funding rate fluctuation of the perpetual contracts.

These fixed-month contracts usually trade at a slight premium to spot markets because investors demand more money to withhold the settlement. Consequently, futures should trade at a 5% to 10% annualized premium in healthy markets. One should note that this feature is not exclusive to crypto markets.

Whenever this indicator fades or turns negative, this is an alarming, bearish red flag signaling a situation known as backwardation. The fact that the average premium barely touched the negative area while Bitcoin traded down to $17,600 is remarkable.

Despite currently holding an extremely low futures premium (basis rate), the market has kept a balanced demand between leverage buyers and sellers.

To exclude externalities specific to the futures instrument, traders must also analyze the Bitcoin options markets. For instance, the 25% delta skew shows when Bitcoin whales and arbitrage desks are overcharging for downside or upside protection.

During bearish markets, options investors give higher odds for a price crash, causing the skew indicator to rise above 12%. On the other hand, a market's generalized FOMO induces a negative 12% skew.

After peaking at 36% on June 18, the highest-ever record, the indicator receded to the current 15%. Options markets showe an extreme risk-aversion until June 25, when the 25% delta skew finally broke below 18%.

The current 25% skew indicator continues to display higher risks of a downside from professional traders but it no longer sits at levels that reflecti extreme risk aversion.

Related: Celsius Network hires advisers ahead of potential bankruptcy Report

Some metrics suggest that Bitcoin may have bottomed on June 18 after miners sold significant quantities of BTC. According to Cointelegraph, this indicates that capitulation has occurredalreadyand Glassnode, an on-chain analysis firm, demonstrated that the Bitcoin Mayer Multiple fell below 0.5, which is extremely rare and hasn't happened since 2015.

Whales and arbitrage desks might take some time to adjust after key players like Three Arrows Capital face serious contraction and liquidation risks due to a lack of liquidity or excessive leverage. Until there's enough evidence that the contagion risk has been alleviated, Bitcoin price probably will continue to trade below $22,000.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Bitcoins short-term price prospects slightly improved, but most traders are far from optimistic - Cointelegraph

This is an opinion editorial by Marie Poteriaieva, a Ukrainian-French crypto industry observer and educator, following the space since 2016.

Bitcoin is routinely treated as an environmental pariah: its energy consumption is quite simple to track and quick-label as anti-ecological. This statement is wrong on many levels, but public opinion is rarely nuanced, and politicians often have little to lose by attacking Bitcoin on ecological grounds at a (comparatively) small expense of alienating crypto enthusiasts they can position themselves as planet-saviors to a larger audience.

This approach wont last long though. More and more voices are rising to contest this immature presentation of Bitcoin, its mining, and its importance for the world. These arguments go in three main directions:

- Energy consumption of Bitcoin versus the traditional monetary system it is intended to replace.

- Green mining and its potential to boost green energy development around the world.

- Multi-purpose use of miners, recycling their waste heat or capturing flare gas.

The notion of a lot only makes sense in comparison. In the case of Bitcoin energy consumption, the most relevant comparison is with the fiat money system (and not with some small European country, as some clickbait articles may quote).

While Bitcoin is pretty much self-sufficient, in the fiat world its job is done by a plethora of different organizations in charge of issuance, distribution, management, bookkeeping and payment services.

A 2021 study by Galaxy Digital, an asset management firm specializing in cryptocurrencies, looked deeply at only four metrics of the fiat world branches, servers, ATMs and card networks' data centers and estimated that the banking system consumes over 263 TWh yearly.

More detailed research, recently published by Michel Khazzaka of the Paris-based consultancy Valuechain Technology Ltd., combs through the energy consumption of more aspects of fiat money: the printing and minting of physical notes and coins, ATMs, cash in transit, cash at electronic points-of-sale, card payments, banking offices, banking employees commutes, banking IT and inter-banking. The results are stunning: the traditional money sector excluding finance and insurance would consume around 4,981 TWh yearly.

Bitcoin network hash rate the collective computational effort miners are deploying to mine a block is public information, which makes it possible to calculate Bitcoin electricity consumption by estimating how much energy is needed to produce it.

The most popular resource on Bitcoin energy consumption is the Cambridge Bitcoin Electricity Consumption Index (CBECI), which estimates electricity use by simplistic weighting of profitable hardware, a method relying heavily on electricity cost estimate and is thus not particularly accurate. CBECI currently estimates Bitcoin yearly energy use at 120 TWh.

The above-mentioned study by Valuechain proposes a different methodology: counting miner nodes and their efficiency, i.e., watts consumed per hash and the release date of each miner (assuming that non-ASIC mining is marginal and should not be taken into account anymore). This method gives another figure of 88.95 TWh.

Bitcoin is thus estimated to consume 2-56 times less energy than the fiat system it is an alternative to.

A number of studies, such as those conducted by the Bitcoin Mining Council, have pointed out that the exceptionally high percentage of renewables in the Bitcoin energy mix 58% is considerably more than any other major industry.

This is not surprising, for Bitcoin miners are mobile, and they naturally go where the energy is cheapest which in many cases means going to green energy sources that cannot efficiently stock and transport their extra energy.

Bitcoin mining is also flexible, meaning that a miner could be turned on and off instantaneously following energy fluctuations, which in case of green energy can be considerable.

These two qualities allow Bitcoin mining farms to be installed in some of the worlds most remote places, like a dam on the Amazon or a solar farm in West Texas, making them more profitable and incentivizing more green energy developments.

Good examples of such incentive alignment would include two hydroelectric plants built on the edges of Virunga National Park in the Democratic Republic of Congo. The initial investments were enough to build the plants, but not enough to get electricity to people, who continued using charcoal and cutting trees in Virunga, precipitating its deforestation until a Bitcoin mining company from Paris came. Now based in Switzerland, BBGS has installed mining rigs on the dams, making them profitable and allowing them to finance the rest of operations, including the necessary infrastructure.

Miners are subject to constant innovation, not only in the size of their chips (smaller chips equal less energy required to transmit data), but also in technologies allowing them to capture and repurpose the waste heat they generate, making mining de facto carbon-neutral.

Canadian MintGreen uses miners to warm water for a whiskey distillery, and a project to heat buildings in Vancouver is underway. Norwegian Kryptovault recycles the waste heat to dry timber, and soon seaweed. Swedens Genesis Mining uses its miners to heat up greenhouses. Similar initiatives are popping up all over the world, and projects like The Blocks custom silicon rigs will only increase the number of ways a Bitcoin miner can be used.

Whats more, Bitcoin mining can be carbon-negative, i.e., effectively reducing the quantity of greenhouse gasses emitted into the atmosphere. It can do so by capturing flared gas a by-product of oil production, which is often too expensive to transport, so it is simply flared into the atmosphere, emitting harmful air pollutants like black carbon, methane and volatile organic compounds. Oil producers all over the world are being increasingly told to curb the gas flaring, and Bitcoin mining is a clever way to do it.

Some smaller oil producers in Texas and Montana have already partnered with mining companies to capture the flared gas, but it was the arrival of ExxonMobil and its pilot Bitcoin mining program in North Dakota that has definitely put this practice on the map.

Humanity needs energy to live and to develop, and instead of trying to curb its use, bringing us back to candlelight, we should aim to develop energy efficiency and sustainability.

Bitcoin uses 2-56 times less energy than the fiat system, and the Lightning Network can allow it to scale as needed without spending much more.

Bitcoin mining is already the greenest industry, and it can incentivize many more green energy developments around the world.

Bitcoin miners can also be used for a number of non-mining endeavors, including actually preventing more greenhouse gas emissions into the atmosphere.

Now its the fiat systems turn to justify its ecological footprint.

This is a guest post by Marie Poteriaieva. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

Continued here:
It Is Time To Turn The Tables On The Bitcoin Environmental Debate - Bitcoin Magazine

A bystander uses a Bitcoin ATM in San Salvador, El Salvador, on May 16, 2022.

Alex Pena | Anadolu Agency | Getty Images

El Salvador bet its economic salvation on bitcoin, but so far the gamble isn't paying off like President Nayib Bukele hoped it would.

The government's crypto coffers have been cut in half, bitcoin adoption nationwide isn't really taking off, and crucially, the country needs a lot of cash, fast, to meet its debt payments of more than $1 billion in the next year. This comes as the price of bitcoin has fallen more than 70% from its November 2021 peak, and more than 55% from the time Bukele announced his plan.

Meanwhile, El Salvador's economic growth has plummeted, its deficit remains high, and the country's debt-to-GDP ratio a key metric used to compare what a country owes to what it generates is set to hit nearly 87% this year, stoking fears that El Salvador isn't equipped to settle its loan obligations.

Pair these economic woes with a renewed war on gang violence, and you have all the fixings of a country on the brink.

"On the surface, the whole bitcoin thing hasn't really paid off," said Boaz Sobrado, a London-based fintech data analyst.

It isn't bitcoin's fault that the government is edging toward financial ruin.

The government has an unrealized paper loss on bitcoin of around $50 million, which the finance minister notes is less than 0.5% of the national budget. In aggregate, the entire experiment (and all its associated costs) have only run the government around $374 million, according to estimates. That's not nothing especially considering the fact that El Salvador has $7.7 billion of bonds outstanding but to an economy of $29 billion, it is comparatively small.

The optics aren't good, though.

Negotiations have stalled with international lenders in part because they are unwilling to throw money at a country that is spending millions in tax dollars on a cryptocurrency whose price is prone to extreme volatility. Rating agencies, including Fitch, have knocked down El Salvador's credit score citing the uncertainty of the country's financial future, given the adoption of bitcoin as legal tender. That means that it's now even more expensive for President Bukele to borrow much-needed cash.

"In terms of their financial situation, El Salvador is in a very difficult place. They have a lot of bonds that are trading severely discounted," continued Sobrado.

"The economic policy of the country is essentially magical thinking," said Frank Muci, a policy fellow at the London School of Economics, who has experience advising governments in Latin America.

"They've spooked the bejesus out of financial markets and the IMF," continued Muci, who tells CNBC that nobody wants to lend money to Bukele unless it's at "eye-gouging rates" of 20% to 25%.

"The country is sleepwalking into a debt default," said Muci.

But the millennial, tech-savvy president, who once touted himself as the "world's coolest dictator" on his Twitter bio, has tethered his political fate to this crypto gamble, so there is a very big incentive to make it work in the long run and to pay off the country's debt in the interim. Bukele faces re-election for another five-year presidential term in 2024.

Well before President Bukele got it in his head that bitcoin was a magical elixir that would bandage over longstanding economic vulnerabilities, the country was in a lot of trouble.

The World Bank projects that the Salvadoran economy will grow by 2.9% this year and 1.9% in 2023, down from 10.7% in 2021. But that growth itself was a bounceback from an 8.6% contraction in 2020.

Its debt-to-GDP ratio is almost 90%, and its debt is expensive at around 5% per year versus 1.5% in the U.S. The country also has a massive deficit with no plans to reduce it, whether through tax hikes or by substantially cutting spending.

In a research note from JPMorgan, analysts warn that El Salvador's Eurobonds have entered "distressed territory" in the last year, and S&P Global data reportedly shows that the cost to insure against a sovereign debt default is hitting multi-year highs.

Both JPMorgan and the International Monetary Fund warn the country is on an unsustainable path, with gross financing needs set to surpass 15% of GDP from 2022 forward and public debt on track to hit 96% of GDP by 2026 under current policies.

"In the past three, four months, what they've done is implement gasoline subsidies, which are super expensive," said Muci, who has expertise in economic diversification and public financial management, and has taken part in applied research projects for El Salvador, Venezuela, and Honduras.

"This is a country that's rudderless in terms of economic policy. I mean, they don't know where they're going, or what they're doing. I think it's a classic case of one day at a time," he said.

All this comes as El Salvador faces imminent debt repayment deadlines in the billions of dollars, including an $800 million Eurobond that matures in January.

El Salvador has been trying since early 2021 to secure a $1.3 billion dollar loan from the IMF an effort that appears to have soured over President Bukele's refusal to heed the organization's advice to ditch bitcoin as legal tender. This tracks with Fitch's recent downgrade, which was also attributed to El Salvador's "uncertain access to multilateral funding and external market financing given high borrowing costs," plus its "limited scope for additional local market financing."

The president's efforts to consolidate power have also driven up this risk premium. Bukele's New Ideas party has control over the country's Legislative Assembly. In 2021, the new assembly came under fire after it ousted the attorney general and top judges. The move prompted the U.S. Agency for International Development to pull aid from El Salvador's national police and a public information institute, instead re-routing funds to civil society groups.

Additionally, El Salvador can't print cash to shore up its finances. El Salvador dollarized in 2001, meaning that it ditched its local currency, the coln, in favor of the U.S. dollar. Only the Federal Reserve can print more dollars. Meanwhile, its other national currency, bitcoin, is revered for the fact that it, too, is impossible to mint out of thin air.

In Sept. 2021, El Salvador became the first country to adopt bitcoin as legal tender.

The initiative involved buying bitcoin with public funds, as well as launching a national virtual wallet called "chivo" (Salvadoran slang for "cool") that offers no-fee transactions and allows for quick cross-border payments. For a country that is a largely cash economy where roughly 70% of people do not have bank accounts, credit cards, or other traditional financial services chivo was meant to offer a convenient onramp for those who had never been a part of the banking system.

The experiment also involved building a nationwide infrastructure of bitcoin ATMs across the country and requiring all businesses to accept the cryptocurrency.

The president upped the ante in November when he announced plans to build a "Bitcoin City" next-door to the Conchagua volcano in south eastern El Salvador. The bitcoin-funded city would offer significant tax relief, and geothermal energy rolling off the adjacent volcano would power bitcoin miners.

All in, the government has spent about $375 million on the bitcoin rollout, including a $150 million trust designed to convert bitcoin instantly into dollars, $120 million on the $30 bitcoin bonus given to each citizen who downloaded the chivo wallet (no small sum in a country where themonthly minimum wage is $365), and the roughly $104 million the government has publicly admitted to spending on bitcoin. Muci notes that these expenses plus the $50 million in unrealized losses on the country's bitcoin portfolio means that the country has spent around $425 million on "making bitcoin happen."

But nine months in to this nationwide bet on bitcoin, and it doesn't appear to immediately be delivering on a lot of its big promises.

President Bukele tweeted in January that the app had 4 million users (out of a total population of 6.5 million), but areportpublished in April by the U.S. National Bureau of Economic Research showed that only 20% of those who downloaded the wallet continued to use it after spending the $30 bonus. The research was based upon a "nationally representative survey" involving 1,800 households.

"In terms of actual penetration of bitcoin transactions, it seems to be quite low," explained Sobrado. "There seem to have been issues with regards to the state-issued wallets. Lots of people downloaded it, but it was buggy. It wasn't really the best user experience."

Of those who did use the government's crypto wallet, some had technical problems with the app. Other Salvadorans reported cases of identity theft, in which hackers used their national ID number to open a chivo e-wallet, in order to claim the free $30 worth of bitcoin offered by the government as an incentive to join.

Another hope for the chivo wallet was that it would help save hundreds of millions of dollars in remittance fees. Remittances, or the money sent home by migrants, account for more than 20% of El Salvador's gross domestic product, and some households receive over 60% of their income from this source alone. Incumbent services can charge 10% or more in fees for those international transfers, which can sometimes take days to arrive and require a physical pick-up.

But in 2022, recent data shows that only 1.6% of remittances were sent via digital wallets.

In terms of merchant adoption, a survey published in March by the Chamber of Commerce and Industry of El Salvador found that 86% of businesses have never made a sale in bitcoin.

"They gave people the wallets, they forced businesses to accept them, but essentially, in my opinion, it's a big nothing burger," said Muci, who previously worked at the Growth Lab at the Harvard Kennedy School of Government. "Nobody really uses the app to pay in bitcoin. People that do use it, mostly use it for dollars."

Bitcoin City is on hold, as is the $1 billion bitcoin bond sale, which was initially put on ice in March because of unfavorable market conditions.

If the president's tweets are to be believed, then the government's personal bitcoin investment is down about $50 million on paper. (None of these losses are locked in until the country exits its bitcoin position.)

"Ultimately, El Salvador's problems are just tangential to currency," said Muci.

"The issues have to do with security, economic productivity and other things. And bitcoin has nothing to do with any of that," he said.

El Salvador's big bitcoin gamble may be struggling at the moment, but Sobrado tells CNBC that it has undoubtedly been a win in terms of attracting bitcoin tourists.

"While they might be down in terms of unrealized losses in their bitcoin investment, they are extremely up in terms of tourism," said Sobrado.

"They have attracted a lot of people who are bitcoin believers and a lot of capital from these people. And I think it is entirely possible that if you think of the unrealized losses as a marketing campaign, El Salvador has already achieved what it wanted to," continued Sobrado, who also noted that countries like Costa Rica spend billions of dollars on marketing campaigns.

The tourism industry is up 30% since the Bitcoin Law took effect in September, according to official government estimates. The country's tourism minister also notes that 60% of tourists now come from the U.S.

The bitcoin experiment also hasn't hurt the president's popularity. Bukele's approval ratings are north of 85% thanks in large part to his tough-on-crime approach to leading. That's no small thing to a country that was more dangerous per capita than Afghanistan five years ago.

"Mr. Bukele is, to this day, one of the most popular presidents that is in power," said Sobrado. "He has approval rates of 80 plus percent, that people in other parts of the world just dream of."

As for the country's oppressive levels of debt, virtually everyone agrees that President Bukele will do whatever it takes to pull together enough cash to make good on what the country owes this year and next. A big part of that incentive comes from the upcoming presidential election in 2024, in which Bukele is vying for another five-year term.

JPMorgan sees a "high likelihood" of that $800 million bond maturity being paid in January, in order to "avoid disruptive credit events that might derail his prospects for a potential re-election." Although Fitch expects El Salvador to meet its near-term debt service payments, the credit agency warns that keeping pace with its loans will prove "more onerous as the year progresses."

Muci agrees that El Salvador will be able to scrape together the cash, but he warns that ultimately the country's public finance situation is unsustainable.

"The plane is gonna crash eventually, if they don't change things," said Muci. "If they don't raise taxes, cut spending, start being much more disciplined. You know, convincing markets that they're sustainable."

He added, "Bitcoin doesn't solve any of El Salvador's important economic problems."

Read the rest here:
El Salvador's $425 million bitcoin experiment isn't saving the country's finances - CNBC

The Federal Bureau of Investigation (FBI) has arrested two men who participated in a violent plan to break into a familys home in the middle of the night to steal bitcoin worth tens of millions of dollars, according to the U.S. Department of Justice. They could go to prison for 20 years.

The U.S. Department of Justice (DOJ) announced Friday the unsealing of an indictment charging Dominic Pineda and Shon Morgan with a plan to commit home invasion robbery for tens of millions of dollars in bitcoin.

The Federal Bureau of Investigation (FBI) arrested the two on Thursday in Virginia.

U.S. Attorney Damian Williams detailed:

The defendants participated in a violent plan to break into a familys home in the middle of the night and force its residents to provide the code to what the defendants believed was tens of millions of dollars in bitcoin currency.

According to the court document, the defendants participated in the plan from May 18 to May 24, 2020, to break into a home in Irvington, New York and rob its residents of cash and cryptocurrency.

Around the time of the planned home invasion, bitcoin was trading at about $10,000 per coin. BTC peaked at an all-time high price of $68,892 in November 2021. It has since dropped in value and is currently trading at $20,892.

The Justice Department described:

Pineda, 21, of Manassas, Virginia, and Morgan, 21, of Centreville, Virginia, are each charged with conspiracy to commit Hobbs Act robbery, in violation of 18 U.S.C. 1951, which carries a maximum term of 20 years in prison.

The Hobbs Act defines robbery as unlawfully taking another persons property by means of actual or threatened force.

What do you think about this case? Let us know in the comments section below.

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.

Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Originally posted here:
FBI Arrests 2 Men Planning 'Violent' Robbery of Bitcoin Worth Millions of Dollars They Face 20 Years in Prison Regulation Bitcoin News - Bitcoin...

Summary:

The creator of the popular technical analysis indicator of Bollinger Bands, John Bollinger, has pointed out that Bitcoin has formed a perfect double top on the monthly chart. In addition, Bitcoin seems to be ready to tag the lower boundary of the monthly Bollinger Band. According to Mr. Bollinger, such an event could signal the possibility of a bottom.

Mr. Bollinger shared his Bitcoin insights through the following statement and accompanying chart.

Picture perfect double (M-type) top in BTCUSD on the monthly chart complete with confirmation by BandWidth and %b leads to a tag of the lower Bollinger Band. No sign of one yet, but this would be a logical place to put in a bottom.

In a similar analysis, popular Bitcoin and crypto analyst, MagicPoopCannon, has pointed out that Bitcoins weekly RSI is more oversold now than ever before. Magic shared his insights through a tweet that can be found below, which also pointed out that the RSI could continue becoming even more oversold given the current market conditions.

However, Magic emphasized the need to remain open to the possibility of a bottom with Bitcoin hitting the recent low of around $17,600.

In a follow-up Tweet, Magic expanded on his analysis that Bitcoin has hit a bottom. He explained that data suggests it might be in. Therefore, being open to its possibility is one approach, and awareness of the potential of Bitcoins price deteriorating is also recommended. He said:

While I am VERY SCPETICAL of a bottom, I see the data that suggests it could be imminent, so I must remain open to it.

As the data improves, more capital can be deployed. If it begins to deteriorate, capital deployment can be halted and/or retracted in defense.

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Bitcoin Tagging the Lower Monthly Bollinger Band Would Be a Logical Place to Put a Bottom, says John Bollinger - Ethereum World News

Various prominent Bitcoin experts, including Adam Back, Jimmy Song and Andreas Antonopoulos, have raised some concerns over the implementation of restrictive covenants, in particular with the BIP119.

In particular, Antonopoulos has voiced concerns over "recursive covenants" that the new update could convey, thereby deteriorating the network. A recursive covenant occurs when a programmer restricts a transaction, but he does it in a way that restricts another transaction after that, starting a domino effect resulting in future limitless recursive covenants.

While locking up where a Bitcoin can be spent is advantageous to ensure more security, it also provides grounds for censorship, and control by governments, which would hinder the very existence of Bitcoin. Authorities could potentially force exchanges to withdraw only to covenants with some control over the coin.

While this same risk already exists, since governments can ask exchanges to send only to addresses with a taproot spend path or multi-sig controlled by them, could the implementation of covenants facilitate malicious purposes where it would make it easier for governments to enforce a sort of on-chain KYC? 

Covenants might interfere with Bitcoin’s fungibility — the ability of each Bitcoin to be identical in function and quality.

While useful for security and scalability, covenants would change the properties of specific Bitcoin units, essentially creating different types of digital currency, distinct according to what could be spent or where it could be sent. 

As a result, those who oppose the change argued that limiting how you can spend your Bitcoin would ultimately limit Bitcoin’s use as a digital currency, with inevitable consequences in its value.

There are strong opinions on covenants' pros and cons; however, debates are healthy and necessary to improve a decentralized and leaderless network. Ultimately, the final decision will be down to the users and node operators who will download the software that better reflects their viewpoint.

Read the original here:
What are Bitcoin covenants, and how do they work? - Cointelegraph

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The rest is here:
Why you should approach Bitcoin price with caution - FXStreet

This is an opinion editorial by Jordan Wirsz, an investor, award-winning entrepreneur, author and podcast host.

Bitcoins correlation to inflation has been widely discussed since its inception. There are many narratives surrounding bitcoins meteoric rise over the last 13 years, but none so prevalent as the debasement of fiat currency, which is certainly considered inflationary. Now Bitcoins price is declining, leaving many Bitcoiners confused, as inflation is the highest its been in more than 40 years. How will inflation and monetary policy impact bitcoins price?

First, lets discuss inflation. The Federal Reserves mandate includes an inflation target of 2%, yet we just printed an 8.6% consumer price inflation number for the month of May 2022. That is more than 400% of the Feds target. In reality, inflation is likely even higher than the CPI print. Wage inflation isnt keeping up with actual inflation and households are starting to feel it big time. Consumer sentiment is now at an all-time low.

Why isnt bitcoin surging while inflation is running out of control? Although fiat debasement and inflation are correlated, they truly are two different things that can coexist in juxtaposition for periods of time. The narrative that bitcoin is an inflation hedge has been widely talked about, but bitcoin has behaved more as a barometer of monetary policy than of inflation.

Macro analysts and economists are feverishly debating our current inflationary environment, trying to find comparisons and correlations to inflationary periods in history such as the 1940s and the 1970s in an effort to forecast where we go from here. While there are certainly similarities to inflationary periods of the past, there is no precedent for bitcoins performance under circumstances such as these. Bitcoin was born only 13 years ago from the ashes of the Global Financial Crisis, which itself unleashed one of the greatest monetary expansions in history up until that time. For the last 13 years, bitcoin has seen an environment of easy monetary policy. The Fed has been dovish, and anytime hawkishness raised its ugly head, the markets rolled over and the Fed pivoted quickly to reestablish calm markets. Note that during the same period, bitcoin rose from pennies to $69,000, making it perhaps the greatest-performing asset of all time. The thesis has been that bitcoin is an up and to the right asset, but that thesis has never been challenged by a significantly tightening monetary policy environment, which we find ourselves at the present moment.

The old saying that this time is different, might actually prove to be true. The Fed cant pivot to quell the markets this time. Inflation is wildly out of control and the Fed is starting from a near-zero rate environment. Here we are with 8.6% inflation and near-zero rates while staring recession straight in the eyes. The Fed is not hiking to cool the economy It is hiking in the face of a cooling economy, with already one quarter of negative gross domestic product growth behind us in Q1, 2022. Quantitative tightening has only just begun. The Fed does not have the leeway to slow down or ease its tightening. It must, by mandate, continue to raise rates until inflation is under control. Meanwhile, the cost-conditions index already shows the biggest tightening in decades, with almost zero movement from the Fed. The mere hint of the Fed tightening spun the markets out of control.

There is a big misconception in the market about the Fed and its commitment to raising rates. I often hear people say, The Fed cant raise rates because if they do, we wont be able to afford our debt payments, so the Fed is bluffing and will pivot sooner than later. That idea is just factually incorrect. The Fed has no limit as to the amount of money it can spend. Why? Because it can print money to make whatever debt payments are necessary to support the government from defaulting. Its easy to make debt payments when you have a central bank to print your own currency, isnt it?

I know what youre thinking: Wait a minute, youre saying the Fed needs to kill inflation by raising rates. And if rates go up enough, the Fed can just print more money to pay for its higher interest payments, which is inflationary?

Does your brain hurt yet?

This is the debt spiral and inflation conundrum that folks like Bitcoin legend Greg Foss talks about regularly.

Now let me be clear, the above discussion of that possible outcome is widely and vigorously debated. The Fed is an independent entity, and its mandate is not to print money to pay our debts. However, it is entirely possible that politicians make moves to change the Feds mandate given the potential for incredibly pernicious circumstances in the future. This complex topic and set of nuances deserves much more discussion and thought, but Ill save that for another article in the near future.

Interestingly, when the Fed announced its intent to hike rates to kill inflation, the market didnt wait for the Fed to do it The market actually went ahead and did the Feds job for it. In the last six months, interest rates have roughly doubled the fastest rate of change ever in the history of interest rates. Libor has jumped even more.

This record rate-increase has included mortgage rates, which have also doubled in the last six months, sending shivers through the housing market and crushing home affordability at a rate of change unlike anything weve ever seen before.

30-year mortgage rates have nearly doubled in the last six months.

All of this, with only a tiny, minuscule, 50 bps hike by the Fed and the very beginning of their rate hike and balance sheet runoff program, merely started in May! As you can see, the Fed barely moved an inch, while the markets crossed a chasm on their own accord. The Feds rhetoric alone sent a chilling effect through the markets that few expected. Look at the global growth optimism at new all-time lows:

Despite the current volatility in the markets, the current miscalculation by investors is that the Fed will take its foot off the brake once inflation is under control and slowing. But the Fed can only control the demand side of the inflationary equation, not the supply side of the equation, which is where most of the inflationary pressure is coming from. In essence, the Fed is trying to use a screwdriver to cut a board of lumber. Wrong tool for the job. The result may very well be a cooling economy with persistent core inflation, which is not going to be the soft landing that many hope for.

Is the Fed actually hoping for a hard landing? One thought that comes to mind is that we may actually need a hard landing in order to give the Fed a pathway to reduce interest rates again. This would provide the government the possibility of actually servicing its debt with future tax revenue, versus finding a path to print money to pay for our debt service at persistently higher rates.

Although there are macro similarities between the 1940s, 1970s and the present, I think it ultimately provides less insight into the future direction of asset prices than the monetary policy cycles do.

Below is a chart of the rate of change of U.S. M2 money supply. You can see that 2020-2021 saw a record rise from the COVID-19 stimulus, but look at late 2021-present and you see one of the fastest rate-of-change drops in M2 money supply in recent history.

In theory, bitcoin is behaving exactly as it should in this environment. Record-easy monetary policy equals number go up technology. Record monetary tightening equals number go down price action. It is quite easy to ascertain that bitcoins price is tied less to inflation, and more to monetary policy and asset inflation/deflation (as opposed to core inflation). The chart below of the FRED M2 money supply resembles a less volatile bitcoin chart number go up technology up and to the right.

Now, consider that for the first time since 2009 actually the entire history of the FRED M2 chart the M2 line is potentially making a significant direction turn to the downside (look closely). Bitcoin is only a 13-year-old experiment in correlation analysis that many are still theorizing upon, but if this correlation holds, then it stands to reason that bitcoin will be much more closely tied to monetary policy than it will inflation.

If the Fed finds itself needing to print significantly more money, it would potentially coincide with an uptick in M2. That event could reflect a monetary policy change significant enough to start a new bull market in bitcoin, regardless of whether or not the Fed starts easing rates.

I often think to myself, What is the catalyst for people to allocate a portion of their portfolio to bitcoin? I believe we are beginning to see that catalyst unfold right in front of us. Below is a total-bond-return index chart that demonstrates the significant losses bond holders are taking on the chin right now.

The traditional 60/40 portfolio is getting destroyed on both sides simultaneously, for the first time in history. The traditional safe haven isnt working this time around, which underscores the possibility that this time is different. Bonds may be a deadweight allocation for portfolios from now on or worse.

It seems that most traditional portfolio strategies are broken or breaking. The only strategy that has worked consistently over the course of millennia is to build and secure wealth with the simple ownership of what is valuable. Work has always been valuable and that is why proof-of-work is tied to true forms of value. Bitcoin is the only thing that does this well in the digital world. Gold does it too, but compared to bitcoin, it cannot fulfill the needs of a modern, interconnected, global economy as well as its digital counterpart can. If bitcoin didnt exist, then gold would be the only answer. Thankfully, bitcoin exists.

Regardless of whether inflation stays high or calms down to more normalized levels, the bottom line is clear: Bitcoin will likely start its next bull market when monetary policy changes, even if ever so slightly or indirectly.

This is a guest post by Jordan Wirsz. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

Read the original:
Is Bitcoin Really A Hedge Against Inflation? - Bitcoin Magazine