The defi matrix

As each asset class goes on-chain, it can be stored in a digital wallet. And it can be traded against other such assets. Not just cryptocurrencies, but national digital currencies, personal tokens, etc.

We’re about to enter an age of global monetary competition.

As it's yet again been one of those light news weeks for #Bitcoin, let's get down to brass tacks. Bitcoin is now the 6th... largest... currency in the world. ✊ It's 7th if you include gold. This is quarterly update #11.

2/ For 12 years the world's been trying to understand #Bitcoin, forget Bitcoin, legitimize Bitcoin, criticize Bitcoin, love Bitcoin, hate Bitcoin. Bitcoin is a protocol, it does what it does. But if you want to speak of its value as money, you gotta understand the monetary base.

3/ What follows isn't a lesson in stimulus or bailouts, whatever the world faces. It's an attempt at painting the monetary landscape around the globe. This is an exercise in perspective. The dollars, euros, and yen we're all familiar with, collectively, are worth $27 trillion.

4/ As many know, the response from governments worldwide to Covid-19 has been drastic, so expect big moves in the data.

5/ Gold & silver is base money of the past. Government fiat is base money today. It comprises both physical cash, *and* a digital cash component. Bitcoin may be base money of the future. Before we show the charts, it's important to clarify exactly what basic money is.

1\ There is an alarming amount of misinformation (fueled by the media) on what exactly happened to Bitcoin yesterday, and whether funds were "double spent"

Here's everything you need to know 👇

2\ On the 18th, a user broadcast a transaction with very low fees.

When users underpay fees, their transactions gets stuck because miners have more profitable opportunities.

Users are left with 2 options:

a) wait until fee levels drop
b) tell miners they will increase fees

3\ The most popular way to (b) increase fees of an already-broadcast transaction is through a "Replace By Fee (RBF)" transaction.

Put simply, RBF is a copy-and-paste of the original transaction with higher fees and an explicit instruction to favor the new transaction instead.

4\ Nearly a day passed after our infamous user broadcast the original transaction and miners did not include it.

So the user decided to issue an RBF on the 19th with higher fees... but not high enough!

And the transaction was again stuck...

5\ A couple of hours later, the user decided to bump fees up again via a second RBF!

This time around the user paid enough fees.

For those who were trading in 2017 or earlier bull markets this may be obvious, but these kinds of corrections are typically driven by overleveraged longs, not whales dumping on you. That hasn’t started yet. Let me break down why it happens and why it is worse on the weekends.

I should probably have data to back this up, but I haven’t kept up to date with the latest trading data so much of this is based on intuition and experience trading through 2016-2018. If you have data that invalidates this please provide it, happy to be wrong here!

Firstly in an early bull market you have some OG holders taking profit around previous ATH, they have “learned their lesson” and are trying to not get rekt like last time. Once they finish taking some profits or hedging they are riding this up to multiples of previous ATH.

For example I sold around 5-10% of my ETH into stables between $500-$1200, over $1,200 you would need to claw it out of my cold dead hands before we hit $3k. If we don’t get there this cycle (we will) then I will just keep holding. I know a lot of people who did the same.

The problem with this is that the new money coming in and pushing the price up is highly leveraged, and the people with the most conviction are mainly holding and so while they might buy some dips they probably don’t have the dry powder to soak up huge liquidated positions.

1/ Satoshi’s Vision™ is a silly endeavor, as it doesn’t matter what it was, we are where we are now. However, those pushing the “Bitcoin was first made for payments” narrative insist on cherry-picking sentences from the white paper and forum posts to champion their perspective.

2/ The following tweetstorm is a categorical repudiation of this tired narrative. Bitcoin was purpose-built to first be a Store of Value (SoV), a thread:

3/ How do we determine Satoshi’s intention? We need to look at his ideology, description of functionality/architecture, timing, and audience. Let's start with how Satoshi describes the problem Bitcoin solves. In his first public comms after the whitepaper, in the first paragraph:

4/ “The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” - Satoshi

5/ He later expands on that Libertarian thought in his other writings:

“[with Bitcoin] we can win a major battle in the arms race and gain a new territory of freedom for several years.” — Satoshi Nakamoto