 Hello friends and thanks for joining us today for another episode of the Mark Report here on Cointelegraph. The markets may be in the dumps, but we are not. I'm your host Benton and we are joined again by our resident experts Marcel Peckman, Ray Salman, and Sam Borgie. Sam Borgie is the business editor at Cointelegraph where he brings a decade of experience in economic analysis and financial market writing. Marcel Peckman applies his 17 years of experience trading derivatives options and futures to the crypto derivatives markets. Ray Salman is an editor and head of markets Cointelegraph. After discovering Bitcoin 2016, Ray went on to work as the head of content marketing at a variety of blockchain startups. Ray is an avid beer drinker and a barbecue fanatic. That is quite the bio guys. It is a heck of a week here. We're back. Everyone's back in the saddle. What is going on folks? Let's start this off with Marcel or Marcel, how are we feeling this week man? Hey Benton, I think people are too afraid of what the Federal Reserve can or cannot do and they're missing the big point. The big point here is the PPI, producer inflation in Germany, which should have 48% year over year. So that's what I call hyperinflation my friends. That's the dangers we're going to face. Is it here to stay Sam? What's going on this week man? Well, that's quite a way to start the show Marcel with the PPI. If you have factory gate inflation, you're probably going to have more consumer inflation. So if that trend continues look out. I mean, look, I've been in pretty much status quo mode now for what six months, you know, expecting what we're going to see now is going to be a macro bottom probably this quarter or fourth quarter. So for me, the outlook hasn't changed. Anybody expecting a Fed pivot by the end of the year, I think now they're beginning to reevaluate that expectation. Daddy's not coming not anytime soon. So expect this chop to continue for a while longer. Will Sam ever change his perspective? He's been the steady rock in the stormy seas for us over the last six months. And Ray is joining us today, special guest. Ray, what is going on this week? How are we doing man? I am great. I totally agree with Marcel and Sam that, you know, things are looking kind of rough and the bottom is not in for all markets. I would just say that reality lags policy or results lag policy. So you see these disastrous prints coming out. You see the Fed and other central banks attempting to deal with hot runaway inflation and it takes a long time to see the consequence of their attempts at putting a cap on inflation for that to show up in our pocket books and in the market. So I'm 100% in agreeance with Marcel and Sam. It's a time to just be conservative and to plan well and be patient. It's not time to ape into any asset unless you've got millions of dollars just sitting on the side. Very good. And we have a new formatted show today, special episode where we're going to have our panel interview, Joe Burnett, head analyst of Blockwork Solutions and Pierre Rochard, the VP of research at Riot. So you guys are going to want to make sure you stay tuned for the special exclusive interview that you're not going to be able to find anywhere else on the internet. We got some big news to get into this week. Five things you should be knowing about Bitcoin and what to be on the lookout for, some of which our folks here have already touched on, but we're going to be diving a little bit deeper on that. And we have some other big headlines. But first things first, if you haven't like to subscribe, the Cointelegraph YouTube channel, go ahead and do so. Turn that notification bell on so you know when we go live every Tuesday at 12pm Eastern, or we have some of these special one off episodes, maybe the market drops another 20% here. And we could be going live to talk about that. So make sure you have those notifications on and we're going to be giving away $100 subscription of Markets Pro. So drop your Twitter handle in the chat today. And we're going to be interacting with the chat as well. So thank you everyone for tuning in from around the globe, no matter where you are. Let's hear it where you are tuning in from from around the globe today. But first things first, we have the weekly roundup videos of some of the biggest happenings on crypto Twitter this week. So Danila, let's go ahead and jump into our weekly roundup video for this week. What was interesting this week was was how the SEC is starting to creep up and really start to get out their regulation things. It sounds like they have their eyes set on Ethereum. So that was pretty interesting there. So guys, we got it. We got to start today's show out with a laugh. So let's go ahead and get the memes rolling. We had Adrian and Danila pick out some of the best memes for this week. Let's go ahead and jump into the memes for this week. What do we got first? Superman is useless on Wednesday evening because he goes to weekly Bitcoin meetup. It says crypto night. Oh my, beer market times. Getting all the bear market memes we can get with careful nuance analysis, TA with random thoughts. 100% agree. That season we're about to give up on Bitcoin when you realize the bottom is in is the bottom end though. We're going to be diving into that here in a little bit. So that's a good meme to segue over. I think everyone kind of had that that face when the ETH merge happened. Not as many fireworks as folks were expecting. It was actually pretty seamless. So hats off to Ethereum foundation. The merge is not complete. Come on guys. It's just the merge, the surge, the splurge. Yeah, yeah. It's just a phase one out of 645. Only 10 million years, right? Crypto interest rates, the Fed. Yes, we all love the Fed memes. Very good. All right. Thank you to Danila and Adrian for pulling some of the best memes for this week. But we got to get into the five things you should know about Bitcoin this week. So Danila, let's go ahead and pull up one of the big headlines from Cointelegraph this week. This article is written by William Suburg here. One of the first five things that we should be noting about Bitcoin is that the Fed rate hike sledgehammer in focus. What does this mean? Well, the largest cryptocurrency has yet to flip 20,000 to convincing support as the third full week of September begins. The danger is once again, that level could function as resistance. So with the ETH merge over this Fed rate hike sledgehammer, the CPI printed in August. Not great. It was hotter than everyone expected. The market has now fully priced in minimum 75 basis points for the Fed funds is not discounting the chances of 100 basis points according to the CME Fed watch tool as of September 19th, guys. All right. What does this mean? The latest CPI print was higher than expected. What was your big takeaway here? I'll start out with Ray first. I think it just shows that inflation is just harder to put a cap on than anyone anticipates. It's a bad sign because we're three rate hikes in 2022 and inflation is still high. Another thing that economists picked up on was that fuel prices were super high in June and July. They pulled down significantly in August and into September. So core inflation is higher. The cost of food is higher. The cost of medicine and medical services is higher. The cost of goods and services is higher. So that's problematic. If inflation was primarily being led by, you know, energy cost in the summer, then we can kind of like, we can kind of disaggregate that increase from the more core part of inflation since we're about to go into autumn or fall and then winter. So you would assume that if that was the case that we would start the plateau and hopefully see some pullback in where inflation has been really sticky and other parts of the economy. But that wasn't the case. So that's why market participants are expecting, you know, a 75 to 1% rate increase at the next FOMC meeting. And the bad thing is that the knock-on effect of higher rates means borrowing and accessing capital becomes more expensive. And will that continue to just basically chisel away at equities markets and, you know, as a result of that also crypto prices? So it wasn't a good sign. Tim, does 100 basis point rate hike scare you or is that going to create the next downfall for traditional markets and crypto markets? And what are your thoughts and insights into what you're seeing right now with the Fed? Well, if you would have told me six months ago does 100 basis point increase scare me, I would be shocked at something like that, right? I've been covering the Fed now for a decade and we haven't seen anything like we've seen the past several months in terms of the tightening. I don't know how much of an effect it's going to have. At some point, they're going to run into a wall because the Fed can only do one thing and that's curtail demand. And demand's only going to be one side of the equation. So with an economy that relies so heavily on cheap credit to function, how much can the Fed hike before it breaks something? And what's going to break? Is it going to be liquidity in the Treasury market? Is it going to be, you know, the overnight repo market like we saw back in 2019? We don't know yet. But right now I think that they have a strong mandate to continue hiking because they have to do what they have to do because when you get the call so wrong and take a look at how the lack of accountability works with people like this, right? You have all these academics who don't have skin in the game, they coalesce in Washington 10 times a year to set interest rates. They get it so completely wrong and it's affecting basically almost every single person who has any kind of skin in the game. But oh, look, we messed up big time. Nothing comes of it, right? You had Powell gets, you know, another term and so on and so forth. So right now I think their mandate is very strong to continue hiking and they'll continue to do so until they break something. So we'll see what that is. And I want to go back to the article real quick and then I'll give Marcel a chance to chime in here. Mike McGlenn, who is the Senior Commodity Strategist at Bloomberg, said the Fed will not be easing anytime soon as classic human nature because now we have the benefit of knowing how far in the mistakes they made by easing too much. So was the quantitative easing, this is now all coming to a head, we're starting to see cracks in the real estate market. You hear rumors and rumblings of banks starting to offload major real estate assets. Marcel, what's kind of your take here? And do you have anything to say to what Mike was mentioning there in the article? Yeah, I agree with Mike. It's a confidence game, Benton. Like if the Federal Reserve suddenly stops raising interest rates and resumes the bonds and treasures by banks, the message they're giving to the world is we don't care about the 33 dollar debt. We're going to continue issue printing whether there's inflation or not. So it's not going to be really repaid. We can just print dollars and screw you. So if they want the US dollar, this major Ponzi to continue having some credibility, they have to go through no matter if the S&P falls another 30 or 40%. It's more important to maintain the status quo of the dollar than facing a recession like unemployment going from 3% to 10% or the S&P falling 30% or corporate earnings or layoffs. It's more important for them to keep the US dollar Ponzi afloat. And for doing that, they have to keep pushing interest rates up until inflation is not a problem anymore. And I see from CryptoPab Learn Daily, he asked the question, if the Fed's policies affect the big players, will that result in more P2P platforms? If anyone wants to jump in here on the panel and take this, feel free to do so. You would think so, but in the US regulations coming to Crypto, so all P2P platforms are going to need to be KYC compliant and followed by all the rules. So I'm sure that new products and services will emerge. But if they want to gain market traction and be successful and have the confidence that it's something that you can on-ramp and off-ramp with, then they'll need to be following either CFTC or SEC rules and then also statewide rules on commerce of digital assets. Very good. And let's move on to our second point here for things to be on the lookout for Bitcoin. So spot price sinks after poor weekly close. Danilo, if you want to go ahead and pull up these charts here, we're looking at the one-week candle chart in this particular article. It says the close was followed by a sharp downturn in which the pair fell below 19,000. I believe it looks like we're actually currently sitting below 19,000. And the bearish mood is perhaps understandable. The Ethereum merge became sell the news event. Folks, if you've been watching the market report, we've been talking about that for weeks by the rumor sell the news. We saw it happen along with some of these macro triggers, which contributed to a fresh risk asset flight. So is 18K or this new range below 20K? Is this going to become the new norm, Sam? Well, I'm not quite sure about specific ranges, but I do expect there to be chop leading to one final flush out. We're talking about sledgehammers and things this week. And I've been talking about sledgehammers for months now. The fall is generally a pretty volatile period for risk assets, especially with the current macro backdrop that we have. So I'm expecting one more major flush out before Bitcoin bottoms. What level that's going to be? I mean, I can speculate and spout off, but that's not really going to mean much. I do think there's going to be one more one more flush out as Ray mentioned earlier, equities become more unhinged, given what the Fed is doing. So that's kind of my expectation. I'm not really, I don't care too much about certain price levels because I'm going to be an accumulation phase for Bitcoin. So I don't really care if it's 18 or 16 or 12 or 19 doesn't make a difference to me in the long run. But don't expect any kind of positive price catalysts anytime soon, in my opinion. Marcelle, what are you seeing right now in the spot price of Bitcoin in when are you expecting to see a potential real, real bottom for Bitcoin? Okay, Ben. So I think that the most significant support level was $20,000. And we lost that in June because that was the cycle top from 2017. There was this whole expectation that Bitcoin price never went below the previous cycle top and it happened. So we just completed five months below $40,000. So meaning, effectively, a bear market since the top was nearly $70,000. So everybody, every time someone said, oh, 30K is the youth meat load, 20K is the youth meat load, 18K is the youth meat load. All of those emotional numbers that meaningless were shattered, squatter, they mean nothing. So the correlation to stock markets and traditional finance has been high, unusually high for the most part of 2022, which means that if stock market collapse further 20 or 30%, yes, the Bitcoin would drop another 40 to 50%. There's no doubt about it. So saying that the youth meat load is 16 or 14 or 13 right now doesn't make any sense. We've got to see what the stock market is going to do after the crisis unfolds to decide whether the bottom is in. But right now, I can definitely say that $18,000 doesn't look like the ultimate bottom. Very good. And Ray, I want to kick you this question from the audience, from Christian Branch, YCEO. With the Ethereum Merch, now past us, what will be the next positive price catalyst you'll look out for? I know this has kind of shifted us over to Ethereum, but how can we tie this into Bitcoin? What kind of catalyst are you looking for? And then do you have any insights on the spot price currently of Bitcoin's levels? For Ethereum, like Marcel said, the Merch isn't over. I believe the next step is sharding. And people that are staked in the beacon chain that staked like a year plus ago are still staked. So you have all these DeFi and possibly institutional investors who are staked and have client funds and are generating yield off of that, right? So what I would go look at, I was meaning to look at it today. Hopefully I can check it out later, but I would encourage the audience to go look at the open interest on Ethereum quarterly futures, like the, or the options and look at the open interest on perpetual contracts and just see how, what happened to it? Is it still in backwardation? Is it still at record highs? How's that completely unwound? I don't think that all of those positions are fully unwound because I'm thinking that institutional investors need to still hedge their staked Ethereum positions that have been staked for a year or under a year, right? Like I'm talking about DeFi protocols and whales and such institutional investors. So with Ethereum, perhaps the Merch was a buy the, buy the room or sell the news type of thing. But I don't think that even if we sell off further to a thousand or under a thousand, I don't think Ethereum is is caput in the SEC information is probably fud. I don't see them in the short term, six months or whatever, just taking over Ethereum and completely regulating it. I don't know how you do that or what that looks like. So Ethereum is one to keep an eye on. Look at the metrics because things could turn around when you least expect it is meant to be deflationary. And it still is a massive market cap asset with an incredibly large thriving ecosystem. So the fundamentals for it are still there. Is it ultrasound money? I don't know. That's still to be determined. Bitcoin price very quickly. I'm unmoved by it like Marcel and Sam. We're still in the same three month range. It's like a 95 day range that we've been in between 24,500 and 17,600 at the yearly swing low. So what we've been getting is just bear flag continuation since the all-time high was reached in November 2021. It's just been successive bear flags continuing, confirming, breaking down. So I need to see the price hit a few daily lows underneath 17,600 before I even think about downside in the whatever 15, 12, $10,000 range. Until we break from that, I'm just doing the same as everyone else here steadily price being price agnostic and dollar cost averaging into Bitcoin once per week. Keeping it simple. $50 a week. Smart man. He is a smart man. All right. Well, let's pivot into our third thing that you should be on the lookout for for Bitcoin this week, which is the US dollar coils beneath multi decade peak. So to elaborate a little bit further on this, a classic headwind for crypto, US dollar index, the DXY currently sits under 110 having consolidated for several days index at 110.78. It's highest since 2002 earlier this month avoiding enduring significant retracement. So are we expecting I want to pull up this chart real quick just to kind of show everyone we're talking about. This is an all time high for the DXY right here. We're seeing this Sam, if you wouldn't mind just walking our audience through this. Why is this important when we're kind of talking about Bitcoin and the DXY in how those two kind of relate? Well, Bitcoin seems to have a strong correlation. There's an inverse correlation with the DXY. So when the dollar, the US dollar is rising, Bitcoin tends to depreciate. That's just a general trend. The DXY itself is a measure of the strength of the US dollar against the basket of about six currencies, chiefly being the Euro. The Euro accounts for a large proportion of that. So a lot of the strength you're seeing in the dollar really reflects the weakness of the other shit coins we have out there chiefly being the Euro, right? So right now, again, as Ray and Marcel mentioned, right now Bitcoin is still in the throes of the traditional markets being pulled by factors outside of its control. And I never thought I'd have to talk about the Fed so much since I left legacy finance. I used to watch these guys every single month, the Fed minutes, the Fed this, the blah, blah, blah. Here I came into sound money thinking I would have to care so much about this. But here we are. The Fed is really the entire name of the game right now and what they do. So don't fight the Fed or else you'll get your ass handed to you in the short term at least. So whatever investment strategy you have, maintain that and look beyond current price action. But the DXY does provide a strong headwind to the Bitcoin and crypto markets in the short term. I expect DXY to continue higher. It looks like it's a parabolic rally, similar to what we saw, I think, seven years ago. It eventually will peak out and then eventually go back down. I would, in my opinion, pretty sharply. But right now, given where we are in terms of the Fed tightening cycle, I think that the DXY probably has more room to run to the upside. And Marcel, do you want to add any color there to the DXY and how the US dollar beneath multi-decade peak? I think people who are monitoring the DXY are looking at the wrong indicator, meaning the US dollar being stronger than the euro or the Japanese yen or whatever the UK British pound. It doesn't mean that it's getting stronger. You have to compare what a dollar can buy you in terms of protein, in terms of the stock market, in terms of the housing market, in terms of global wealth. So you're effectively comparing, yes, avalanche, fear, better than a throne. So it's a good coin. Dude, one is down 80% from peak. The other is down 90% from peak. So what are you saying? The dollar has lost 94% of the purchasing power since it was launched. So it's not very good. It's not at an all-time high. So it's the wrong metric in my opinion. It's the best of the worst right now. Yeah. Excellent. And we heard Ray talking a little bit and diving into Ethereum. So I want to segue us into the fourth point of what to be on the lookout for Bitcoin this week. Got that post-merge blues. We have been calling this for weeks, the buy, the remercel, the news event, and then the merge happened for Bitcoin. I guess, Ray, what was your biggest takeaway about what was and if you wouldn't mind just kind of elaborating on what you're looking for? Sorry, I missed a little bit of that. What was the biggest takeaway with the Ethereum merge? Yeah, exactly. It was a success, but I had some guy on a show last week. It was Charles Capriol, and I was telling him because I talked to him at 11 that morning. So I went to sleep. I was really nervous about the merge, but prepared, meaning that my position sizing was appropriate. I put some assets into a different network and loaded them up on Bybit so I could trade any volume there from like Tron, USDTE or whatever because Ethereum was down and the deposits and withdrawals were down during the merge. And I had braced myself for the worst because usually when upgrades happen in crypto and they're widely expected, there's some sort of shit falls apart and it's a disaster and I lose money. So I'd already prepared myself for all of that. So I was really surprised when I woke up the next morning. My phone had no notifications. Twitter had not blown up. Telegram was quiet. I got no sort of alarms triggered in trading view that there were stop losses triggered or orders triggered. So the merge was literally updating your iPad. It was a software update. It came and it went and it was a success. So I'm happy. I've learned that in crypto, big giant narratives run the show and you should position yourself to whatever is a comfortable spot for you to where you don't sweat a lot and you don't lose a lot of money if there's a lot of talk about something happening. So if Bitcoin's meant to blow off top to 110K, you better take your profits way before that. If Ethereum's meant to go to 4,000 because of the merge, well, when it hits 2K or some like market structure level resistance, you better take your profits. So the merge aside from me being nervous about Ethereum breaking and me losing all my coins, it was a success for me because I was positioned in a way that I didn't have much to lose. I'm sad that the proof of work hard fork tokens didn't turn out to make me money because I was expecting to at least get like $7,000 to $10,000 in free money off of those hard fork tokens like what happened with BCH. And I've not even logged into any exchange or even checked my wallet to see did I get them and what are they worth because I know they're worthless. So that part was disappointing to me. I think it was disappointing to a lot of people because a lot of people were big money individuals were hedged, I believe, to also like game that airdrop or that hard fork. So the fact that it's worthless is a bit disappointing. Well, they got $10. They got $10 per ETH POW. I wanted at least like 10%. I wanted like $400 to $700 per coin, $400 or like $300 per coin. He just gave it away for free, man. I wanted more. I had known that the proof of work coins wouldn't have been worth anything. I probably would have sold ETH at $2,000 and then use that money to swing trade other assets or to rebuy the ETH dip. So I'm not like religiously dedicated to any coin that's not Bitcoin, to be honest. So I made that mistake in the past. So I would have changed my strategy if I knew the hard fork tokens were going to be worthless. I think that's the message we should give to our viewers. Sometimes you focus on, oh, I'm going to get 8% EOD or I'm going to get the free coin that's priced at $200, $300. Okay. But Ethereum had just moved from $1,000 to $2,000. You already gained $1,000. You should have poked at least half of that gains and you didn't. So now we're expecting some free money to cover it. So Ethereum plunged from $2,000 to $1,300. So the lesson here is focus on the big numbers instead of just the 4% EOD. The EOD doesn't matter if the price goes down. So you're not going to have a stable price on the coin. Yeah, you've exposed me. But Marcel, why were you not bullish on the merge kind of heading into last week? Well, because the merge was not solving the biggest issue, the elephant in the room, which is scalability. If the Ethereum network fees continues at $2, $4, that's impossible for the most games, metaverse, and even DeFi applications, at least for the average users. No one's going to pay $20 for NFT minting unless you're a whale or you're expecting to sell this NFT for $200 or $2,000 somewhere upfront. But most of the NFT collections are not like that. So Ethereum did not solve the main issue. So I was not expecting a price pump because of that. But the big question we should be asking ourselves is what problem is the merge solving for the end user? And the answer is none. That seems to be a common theme in crypto where we're not necessarily solving problems. We are creating these new imaginary things and they're not necessarily fixing anything or being problem solving. So I want to pivot real quick back to the article where crypto god John was nonetheless playing out for a generational opportunity on the ETH USD pair. Sam, are you looking at ETH as a potential buy if it bottoms out at 1K? And then my second follow up question to that is, does proof of work become an obsolete consensus mechanism moving forward? In terms of ETH's bottom, I think that if the shit hits a fan with stocks and with the entire risk on asset, I think we can probably fall below 1K. That was always kind of my target for ETH. Again, for me to purchase ETH, I'm betting on the massive ecosystem or at least I'm betting that this massive ecosystem still has some value, which could translate into potential higher returns for ETH during the next cycle, which I think is a possibility. In terms of whether ETH actually solves the issues that Marcel talked about, that's still yet to be determined. So it's not a buy and hold like Bitcoin, for example, in my opinion. So that's just the way I see it. But overall, things can get really ugly the next few months, I think. So prepare accordingly. And when it comes to proof of work, we know Bitcoin is the gold standard for that. Is this going to become obsolete? This has been a narrative that's been talked about in the past, but where is your take on that? Well, I think that the ETH community is going to fall into the ESG category. They're going to probably have more ammo to attack Bitcoin with. Is proof of work obsolete? Absolutely not. I mean, proof of work is the underpinning of the only sound money alternative that we have, which is Bitcoin. So what I think this does is actually, it probably sets Bitcoin apart even more from everything else being the true POW. It's going to get a lot of attacks, because everyone's in a mass hysteria over the carbon footprint of Bitcoin. And that's going to give people more ammo in the short term to attack it. But I think this just sets Bitcoin apart even more. Very good. And our last thing to be on the lookout for Bitcoin this week is dormant Bitcoin supply that continues to age. So according to the antelix firm Glassnode, coins held for a period of at least five years are showing just one trend. And that is up, up only for the long-term holders here of Bitcoin. So the amount of supply last acted between five and seven years hits the highest in almost two years. So that's one million Bitcoin. So some of these younger coins are also on the move with the six to 12-month bracket seeing five-month highs of its own. What does this mean? Does this tell you, hey, the people that have been in the game and are holding are the ones benefiting the long run? Ray, what is this telling you? Holders keep holding and accumulators keep accumulating. I think there's this term called analysis paralysis and Glassnode are experts at this through their Twitter where so much signal, so much alpha, so many charts, so many metrics come out, right? And they just, you can overanalyze something and end up losing money or not fishing or not spending time with your wife and kids or not exercising or not enjoying life, right? So Bitcoin's deflationary. It has a supply cap. Production costs aligns with value over time, right? Like they track each other. I know Blockworks has created an on-train metric that tracks that. So to me, it's irrelevant. Like the Bitcoins that I bought in 2017, I'm still holding them. And I have no intention of selling them. And I hope that yield products build around them so I can use them as like, like a HELOC, like a loan on my mortgage to, as my Bitcoin gains equity and value, I hope I can tap into that and use that to access more investments or to create yield off of it. So personally, I think it's irrelevant. Like as Bitcoin price drops, more people are going to buy it, right? And more people are, demand is going to increase as supply becomes constrained. So, you know, I work in media and sometimes we latch on to juicy things because it's clickable and it creates an article. But at the end of the day, Bitcoin is the simplest thing that's out there. You just buy and hold and wait until the halving and take profits at the halving to cover your cost and make sure that you keep a position. That's not financial advice. It's not meant to be financial advice. It's just what I do as a disclaimer. Very good. And that's going to do it for our five things to be on the lookout for Bitcoin this week. I want to cover one last headline for this week, which was the $160 million hack stolen from the crypto market maker Wintermute. What happened? Well, cryptocurrency market maker base in the UK became the latest victim of decentralized finance hacks, losing approximately $160 million, according to Guinea Gevoy, the company's founder and CEO. After looking at EtherScan, 70 different tokens have been transferred to Wintermute Expoider, including $61 million of USD, 671 rap BTC, and about $29 million of Tether. Here we are again. It's crypto. There's hacks all the time. Why is this one so significant, Marcel? But I've done some digging around and what amazes me the most is that Wintermute crypto market-making arbitrage firm that was born six years ago. One of the smartest guys in the room, they faced multimillion losses, not once, but twice. If you don't recall, three months ago, back in June, they lost 20 million optimism OP tokens during the launch. They have been hired to do the market-making on centralized exchanges, and they gave some kind of layer two address on the network, and those tokens got lost forever or got transferred by a hacker or whatever. But they lost approximately $20 million just three months ago, and now they lose $160 million. So step outside for a minute. Think if you're on a fund management committee of a firm or even a VC or whatever, you have cash available, you're working at Apple, and somebody suggests, why don't we invest 5% of our cash in Bitcoin to protect from inflation or yada yada? And you see the news about Wintermute, the biggest market maker losing twice multimillion losses. So you think that's not safe, that's not secure, even the experts are losing money. So I do think that that is far worse than Tree Arrow's capital or Voyager, because those were centralized firms with no really experience aside from running a Ponzi scheme. But Wintermute is not a Ponzi scheme. They are serious, they are very good at what they do, and still they got hacked twice. So I think it's going to take at least a couple of years until the institutional investors begin to take interest gain in the case. And it goes to show that we definitely need to continue to tighten the screws on smart contract security, because these exploits happen almost every week in crypto, unfortunately. So that's going to do it for our market news for this week. And I know we have a huge special interview today, so make sure you guys are staying tuned here for this. You don't want to miss Ray, Sam and Marcel, because we have Joe Burnett, head analyst of Blockwork Solutions and Pierre Rochard, VP of Research at Riot. Don't forget, drop your Twitter handle in the chat. We're going to be giving away a $100 subscription to Markets Pro, and go ahead and slam that like and subscribe button for Cointelegraph here on YouTube. So let's go ahead and get this party started. I'm going to hand this over to Ray and Marcel to jump into the goods with Joe Burnett and Pierre Rochard. Hey, Joe. Hey, Pierre. Can you hear me? Can you hear you? Yeah, yeah. All right. Perfect. Welcome. Thanks for coming on. Thank you for being so patient. We got a little carried away talking about Bitcoin, but we're hoping to extend that conversation with you. So as Benton said, we've got Joe Burnett, head analyst at Blockwork Solutions and Pierre Rochard, VP of Research at Riot. These two guys recently authored a report on Bitcoin transaction fees, network security, and various scenarios that kind of explore how a tax on the Bitcoin network might or might not succeed. That report I think comes out today, and Cointelegraphs will be writing an article about it later today. Marcel and I, we got the early source, so thank you for sliding that under the door to us. We read it and found it quite intriguing. So thanks for giving us an early look at that. Let's dig into a few of the juicy revelations from the data and briefly chat about the state of the network and Bitcoin miners today. So I'll kick off, Joe. There's kind of a perception that Bitcoin's mining network growth and decentralization underpin its security. And in the report, you mentioned that mining is just not about Bitcoin security. It's actually about settlement finality. So what do you mean by that? What does that mean? Does that mean that a centralized network does not threaten or lessen Bitcoin's security? So what we meant by that was Bitcoin security and consensus rules are defined by private key storage and nodes, respectively, not miners. At the end of the day, miners have the ability to do one thing and that's proposed blocks that nodes, which set the consensus rules, verify, accept and use to update the ledger. So since miners cannot change key consensus rules, malicious or unreliable miners can only censor specific transactions that they do not want to include in their own blocks. They can get creative with this, but at the end of the day, all attacks stem from only being able to censor transactions in the longest valid proof of work chain. Yeah, that's right. And I would add that let's let's say hypothetically, there's one laptop in the world and that is the only Bitcoin miner because transaction fees are just so low and there's no more Bitcoin being mined. There's no more subsidy. What happens in that scenario, right? So you could say, well, Bitcoin's fully centralized, this is a huge problem. But if that one person with their laptop is not censoring any transactions and is just proposing blocks, you know, as one would, then there's not really a problem, right? Now, let's say they do misbehave and either because they get knocked offline because their laptop runs out of battery or because they are wanting to censor a transaction, then what we see is that there's actually a market for transactions called the mempool and that market is very competitive. And so if transactions are not getting into the next block, they start bidding up their transaction fee. And that is what attracts new miners. Mining is permissionless. So one miner cannot stop any other miner from participating, right? It's just about can you do shot 256 squared, this very commodity hashing function. And so it's entirely permissionless. And even in a scenario, as I described, where there's no actual decentralization, it can decentralize very quickly if there is abuse. And so this is where I would argue that Bitcoin mining is very antifragile. It doesn't need to be decentralized every hour of the day. Although today it is, right? Like if we look at Bitcoin's history, it has been very decentralized. And I expect it to continue to be so. But nevertheless, there's not a long run concern of, well, will decentralization cause problems or vice versa? That's interesting. Marcel, did you have any follow-ups or questions? Feel free. I have a follow-up question for that. Like Pierre, let's imagine that 15k is the baseline, the cost price to mine Bitcoin today. Just let's imagine that. And if it drops below that level, we can assume that a lot of the miners are going to unplug their machines because they're not profitable anymore. And if that happens, wouldn't it be easy or cheap to rent those machines and perform a 51% attack? So what are the effective risks of that happening and how can the community circumvent that? Yeah, so I actually disagree with looking at the cost of the attack because at the end of the day, if there's a social engineering attack or some kind of cybersecurity attack, the cost can be $0. And so if somebody is able to hijack hash rate, or if a government is able to seize hash rate, then the cost is as low as one could imagine. What we should look at rather than the physical cost of setting up the ASIC rigs, is look at how high would transaction fees go if the attacker was censoring transactions. And when we look at December of 2017, when transaction fees went very high because of congestion, not because of censorship, but because of congestion, we did see that there's tremendous price elasticity or any elasticity because transactions would cost like $50 or $500 for a transaction and people would still do them. There's tremendous demand for using Bitcoin on chain as final settlement. And we see over the past 12 months, more than $50 trillion worth of Bitcoin have settled. So there's certainly no lack of demand. And if somebody is censoring supply, and it doesn't matter if they paid $12,000 or $1 million or $1 billion to censor supply, transaction fees would skyrocket and far exceed that cost that they put in to censor. I know, Marcel, that you had a question about exchanges, like demanding. Yeah. Yeah, we've seen over and over that exchanges themselves, the centralized exchanges are the biggest demander of BlockSpace, especially at certain intervals like BitMEX, at 8 a.m. it used to consume a lot of BlockSpace. And they don't seem to have incentives to implement Lightning Network or other scaling solutions. So I really don't know what's going on, but what could be done to help to ensure that those transactions pay less fees like would be good for the exchange themselves to have their own miners, for example, or that would be negative for an industry if that happens. What do you see as a solution to that problem? Yeah, I would disagree with the incentive for exchanges. I worked at Kraken for three years. The incentive for exchanges is to lower their own transaction fees. So by using Bitcoin more efficiently, they pay less than transaction fees. And it adds up very quickly when you're operating at scale like a major exchange. Kraken had transaction batching, Kraken adopted Segwit, and then also adopted the Lightning Network. And so all of these efficiency gains, they accrue to the exchange. They also accrue to the users and the clients of the exchange. Lightning in particular is a game changer because with Lightning, you're able to move the world's best collateral, the world's best premier crypto asset, Bitcoin, you're able to move it instantly. And that is a massive value to traders when seconds and matter, they don't have time to wait for three block confirmations, which can be a half hour, can be an hour, just depending on the variance of when blocks are proposed. So there's certainly a very strong incentive on the exchange side to adopt scaling solutions. Now, right now, what we see is that for the past year, transaction fees on Bitcoin have been extremely low. So the typical Bitcoin transaction has cost about five pennies, a nickel, for the past year. And so until there is pressure on transaction fees and there is congestion, I think the adoption of Lightning by exchanges will continue to kind of be at a measured pace. But because when congestion does pick up, I think we'll rapidly see increase in Lightning adoption by major exchanges. And I know that all of them are closely looking at the technology and evaluating when to prioritize its implementation. But if they start their own mining companies or ventures or whatever, do you think that would be a negative for the interest? Do you see any risks here? No, I think the risk would be for the exchanges because it's very hard to operate a business where you have multiple different lines of business. So I think exchanges are best at being exchanges. And if they try to get into adjacent businesses, they could run losses because Bitcoin mining is a hyper competitive industry. That's why at Riot, and I know this is true of Blockware as well, we act with a sense of urgency. Like every 10 minutes counts, we're on block time. And so there's no room for slack. And it's not easy to make money as a Bitcoin mining company. It takes tremendous skill and tremendous speed of execution. I don't know if exchanges can do that. Right. Even though they're super cash flush. I find those insights really intriguing and I think we'll hop back towards that in a few minutes. But Joe, I wanted to ask you a question. And it does have an ESG component, but it's not central to the question at all. Just kind of keeping it in the auxiliary. Right. So Bitcoin mining is super expensive. It costs a lot of money to produce one Bitcoin for an average person. Right. Unless you're running renewables or flaring, you know, got like a Bitcoin box on an upstream well or you're flaring methane or LNG or something, then the cost of production is pretty high. And I assume that with future havings, the cost of production will continue to increase. Assuming there's a steady kind of demand for Bitcoin. So explain to me, because I kind of picked up on this in your report, explain to me, why do you think minor transaction fees will eventually outpace the block rewards by a significant amount? Yeah, absolutely. So eventually, the block subsidy, like you're mentioning with future havings, it will go to zero. Right. So if the Bitcoin network is still being used far into the future, then transaction fees must be greater than zero for people to sell. I mean, I mean, sorry to interrupt. Sorry to interrupt. I mean, like two havings out. I mean, when you're getting, when you're spending like 60, 70, 80, 90, 100 K to produce one Bitcoin, which might be worth, I'm assuming at that time more than cost of production. Right. Like at what point does, does this kind of shift that you to predict start to happen? And how is it feasible? Yeah. So, you know, mining your cost of production is a multitude of various inputs, right? It depends on what rate you're running and where you're getting electricity from. You pointed out that there's now the ability to capture what methane gas that would have been flared and instead put that into a generator and then use that to power your machines. If you have free electricity, you basically can mine Bitcoin for free other than your other operating expenses. But normally energy is, you know, 80% plus of the operating expenses of a traditional private miner. So it very definitely depends on, on, you know, your energy source. I think Bitcoin is this network that harnesses and kind of goes into wasted energy sources. So it's basically a bounty on trying to find the cheapest and least expensive energy. And a lot of that's just wasted energy. So in regards to transaction fees, correct me if I'm wrong, you're saying that one day profits will come from transaction fees rather than actual, the actual block reward. Did I kind of read that incorrectly? Yeah. So, you know, at the end of the day, the, you know, block subsidy is going to zero. So the only other source or the only source that we know of today for Bitcoin miners is transaction fees, right? And if there's people mining Bitcoin, they're likely mining it below their cost of production is likely below the price of Bitcoin. And so if someone's mining it, then generally, you know, you would think that they're making a profit. If they're not mining it, then difficulty will come down. And, you know, other miners will become more profitable if they have close to free or free electricity. So to me, it sounds like then eventually the network will become majority centralized because those that have access to free electricity or, you know, electricity producers usually. Yeah. The network itself, the Bitcoin network is a peer-to-peer network of nodes, not of miners. Miners propose blocks to the network, but miners are not the network per se. In fact, if you look at kind of the structure of mining today, the hashers, right, the actual mining rigs that are doing Shachi 56 squared, they are pointing their hashrate to a mining pool and it's the mining pool that happens to also be running a Bitcoin node. And so there's, there's, you know, separations of concern here where the hash rate could be fully centralized. It could all just be in one data center or on one laptop, as I was saying earlier. And that would not be a problem because if they misbehave, it can decentralize because anybody can contribute hash rate. It's completely permissionless. And that is because of the Bitcoin nodes that are the network. Okay. So before we get into ideations of attacks on the network, which I know Marcel has a question about, what is both of your perspectives on how ESG and upcoming kind of like environmental friendly regulation in the United States and Europe are going to impact Bitcoin mining? Yeah, I think if you go ahead. I don't think that there will be a significant effect because Bitcoin mining does not emit any CO2. So there's not really any kind of big concern there. It's, you know, CO2 emissions come from natural gas and coal power plants. Most Bitcoin miners are not operating power generating assets. And so I don't think there's a huge concern there from a regulatory perspective. Sorry, go ahead, Joe. Yeah, just add on. I think Bitcoin is electric money and, you know, Teslas are electric cars, right? So Teslas, you know, are typically praised by the ESG crowd. I think Bitcoin should be the same. It's electric money. And I think if governments try to necessarily ban or suppress mining, it only makes it more profitable to mine somewhere else. If someone was already mining, then they were obviously trying to capture some sort of profit. And if they're no longer mining, then difficulty will come down and the incentive to mine elsewhere only goes up. I know Marcel's got a question about that. And my comment would be, so on Capitol Hill, are you guys or do you know of anyone? I mean, the perception is right now that Bitcoin consumes a lot of energy and energy use is bad for the environment. That's kind of the general consensus of the average non-crypto native, non-Bitcoin native person, right? So what's happening to kind of change that point of view? Yeah, I can't speak on necessarily what's happening from like a political perspective. I know people like Dennis Porter are doing things like the Satoshi Action Fund where they're talking with politicians and helping them understand like, hey, yes, Bitcoin uses energy. It may be a lot of energy, maybe a little bit of energy depending on what you compare it to. But I think at the end of the day, like energy production and energy use is not a bad thing, right? Like that's how our economic systems scale. That's how we have products and services that we all use every day. And it's what makes our life better. So I think trying to produce less energy or trying to reduce energy consumption from electronic money like Bitcoin is just not a great idea. And I think it's going to fail miserably. And I think people, you know, Bitcoin is good for the world and incentivizes cleaning up wasted energy and incentivizes producing cheap renewable energy. And I think that humans will prosper if we have things like that. Okay, so my question goes to the point of censorship. And we've seen especially now that Ethereum changed to proof of stake that US government already has a point saying that over 50% or 40% of the validators are located in the United States. So it can effectively be deemed that the transactions have been confirmed in the US and etc. So my question is, what can governments do against mining besides banning? Well, you cannot ban it. You cannot not mine in New York. So just going to move to another state. And if you ban the United States, just going to move to another country. You know that mining is portable. They can move the miners. But apart from that, what can governments do to cause trouble or damage the mining industry? We can start with Joe. Yeah, I mean, it's an interesting question, right? Like China did ban Bitcoin mining. And the last data that came out from Cambridge Bitcoin mining index is that 20% of the Bitcoin mining still exists in China. It stopped for, you know, a couple months during the summer. And then a lot of it, whether they're state run operations or just private monitors operating illegally, mining is still being done in China. So it's extremely difficult to ban Bitcoin. As far as like what they can do, I mean, they can try to ban it. They can try to suppress it. I just don't think it's going to be very successful in the long run. I think it's not the end of the day. You want to be attracting capital. You want to be attracting taxes. You want to be attracting people to your jurisdiction. And banning Bitcoin mining is not a great strategy. Yeah, but what I've heard is, for example, in the United States, more important than banning mining, the activity, it's like the money transmission, transmission license that it's still being debated whether miners can be interpreted as money transmitter or not. So in legal terms, what do you think are the risks for the industry? Yeah, I mean, that's a great question. I'm no lawyer. So probably not the best person to answer that one. Hey, as a kind of as a follow up on these Bitcoin attack vectors. So I sent you this tweet the other day when we were talking, this guy OXHams, Twitter personality, he says, I'm anticipating an existential threat to BTC by the end of the year as we approach 12 to 15 K Bitcoin hash rate hitting new highs and the S 19 J pro daily profit has gone negative and this will feed network security tail risk. Seemingly Bitcoin was an inflation hedge only when there was no inflation. And then he posted a kind of chart from DX pool which shows that with the S 19 J at like he didn't put how many kilowatts per what's the like cost per kilowatt, but he shows income at 820 per day, $246 per day, and a net profit of $2,952 in a year, whereas electricity costs equal 3,162. So what's your thoughts on that? Is it can you kind of deconstruct that because it seems to be a misconception, I think, or it's not on firm ground his kind of suggestion? Yeah, definitely. I mean, we've heard this scenario multiple times like the idea of a of a mining desk viral where miners just start turning off. But this is, you know, the nature of Bitcoin and why it's so fascinating is we have the difficulty adjustment. As miners turn off, difficulty comes down and it becomes easier to mine more Bitcoin and the miners that saw their profits decreasing actually start mining more Bitcoin to kind of offset their differences. So it's kind of a race to see like, okay, who are the weakest miners, they end up getting purged, they end up selling their mining rigs to more efficient miners, which may be miners with lower energy cost, or just lower operating expenses in general, or just better capitalized balance sheets, maybe miners during the last bull run took on, you know, way too much debt, they're way over leveraged, they may have low energy expenses, but they simply were far over leveraged. And they're, you know, they're paying interest on rigs that they bought for $10,000 per rig. And now the rig is worth $3,000. And as you're pointing out, it might be significantly less profitable depending on their energy expense. So I think the idea of this mining debt spiral spiral where, you know, the network just doesn't work is definitely wrong. And this is not just like theoretical, right? Like we've seen mining difficulty drop multiple, multiple times throughout Bitcoin's history. The China mining ban was a great example where we saw, you know, pretty much half the network disappear overnight. It got relocated most of it to other jurisdictions, as I pointed out, some of it's still there and turning on according to Cambridge. But at the end of the day, you know, you can't turn off Bitcoin, like the difficulty adjustment makes it to where hash rate gets distributed to the most efficient miners over time. And the idea of a mining debt spiral, I think has been proven wrong countless times. Right. And I like that in this report, you address that as hash rate shifts as the network kind of does its Darwinian thing, the fear of centralization is kind of undermined or mitigated by the fact that miners don't control the network. It's node operators who that ensure that settlement finality, that's really important. So, Joe, if you had to say, what is the most important part of this report? What's the juiciest bit? Why should people go and read it? What would you say? What would you pinpoint as like the meat and grits of this report? Yeah, absolutely. I think, you know, people that are interested in the long-term, quote-unquote, security of Bitcoin, or they think that when the block subsidy dwindles away, whether that's two outings for now or a hundred years from now, it doesn't really matter. Like, it's nodes that control the network and users, node operators have a way to counter any sort of attack that the network experiences, right? So, users can raise their fees if their transactions are not getting confirmed. And if they're worried about a 51% attack or they're worried about transaction finality, they can simply wait for more confirmations. And, you know, in the report, I talk about this isn't theoretical, right? Like Bitcoin Cash, for example, their block, entire block reward is less than the average transaction fees per block on Bitcoin. And you can still trade Bitcoin Cash on multiple exchanges. You can still send millions of dollars to an exchange and sell it. And, you know, the only thing that's different with Bitcoin Cash is the exchange doesn't require six confirmations, they require 100 confirmations, which in the grand scheme of things isn't a big deal. You know, we see BISA and ACH, you know, that transaction finality is measured in weeks and months. Bitcoin transaction finality is currently measured in about an hour, which is pretty impressive. And, you know, the way to reverse Bitcoin transaction finality is getting 51% of the hash rate, which is, you know, a lot of energy and a lot of hardware. And obviously with BISA and ACH, you don't have to do that. Yeah, man, that's brilliant. I think what I got out of the report was that while it is possible to undermine the security of the network, it's a pyrrhic victory. The cost of doing that far outweighs the profits. And in many of the cases that you outlined, there is no profit. So it would literally be an ideological pyrrhic victory where I guess the only bragging rights you get is that you broke the network temporarily, but made no money off of it and spent nearly a trillion dollars to do it. So I found that quite, you know, like stimulating intellectually. Yeah, exactly. Thanks for having me on, guys. Yeah, thanks for coming on, Marcel. Is there anything else you wanted to throw out? No, I just say for the viewers that reading the article would be good, even for those that think that they have been here for four years and think that understand how mining works, but once you hear from the miners themselves, what is their core activity is going to change your mind about it. So read it when it's out. All right, appreciate it. Jail, thanks for coming on. Yeah, thanks, guys. Okay, talk to you later. Bye-bye. All right, that was our exclusive interview, and we appreciate everyone for tuning in today. I want to get some closing thoughts from our panelists here first. So Ray, why don't we kick this off with you first? What are you going to leave us with today? Well, it's not financial advice, but make a plan, stick to it, and believe in what you do. You don't go out and buy a brand new car at Wim unless it's like a Ferrari or, I don't know, Toyota Supra, something that you know oozes quality and reliability and that it's a sound purchase, right? But when it comes to investing your harder and money into something, it's not something that you should just do willy-nilly. Just like if you're putting your kids into a private school, you look at all these different factors. Before you buy a house, you look at the builder and did this area flood. Do they get tornadoes? What's the neighborhood like? Does the home in the neighborhood hold value? Blah, blah, blah, blah, blah. So if you don't rush into really important things in the rest of your life, then you shouldn't rush into investing, right? So this is a time for you to look at the market, identify assets that have really strong fundamentals, assets that have a use case that's actually being used. You need to map out your playbook now and spend time doing that and don't buy or invest in anything, or as you do that and you identify those assets that you think have that fundamental value. Then begin to start easing into those positions because when the market catches on fire and it grows legs, it does it fast. And the FOMO is extreme. Crypto is known for going parabolic and you'll get left behind and find yourself buying closer to the top than the bottom. So while it's not financial advice, market structure shows that many assets are pretty flat right now, but some volumes are beginning to tick up on certain assets. So those are typically accumulation signs and accumulation is not one month. It can last a year. It can last two years. It can last eight months, right? So while there's not really a rush to be doing anything, one needs to be planning and at least thinking about getting active. You don't want to buy Bitcoin when everyone's talking about Bitcoin. You want to buy Bitcoin when nobody's talking about Bitcoin. Very good. And I want to remind the chat, be sure to drop your Twitter handle into the chat so we can pick our markets pro subscript test. It's only going to affect potentially realizing some of your gains. But overall, I think that if you know what you're doing and you have a sound investment strategy and a long-term horizon, you're going to be fine. But nothing is as volatile as crypto. So if it's your first rodeo, prepare for some wild swings as you've seen the past six months. But yeah, overall, Bitcoin is as sound as they come to my opinion. But obviously, always do your own research before you invest in anything. Very good. Sam, I want to add to what you said. There's a reason why Fidelity and whoever else Nasdaq and all these big multi-billion and trillion dollar asset fund managers are building infrastructure for investing in Bitcoin and making Bitcoin something that's easily accessible to their clients. And it's a supply-capped asset. So I just want to add that out there for the audience to remember while there's volatility up and down and my dollar cost average portfolio is down 9% right now since Bitcoin had an all-time eye, actually more than that. I do view that as another fundamental investment case. So multi-billion dollar institutions aren't going to build infrastructure for Bitcoin and invest in it if they don't believe in it. So just something to bear in mind also. Very good. And Marcel, any closing thoughts for today? Yeah, Ben. In fact, I have two short messages. The first one is if you don't understand the yield, you are the yield. If you don't know where the gain is coming from, we are ripping you out. The second message is touch grass. Go visit friends and family. Nothing is going to change out of a six-month or eight-month bear market because of a single Federal Reserve meeting. So go enjoy the sun. Very good. It's always important to maintain perspective. I do not see folks with any Twitter handles in the chat, but we will be parlaying that into next week's show. So thank you all for tuning in for the market report today and we will be back next Tuesday at 12 p.m. And until next time, we appreciate you tuning in to the market report. We are Cointelegraph, the future of money. Can you space?