Swan


Private

Insight

Issue 31, January 2024

Welcome to the January, 2024
Issue of Swan Private Insight
Happy new year. This promises to be an incredibly exciting year for Bitcoin.

Already, we have seen the approval of Bitcoin ETFs, eleven in total, as well as a couple
of days of trading. It will take some time to know exactly what it means that Wall Street
is now selling Bitcoin. Also this year, in late April, we’ll see the fourth Bitcoin halving
take place, where the daily issuance of new Bitcoin will drop from about 900 Bitcoin to
half that amount. Sam Callahan goes into much more detail about these and other
2024 expectations in his article in this issue.

Stephan Livera has written a piece for you explaining the controversy around Bitcoin
ordinals and inscriptions, which are leading to increased fees for on-chain use of the
network.

In the vein of the adage that “you don’t change Bitcoin -- Bitcoin changes you” Swan’s
Shane Hazel offers his story of how Bitcoin contributed to his personal story of recovery
from post-traumatic stress.

Tomer Strolight explores the relationship between energy, money, and the increasingly
specialized work humans perform, identifying what he calls “the fundamental problem
of money” and how Bitcoin fixes it.

As always we offer macro analysis from the incomparable Lyn Alden, and a
comprehensive news summary of the past month’s developments in Bitcoin.

We hope you enjoy this issue and find it valuable.

Sincerely,

Cory Klippsten
Tomer Strolight

Founder and CEO, Swan Bitcoin Editor In Chief, Swan Bitcoin

2
Table of Contents

Running the Numbers by Sam Callahan .................................................................................................. 7

Bitcoin: Solving the Fundamental Problem of Money by Tomer Strolight ............................ 24

How Bitcoin Reunited Me... by Shane Hazel .......................................................................................... 33

Are “Ordinals” Worth Worrying About? by Stephan Livera ............................................................ 40

Bitcoin News Roundup by Drew Mealey ................................................................................................. 48

Macro View by Lyn Alden ................................................................................................................................. 59

Resources for Your Friends and Colleagues ......................................................................................... 75

Feedback, suggestions, and questions about the report are welcome

at [email protected].

Interested in Swan Private? Get started at swanbitcoin.com/private.

Disclaimer

This document has been prepared solely for informational purposes and does not represent investment advice or
provide an opinion regarding the fairness of any transaction to any and all parties nor does it constitute an offer,
solicitation or a recommendation to buy or sell bitcoin or any other asset. Swan Bitcoin is not a broker dealer, funding
portal or financial advisor and does not provide investment, financial, tax, legal or other professional advice.
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Running the
Numbers
5 Reasons to Be Bullish
Heading into 2024

By Sam Callahan
 Running the Numbers
5 Reasons to Be Bullish Heading into 2024

Sam Callahan
Lead Analyst

2023 ended a stellar year for Bitcoin. Bitcoin ended the year up more than 155%.

The nominal returns do not even capture how impressive Bitcoin’s performance was. On a
risk-adjusted basis, Bitcoin was the third-best-performing asset that investors could have
allocated their capital to last year.

Only two tech stocks – Meta and NVIDIA - have better risk-adjusted returns than Bitcoin.

Risk Adjusted Returns (Sharpe Ratio) for all of 2023

NVDA (NVIDIA)

META (Meta)

XBTUSD (Bitcoin)

AMZN (Amazon)

XETUSD (Ethereum)

AAPL (Apple)

MSFT (Microsoft)

GOOG (Alphabet)

SPX (S&P 500)

TSLA (Tesla)

NKY (Nikkei 225)

NFLX (Netflix)

ARKK (ARK Innovation ETF)

V (Visa)

DAX (DAX)

JPM (JPMorgan)

SXXE (EURO STOXX)

INDU (DJIA)

IBM (IBM)

XAUUSD (Gold)

MXEF (MSCI EM Index)

GS (Goldman Sachs)

UKX (FTSE 100)

LBUSTRUU (BBG US Agg TR)

MS (Morgan Stanley)

SQ (Block)

BBREIT (BBG US REITs)

ZM (Zoom)

BAC (Bank of America)

KRE (SPDR Regional Banking ETF)

CL1 (Generic 1st 'CL' Future)

HSI (Hang Seng Index)

MRNA (Modema)

BCOM (BBG Commodity Index)

C01 (Generic 1st 'CO' Future)

-1 0 1 2 3 4

Source: Galaxy Digital, Bloomberg

Running the Numbers 8

 Despite this price run in 2023, it feels as though the party is just getting started. The
momentum behind Bitcoin is palpable, and every day there seems to be a new major
institution or legendary investor publicly speaking positively about Bitcoin.

Lately, a new meme has been

circulating social media that has
some people confused.

The meme consists of three green

dots and one red dot. An example is
shown to the right.

What the meme is alluding to is

Bitcoin’s long-term trend of having
3 up years, followed by 1 down year
since 2011. This pattern is clearly
visible when you look at the yearly
lifetime chart of Bitcoin.

Bitcoin's Long-term Trend is Clear

This has many market participants expecting the trend to continue, which means, if history
holds true, we just finished the first year of a potential three-year bull run.

Running the Numbers 9

It leads to the question, “Is another green dot in store for Bitcoin investors this year?”

Although historical performance is not indicative of future returns, there are several reasons
for Bitcoin investors to be optimistic heading into 2024.

In this piece, I will break down five bullish catalysts that have the potential to drive Bitcoin to
new heights in 2024 and keep this trend alive.

1. The Approval of Spot Bitcoin ETFs

For anyone focused on developments in the Bitcoin space, this first catalyst comes as no
surprise. After nearly ten years of denials, multiple spot Bitcoin ETFs are set to be approved,
which will make getting exposure to Bitcoin more accessible than ever before for millions of
investors.

Spot Bitcoin ETFs represent a milestone moment for the industry, not only is it a sign of
acceptance from the titans of Wall Street and regulators, but they also have the potential to
attract tens of billions of dollars in capital flows in the coming year. These flows will drive
demand for the underlying bitcoin and have the potential to impact its price significantly in
the coming year and for years to come.

These ETFs will make it so retail investors can get exposure to the price of Bitcoin just as
easily as any other stock or bond in their traditional brokerage accounts. But who this
impacts the most are many large institutions like pension funds, registered investment
advisors, endowment funds, broker-dealers, and banks that are currently restricted from
acquiring spot Bitcoin due to regulatory requirements.

These large institutions manage trillions of dollars of wealth. An ETF is a security wrapper
that fits into their existing regulatory frameworks. It will allow them to get exposure to the
best-performing asset class, and the potential inflows could be huge.

One segment that finds it more challenging to acquire spot Bitcoin on behalf of their clients
is financial advisors. Although it is possible today, many are deterred from buying Bitcoin due
to regulatory uncertainties with how to legally custody the Bitcoin or because their broker-
dealer restricts them from acquiring it. An ETF fixes this.

This was evident in the results of a recent Bitwise survey that asked 4 financial advisors
37

about their thoughts on Bitcoin. Below are some of the key takeaways :

Running the Numbers 10

 ...But the vast majority see its approval as a major catalyst. Eighty-eight

percent (88%) of advisors interested in purchasing bitcoin are waiting until after a

spot bitcoin ETF is

Access to crypto is still limited. Only 19% of advisors said they are able to buy

crypto in client accounts.

Once you invest, you tend to stay invested (or invest more). Ninety-eight

percent (98%) of advisors who currently have an allocation to crypto in client

accounts plan to either maintain or increase that exposure in 2024.

Among advisors who allocate, the size of the allocation is rising. Large crypto

allocations (more than 3% of a portfolio) more than doubled, from 22% of all client

portfolios with crypto exposure in 2022 to 47% in 2023.

Client interest remains strong. Eighty-eight percent (88%) of advisors received a

question about crypto from clients last year.

These results show how regulatory restrictions have prevented many financial advisors from

allocating to Bitcoin, and that many are waiting for a Spot Bitcoin ETF to do so.

According to data from Cerulli Associates, financial advisors manage around $30 trillion on
behalf of retail investors. If only 1% of the $30 trillion that financial advisors manage were

allocated to these ETFs, that would mean $300 billion would flow into the asset.

The potential inflows into these ETF S go way beyond just financial advisors too. International
bank Standard Chartered recently published its own analysis that concluded that $50 to

$100 billion could flow into these Spot Bitcoin ETFs in 2024 alone.

Estimated 2024 inflows to spot BTC ETFs

1400
High
1200

1000
BTC '000

800

600
Low
400

200

Jan-24 Mar-24 May-24 Jul-24 Sep-24 Nov-24

Source: Standard Chartered Research

Running the Numbers 11
Although these are just speculative predictions, it’s safe to say that we will see substantial
inflows into these products once they are approved, which will be a huge tailwind for the
price of Bitcoin moving forward.

With firms like BlackRock, Fidelity, Franklin Tempelton, and Invesco now marketing their
Bitcoin ETFs, we will now have the largest, most trusted firms in the world spending millions
of dollars to market the benefits of owning Bitcoin in a portfolio.

It’s important to note that the ETFs have several disadvantages to owning real Bitcoin. For
starters, there is no annual fee when you take self-custody of Bitcoin. Secondly, when you
own real Bitcoin, you remove all counterparty risk and don’t have to trust a third party to
secure it on your behalf. Thirdly, Bitcoin trades 24/7/365, unlike traditional securities. And
lastly, owning spot Bitcoin offers tax benefits such as less prohibitive tax lost harvesting
compared to securities like ETFs.

The hope is that the ETF will act as a top-of-funnel and get more people than ever before
gaining exposure to it. Once people invest in an ETF, they will begin to learn about what
makes Bitcoin special, and then will eventually decide to own the real thing.

This will surely be aided by the marketing campaigns from these large ETF issuers.

There will be winners and losers when it comes to these ETFs. It’s unsure which ones will
take significant market share, and which ones will fail. But the real winner here will be Bitcoin
itself as these ETFs will likely help drive Bitcoin education and its adoption to new heights.

2. FASB Updates Bitcoin Accounting Rules

Another group of capital allocators that have face hurdles to purchasing Bitcoin are CFOs
of corporations.

This is in part due to there being no accounting or disclosure rules specifically for Bitcoin.
Businesses need to classify it as an “intangible asset,” which means they have to mark the
value of their Bitcoin holdings on their balance sheets when it goes down, but they can’t
record the value when the value goes back up. This creates a huge balance sheet
impairment for these companies if the price of bitcoin drops. It creates a situation where a
company has to potentially mark its bitcoin on its balance sheet at a lower value than the
market price when it is simply holding it as a treasury reserve asset.

Running the Numbers 12

But that all changed in 2024. FASB has officially approved new rule changes that will apply
fair accounting rules for Bitcoin beginning in December 2024. This fixes this impairment
problem and will allow businesses to recognize losses and gains on their Bitcoin positions
and treat Bitcoin just like any other financial asset on their balance sheet.

This accounting upgrade will help the adoption of Bitcoin as a treasury reserve asset at the
corporate level. It may sound boring, but this represents a large step forward to dropping the
barrier of entry for corporations that want to allocate of portion of their treasuries to Bitcoin.

CEO of Lightspark and former PayPal President David Marcus commented on the
significance of this news:

We have already seen corporate adoption of Bitcoin grow, albeit at a slower pace than many
expected after MicroStrategy announced its Bitcoin strategy in 2020.

This is the list of known corporations that held Bitcoin in 2020.

Bitcoin Treasuries in Publicly Traded Companies

Source: Bitcointreasuries.net
Running the Numbers 13
 Since 2020, the number of corporations on this list has nearly increased fivefold. Despite
restrictive accounting rules, some corporations have chosen to allocate to Bitcoin anyway.

US corporate cash is currently sitting near all-time highs at almost $4 trillion, well above
historic averages.

U.S. Corporate Cash ($T) 2000 - 2023

Corp Cash PreCovid Baseline

4.5

4.0

3.5

3.0
$Trillion

2.5

2.0

1.5

1.0

0.5

Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17 Mar-19 Mar-21 Mar-23

Source: FRED, Anthony Carfang

Now that more favorable accounting rules are set to go into effect for Bitcoin, these corporations
will find it easier to allocate some of this cash into a store of value that protects their treasuries
from inflation and currency debasement.

As Michael Saylor frequently says, today, cash is a liability: a melting ice cube. If only a small
percentage of these trillions of dollars in corporate cash flow into Bitcoin this year, this could
lead to just another wave of demand that could send Bitcoin’s price higher.

3. Potential Fed Cuts Are On the Horizon

Even more inflationary policies might come sooner than many expected. Throughout 2022, asset
prices suffered as the Federal Reserve went on one of the fastest hiking cycles in its history.

Running the Numbers 14

 At the same time, the government continued on its spending spree. It has run massive trillion-
dollar deficits over the last couple of years which have come into conflict with the Fed’s goals to
bring inflation as it raised rates. By the CBO’s own projections, these deficits are only projected
to grow in the coming years.

Total Deficits, Primary Deficits, and Net Interest Outlays

Percentage of Gross Domestic Product
5 Projected
Primary Deficit or Surplus

-5
Net Interest Outlays
Total Deficit or Surplus

-10

-15
1973 1983 1993 2003 2013 2023 2033

Source: CBO

As the government continues to spend, now the Fed looks like it is ready to take its foot off the
brake and stop its rate hikes. In fact, the Fed is now signaling they will cut rates despite CPI
inflation still running well above their 2% target.

The market is now expecting the Fed to cut rates six times, or for the Fed funds rate to drop 1.65%.

Futures-Implied Fed Funds Rate Change in 2024

-1.65%
-0.20

-0.60

-1.00

-1.40

-1.80
Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23

Source: The Daily Shot

Running the Numbers 15
Last week, Dallas Federal Reserve President Lorie Logan gave the first hint that the Fed is
beginning to contemplate when to end its quantitative tightening program.

If the Fed does decide to stop shrinking its balance sheet and returns to cutting rates while
the government continues to run trillion-dollar deficits, we could see inflation come back with
a vengence.

In that environment of stimulative monetary and fiscal policy, liquidity will flow into financial
markets and asset prices will run once again. It will be scarce, hard assets that benefit the
most, and nothing is more scarce than Bitcoin.

A bear case for Bitcoin has always been sound monetary and fiscal policy. If the government
were to suddenly decide to cut spending and implement austerity programs and the Fed
were to have a change of heart and decide that it needed to keep rates high, shrink its
balance sheet, let asset prices fall, and not intervene in the free market, then that would be a
headwind for Bitcoin.

But what we are seeing is the exact opposite. It appears that the government will continue to
spend and the Fed will continue to do what it has done for the last several decades,
intervene in the market, and blow asset bubbles. In that process, it will be Bitcoin which is a
prime beneficiary. 2024 could end up being another year where the Fed and Treasury
inadvertently pump Bitcoin’s price with their reckless policies.

4. Bitcoin Holders Are Not Selling

Up until this point, everything we’ve discussed has focused on the demand side of the
equation. Spot Bitcoin ETFs, new FASB rules, and more accommodative monetary and fiscal
policy can all help increase demand for Bitcoin over the next year.

Running the Numbers 16

 But there are also factors on the supply side of Bitcoin that could positively impact Bitcoin’s
price over the next 12 months.

Simply put, Bitcoin investors are not moving their bitcoin. Evidence of this can be observed
on-chain.

Today, 70% of the circulating supply has not moved in at least one year. This is near an all-
time high.

Bitcoin: Percent of Supply Last Active 1+ Years Ago

60%

40%

20%

0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: Glassnode

Furthermore, a record 43% of the circulating supply hasn’t moved in at least 3 years.

Bitcoin: Percent of Supply Last Active 3+ Years Ago

40%

30%

20%

10%

0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: Glassnode

Running the Numbers 17

 With so much of the circulating supply being held by holders who are not moving their coins,
it leads to the question, how much bitcoin is currently available for these potential new
sources of demand?

Today, there are 2.3 million BTC being held on all exchanges

Bitcoin: Balance on Exchanges (Total) [BTC] - All Exchanges

3M

2M

1M

0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: Glassnode

This data shows just how scarce Bitcoin is. With large institutions now likely set to start
allocating tens of billions of dollars to the asset, they will likely find it difficult to acquire bitcoin
without driving the price up given the small amount of bitcoin available to purchase today.

In the end, it will likely take much higher prices for these long-term Bitcoin holders to part
with their precious bitcoin, and perhaps this dynamic is exactly what we are about to see
unfold in the year to come.

5. The Halving is Coming Countdown to Bitcoin Halving

2024 marks a very special year in

Bitcoin because the fourth Bitcoin
halving will take place – a quadrennial 97 19 59 54
event where the supply of newly- DAYS HOURS MINS SECS
issued Bitcoins gets cut in half.
Source: NakamotoPortfolio.com

Running the Numbers 18

 Here is a quick recap of Bitcoin’s halving schedule:

Halving Date Block Mined in period % Mined

BTC Launch 3 January 2009 0 10,500,000 50

Halving 1 28 November 2012 210,000 5,250,000 75

Halving 2 9 July 2016 420,000 2,625,000 87.5

Halving 3 Expected May 2020 630,000 1,312,500 93.75

Halving 4 Expected 2024 840,000 656,250 96.875

Halving 5 Expected 2028 1,050,000 328,125 98.4375

Halving 6 Expected 2032 1,260,000 164,062.5 99.21875

In April, Bitcoin’s block reward will be cut from 6.25 to 3.125 BTC. This translates to the
amount of bitcoin mined per day dropping from 900/day to 450/day. Historically, Bitcoin’s
price has rallied both before a halving and afterward.

Below is a chart that highlights the percentage change by the day leading up to the last
three halvings.

Halving Percentage Change by Day (Preceeding)

% Change Before the 2016 Halving % Change Before the 2020 Halving % Change Before 2012 Halving

450%

400%
350%

300%
250%
200%
150%

100%

50%
0%
-50%
-365 -337 -309 -281 -253 -225 -197 -169 -141 -113 -85 -57 -29 -1

Source: Fidelity, Coin Metrics

Running the Numbers 19
Only the 2020 halving saw a decline leading up to the halving event, and this was caused by
the pandemic crash where all asset classes fell simultaneously.

I expect the price to front-run the halving once again this year because more investors than
ever before are familiar with the halving. It will become a frequently discussed topic on
television and mainstream media and will drive more attention to Bitcoin. I think the narrative
around the halving will impact Bitcoin’s price far more than the actual halving.

The reason why some people argue that the halving impacts Bitcoin’s scarcity is it reduces
the amount of Bitcoin being added into the circulating supply. The impact of this may have
been more true in Bitcoin’s early days when a smaller amount of the total Bitcoin had been
mined, but at this next halving, over 95% of the Bitcoin will have already been mined. Said
differently, the proportion of new supply in relation to the existing supply has diminished
from one halving to the subsequent one.

Many miners tend to sell at least a percentage of the bitcoin they mine in order to hedge
their business risk and pay for their operational costs. More miners used to hold a significant
portion of the bitcoin they mined, but they learned a hard lesson in treasury reserve
management when the bear market came around. Today, more miners sell a portion of the
bitcoin they mine and thus represent a price-insensitive seller in the market.

Let’s assume that miners sell 100% of the bitcoin they mine per day. This would equate to, at
today’s prices, about $40 million in selling pressure each day. When that number gets cut in
half, that will equate to about $20 million in selling pressure each day. Given that Bitcoin’s
daily trading volume is in the tens of billions today, the market will surely be able to absorb
that selling pressure without much difficulty.

Nonetheless, Bitcoin’s price historically has rallied significantly after halving events.

Running the Numbers 20

 Below is a chart that highlights how Bitcoin rallies the year before a halving event (yellow)

and the year after a halving event (purple).

Bitcoin's Halving Timeline

$100,000 5/11/2019

11/28/2012

7/9/2016

5/11/2020
$50,000
7, 0
$ 325. 8

7/9/201 7

$20,000 , 06.17
$2 5

$10,000
11/28/201 3

$1 ,007.39 5/11/2021

$5,000
7/9/201 5
$5 6,612.10
$2,000 $2 69.68
$1,000

$500

$200

$100

$50
11/28/2011

$2.54
$20

$10

$5

$2

$1 365 days 365 days 365 days 365 days 365 days 365 days

$1 before the after the before the after the before the after the
halving
halving
halving
halving
halving
halving

$0 +385% +8 ,069% +142% +284% 7

+1 % 9
+55 %

$0

$0

2010 2011 2012 2013 201 4 2015 2016 2017 2018 2019 2020 2021 2022

Source: Coindesk, Coinmetrics

While correlation is not causation, past halvings show that this rare event is often associated

with positive price movements in Bitcoin, but this could be more of a coincidence. We also

have to consider investor sentiment, liquidity conditions, and other broader macroeconomic

factors that could have influenced the price.

The more nuanced reason for why the halving is so bullish for Bitcoin is it acts as a cleansing

mechanism in the Bitcoin mining industry. Every four years, miner profitability gets cut in half

with the halving. Because of this, only the most efficient mining operations, run by the best

management teams with the cheapest sources of energy, survive. The halving can be

thought of as a Darwinian “survival of the fittest” for the mining industry.

This can be observed by looking at the last halving event. Immediately after the block reward

was cut in half, unprofitable miners shut down their operations and the hash rate fell 25%.

Running the Numbers 21

 Bitcoin: Mean Hash Rate (7d Moving Average)

140E
Third Halving Event - Block Reward
Drops from 12.5 BTC to 6.25 BTC

120E

100E

25% decrease in Hash Rate

80E
Feb ‘20 Mar ‘20 Apr ‘20 May ‘20 Jun ‘20 Jul ‘20 Aug ‘20 Sep ‘20 Oct ‘20 Nov ‘20 Dec ‘20 Jan ‘21

Source: Glassnode

Eventually, the hash rate recovered as more efficient miners plugged in and took market
share. This strengthens the security and efficiency of the Bitcoin network for the long term.

Conclusion
As we look ahead into 2024, the future of Bitcoin appears bright. The confluence of factors
outlined in this piece – ranging from the approval of Spot Bitcoin ETFs, the updates in
Bitcoin accounting rules by FASB, to the anticipated effects of the Federal Reserve’s
policy changes, and the growing scarcity of circulating bitcoin due to holders’ reluctance
to sell, and, finally, the halving event – paints a picture of an asset class poised for
significant growth.

While the past performance of Bitcoin is not a guaranteed indicator of future results, the
combination of these catalysts suggests a heightened interest and investment in Bitcoin
and increases the probability that we will see the “three green, one red” trend continue
this year. These catalysts, coupled with the evolving understanding and acceptance of
Bitcoin as a legitimate and valuable asset, could very well drive Bitcoin to unprecedented
levels in 2024.

Running the Numbers 22

Bitcoin: Solving
the Fundamental
Problem of Money

By Tomer Strolight
Bitcoin: Solving the
Fundamental Problem of Money
Tomer Strolight
Managing Editor

Money and Energy

What do money and energy have to do with each other?

It seems like a simple question to answer. And indeed, a short answer might simply be
that they can be exchanged for each other – you can buy energy with money and you can
sell energy for money. But that’s also true with everything that money can buy and sell.

Take food for example. You can also buy food with money and sell it for money. Well, hold on.
Food is technically energy, right? It’s fuel for your body. You eat food to get energy to power
your body’s metabolism. It’s stored energy.

So let’s try a different example, like, say a house. You can buy a house for money and sell it for
money. You could instead, however, build a house. Building is the use of energy to assemble
materials into a house (or whatever else you’re building). It also involves transporting the
materials to where you’re building the house, which takes energy. And to make those materials
in the first place takes energy. And to maintain the house requires energy – keeping it clean,
heating and cooling it, operating its appliances, etc.. So a house is very much a product of
energy too.

Which then brings us to another question:

What’s the Relationship Between Work and Energy?

Without belaboring our examples too far, we’ll find that whatever man-made thing we
consider, it takes energy to make it. The word “made” in the phrase “man-made” is the
giveaway. To make something requires putting effort into making it. Effort is energy.

Bitcoin: Solving the Fundamental Problem of Money 25

As it turns out, energy is a very broad concept. Energy is the very ability to do work. And

what’s work? Work is the ability to apply energy to things to change them from the way they

are – to move them, assemble them, separate them, burn them, and so on. Work is energy.

There are many different types of work, of course. Human beings specialize in the kind of

work they each do because no one human can learn how to do all the kinds of work that we

find useful.

There are some types of work that all of us have to do. Consider eating. Eating is work. It’s the

use of some energy to break down food so our bodies can do the work of digesting it and

turning it into more energy, which we can then use to do more work – work that we either

need or want to do.

Then there is the work that we do that is incredibly specialized. Performing surgery for example

is a type of work that only extremely well trained and highly skilled people can do. It is very

high-value work for the reason that it is both valuable and scarce. And to do that specialized

surgical work requires even more work from other highly specialized workers: those who build

and maintain operating rooms, who create surgical instruments, who provide assistance in the

operating room, who make the chemicals that anesthetize the patient, and so on. And those

people need the results of the work of the people who supply them with the materials and

knowledge they need to do their work. It’s an endless chain that’s almost impossible to get to

the bottom of: A surgeon needs a scalpel. The scalpel maker needs the work of steel producers.

The steelmaker needs the work of iron miners. The iron miner needs the work of an excavator

manufacturer, who in turn require the effort of factory workers. The factory workers need food.

The food growers need fertilizer. And it just keeps going on – endlessly.

Bitcoin: Solving the Fundamental Problem of Money 26

The Nature and Use of Money
Because we rely on so much specialized work stacked together in such a complex manner in
our industrialized civilization, we must use money regularly. Money is what allows enterprises
to come together. If you are going to get an operation you don’t need to exchange your
specialized work directly for the work of the surgeon, the use of the operating room, the
presence of an anesthetist, the anesthetic medicines, the monitoring equipment, the
instruments, the stitches, and so on. All of that is taken care of by money. Money is the
machinery that coordinates it all.

You exchange your specialized work for money. And because everyone else does too,
enormous chains and webs of adding value can take place without anyone even thinking
about what it takes to create that value one or two links down that chain, let alone hundreds
of links upstream or downstream of the work we do. If you grow food, you do not need to
know (and you never will know) if its energy was used by a surgeon, an iron miner, or a factory
worker. And it’s none of your concern either. It’s the “miracle of money” that it orchestrates
all of this activity without anybody needing to know any of it. Money performs an organizing
function that no organization can. That’s probably why the system that doesn’t try to have an
organization to coordinate all economic interactions was named capitalism – capital being
another term for money.

Bitcoin: Solving the Fundamental Problem of Money 27

Money Caters To Individuals’ Values

Value may look objective because there are many things that we all highly value, like water,

food, and energy. However, that is a mistaken categorization. It’s true that water is objectively

valuable to all human beings. But the conclusion doesn’t follow that that value itself is

objective. This we can see because there are so many things that are valuable to some people

and not to others. A word processor is very valuable to me, but not so much to an iron miner.

If your work is more valuable to me than it is to someone else, I’ll probably pay you more for it

than they will. This is the simple building block of how a free market works. We all bring our

subjective value judgments with us everywhere we go, along with our money and our ability

to do the specialized work we know how to do. We exchange our work for the money of

others who value our work, and we exchange our money for the work of others that we value.

Money for work. Work for money. This simple building block leads to people discovering and

creating incredible things of tremendous value.

Behold our present-day civilization with so many everyday, commonplace things that would

have seemed miraculous, impossible, or even unimaginable to our ancestors. All of this arose as

an emergent consequence of people trading money for work – work being the ever-increasing

specialization of the application of energy.

Just by letting people trade their specialized

work for money, and leaving them to do it, we can

now fly. We can do it at over 500 miles per hour;

40,000 feet up in the air; all while watching a

moving picture telling a dramatic story; and

sitting in a reclining chair; sipping on a beer, and

snacking on cookies. But we can only perform

this miracle if we have enough money. Nobody

can build a jet airplane on their own, let alone

pilot it while watching a movie they themselves

made, eating cookies they baked, and drinking

beer they brewed.

There may indeed be things money can’t buy, but

there are also things that only money can buy! Some things only money can buy

Bitcoin: Solving the Fundamental Problem of Money 28

The Role of Knowledge
If you’re concerned that I’m leaving the matter of knowledge out of this discussion, let me
allay you of those concerns. Knowledge itself is also a product of work. It does not come
automatically. Consider in fact just how much we are prepared to pay to obtain the
knowledge to perform a skill that will earn us money. That is a huge part of what the entire
purpose of formal education is.

Moreover, knowledge, if not actually applied through the doing of work, is not actually
valuable. If you know how to perform a life-saving operation, but don’t do the work of
performing it, no value is created – in this case, no life is saved. Knowledge is a value gained
by doing work which allows us to perform specialized work.

You may have to pay to obtain the training to learn how to do

some kind of specialized work, but, just like you must do the work
of eating food yourself to obtain its value, you’ll always have to
do the work yourself of learning the knowledge to be able to
apply it in your future work. The more specialized our knowledge
is, the more specialized our work becomes, and the more
valuable it becomes, but only in a world where money exists.

Work and Money Summary

To summarize:

›˜ We all do work to obtain things that are valuable to us.¦

Ž˜ Most of those things that are valuable to us require other people to do specialized work
we cannot do because we don’t know how to do it, don’t have the tools to do it, and don’t
have the time to do it.¦
ª˜ So we use money as the medium to store the value of the work we did (while “at work”) to
later exchange that money for the work of others.

We can thus conclude that money is the substance through which we transform one type of
specialized work performed at one place and time to other types of specialized work
performed at other places and times. Or put more briefly:

Money converts specialized human energy across time and space.

Bitcoin: Solving the Fundamental Problem of Money 29

Moreover, money is the only thing that does this. If we didn’t have money, we wouldn’t
bother to learn how to do highly specialized work, because we would be able to sell it for the
highly specialized work of other people.

Money is the only thing a surgeon can actually use to convert their surgical work into the
work required to fly them to a vacation destination.

From this perspective, money is a time machine. It transports and converts energy across
time, motivating people in the present to now do work for people who did work in the past,
with the expectation of being able to get other people to do work in the future. Money can
literally give you the ability to take your energy today and transform it to someone else’s
energy in the future.

Although we take this for granted and it sounds so simple, humans are the only living beings
we know of who use money. It’s not so simple or obvious, or natural even, at all.

The Fundamental Problem of Money

In practice, throughout history, this machine we call money has always had one big problem.
We might call it the fundamental problem of money.

The problem arises from one of our greatest virtues – ingenuity. We are always figuring out
how to make more of something more quickly and with less work (even if sometimes it’s just
figuring out how to give that appearance rather than actually achieving it).

Now, if it takes less work to make money than the money buys, some people will focus on
“creating” more money than on doing work that earns them money others worked to earn
before. For almost every form of money that ever came before Bitcoin, it went through a
process where over time some people figured out how to make more of it with less work.
And in every instance where it became easy to make lots and lots of it, that form of money
ended up “de-monetizing.” Whether it was salt, seashells, beads, spices, physical coins, or
paper notes, human ingenuity (or craftiness) eventually destroyed the monetary power of
that instrument to enable people to convert their work over time for the work of others.

Sooner or later, human ingenuity aligned with human incentives to lead to a breakthrough in
producing money, which led to the collapse of money. It’s like an ironic, fated tragedy.

Bitcoin: Solving the Fundamental Problem of Money 30

This is no small problem. Empires collapsed for this reason.

Maybe it’s actually no wonder that no other animals use money. Nature may view money as a

trait that is only a temporary strength for a species, but ultimately a weakness.

Over time, increasing knowledge and specialization leads to the mass production and

collapse of money, undermining its foundation as the basis of a civilization of specialized

knowledge workers.

Timeline of the Fundamental Problem of Money

People start to People discover / Work becomes

specialize their work invent money to increasingly

and seek to trade exchange their specialized and

with one another specialized work more productive

The money
Eventually some
Production of collapses when it
people figure out
everything loses its scarcity,
how to mass
skyrockets leading to
produce money
economic chaos

Solving The Fundamental Problem of Money

But now, behold Bitcoin. For the first and only time ever, there is something that no amount of

human ingenuity (or craftiness) can make more of. Bitcoin is a money mechanism with

numerous verifiable and unalterable measures that forever prevent this problem that ultimately

destroyed everything else we ever used for the machinery of money. Bitcoin’s supply cannot

ever be accelerated beyond its issuance schedule nor increased beyond its final total supply.

No wonder people get so excited about this. They can see that Bitcoin will be a reliable

machine to convert their work today into the future work of others.

Bitcoin: Solving the Fundamental Problem of Money 31

The more one understands about Bitcoin, the more they can see that it is in fact built to

solve this problem in a way no other money ever before could. Every other money before

Bitcoin could be increased in supply by putting more work and ingenuity into creating it. But

with Bitcoin, putting more work into creating it does not create any more. Instead, putting

more work into the process that creates Bitcoin (i.e. mining) only means that the existing

supply of Bitcoin becomes more secure, more reliable, and thus, more valuable!

In every previous form of money, those who put energy into creating more of it created that

money at the expense of those who already had money. Their creation of money grew (i.e.

inflated) the money supply, reducing the amount of work a given amount of money could buy.

With Bitcoin, for the first time ever, this is not the case! No matter how ingenious miners get,

they can’t increase the supply of Bitcoin beyond the known cap, nor can they accelerate its

issuance any faster than its pre-ordained schedule. In fact, unlike all previous monies, the

miners work in service of the users rather than at their expense. In Bitcoin, those who put

energy into the discovery of more Bitcoin don’t do so at the expense of other users of

Bitcoin. Rather, they do it in the service of users of Bitcoin. The service they provide makes

the money transferable, reliable, auditable, secure, and more. In performing this service,

they don’t change the expected and known supply of the money at any given point in time by

even a single satoshi.

As we enter a year with a halving upon us, it’s worth noting that these events lead Bitcoin to

deterministically have a declining rate of growth of its supply. This is the exact opposite of

what human ingenuity eventually succeeds at doing with all other forms of money. Bitcoin’s

rate of supply discovery is slowing down, by half, every four years. This is also a first for any

commodity or good in all history!

In inventing Bitcoin, Satoshi solved not just the double-spending problem. Satoshi solved

this Fundamental Problem of Money – that sooner or later its supply started to grow faster

and faster, leading to the collapse of its primary purpose.

The imalleable supply cap is the solution to the Fundamental Problem of Money — and it

changes everything.

Bitcoin: Solving the Fundamental Problem of Money 32

How Bitcoin
Reunited Me with
Humanity,
America, My
Loved Ones, and
My True Self

By Shane Hazel
How Bitcoin Reunited Me
with Humanity, America,
My Loved Ones, and My
True Self
Shane Hazel
Account Executive

“ Everyone thinks of changing the world, but no one thinks of

changing himself.
— Leo Tolstoy

In the first few days of 2024, the world is beginning to show visible energy shifts as
vibrations around Bitcoin adoption intensify. While it is exciting to see Bitcoin in the news
and commercials funded by institutions with trillions of dollars in assets under
management, like many that are new to Bitcoin they’re missing the bigger picture. The
intangible nature of Satoshi’s code unites the brightest individuals on the planet in a
cooperative and competitive mission that pushes those in Bitcoin to become the best
version of themselves.

Almost twenty years ago I was fortunate enough to walk off the battlefield under my own
power, hopeful to never see war again. I was a pointman in the United States Marine
Corps’ fabled 1st Force Reconnaissance Company, a small group of two-time volunteer
Marines and Special Amphibious Reconnaissance Corpsman (SARCs) numbering less
than 200 in the world. Having endured selection, training, two combat deployments,
numerous high-value target missions, gun fights, ambushes, IEDs, and countless door-to-
door battles to the death in Najaf and Fallujah in late 2004 my experience in this elite unit
had a profound impact on my life. I was fortunate that I was able to adapt.

How Bitcoin Reunited Me with Humanity, America, My Loved Ones, and My True Self 34
Adaptation is a miraculous human ability, but it’s also an attribute that needs guidance. In my
case, as with most my fellow gun bunnies, that guidance was missing. To survive and thrive,
to adapt, in this group of stand-out Marines you were told bluntly, “Embrace the suck”.
Embrace the freezing cold surf of the Pacific Ocean. Embrace the acid coursing through your
body as you conquer mountains. Embrace the dark while leaping out of aircraft in the dead of
night. Embrace the grueling heat of weeks of desert patrol. Embrace your pain, your
loneliness, and your fears. And most of all embrace the mistress of death with a wink and a
smile when she draws near.

We were, at least in our minds, some of the most capable, resilient, resourceful men on the
planet, and we often looked down on those that didn’t measure up to our near-impossible
standards. There was no room for personal drama or excuses. You were an asset or a liability
– which is a great mentality for combat, but doesn’t translate well to the rest of the world.

Without truly understanding it, I had changed. I was no longer the kid who loved my fellow
Americans so much that I would die for them. Now I detested and resented most people. I
had become a very skilled killer without a shred of empathy for anyone outside my small
band of brothers.

How Did I Get Here?

After reading John Taylor Gatto’s “The Underground History of American Education” in late
2004, I knew my identity, my purpose and my mission were based on government school
indoctrination, a mountain of lies, half-truths, and omissions. On numerous missions I saw the
lies of the war machine and a treasonous intelligence apparatus. What was I doing? Who was
I doing it for? How did it all get so perverted? On a visceral level I needed answers. So I left
the Marines in late 2005 and began my search.

Having sworn an oath to uphold and protect the Constitution of the United States, I
started there. Within a very short time, I had memorized the Constitution and studied the
Federalist papers which only deepened my frustration with the rogue American
government. I found the writings of a small group of pseudonymous farmers, craftsmen,
and merchants that stood against the centralization of government, the Anti-Federalists.
Around the same time I began studying the Austrian economists, Rothbard, Hayek, and
Mises amongst others which detailed the depravity and horror of the fiat Keynesian
central banking system that perverted market signals, stole purchasing power, and
funded the war machine that had adapted me to its purpose.

How Bitcoin Reunited Me with Humanity, America, My Loved Ones, and My True Self 35
More than a decade after leaving the Marines I had my answers. America had been hijacked by
the elite bankers, politicians, and industry tycoons. The anti-federalist dubbed these insidious
men the “aristocratic combination”. The centralization of the government through the
Constitution paved the way for the hijacking of America’s greatest technology, our money
which at the time was gold bullion, a decentralized communication protocol. The central bank
was legalized, the dollar was debased and private gold was made illegal. The solution was
obvious and yet nearly impossible – decentralize the government and end the central bank.

Ignorance Isn’t Bliss, It’s Trouble

Being highly motivated, disciplined, and successful I had no idea what effect post-traumatic
stress was having on my life. I was in both a state of oblivion and denial which made my post-
traumatic stress impossible to address. Post-traumatic stress from what I thought I knew was
hypervigilance, nightmares, flashbacks, paranoia, and a sign of mental weakness. I wasn’t
sad, suicidal, or even generally in a bad mood around most people, most of the time,
however my empathy for others was pretty non-existent.

It’s worth mentioning that in that same decade of searching for answers, I had also gotten
married and become a father of three. I have always loved my wife and children, but as a new
husband and father, I was angry at the entire world. I had no time for anyone I considered
dramatic, which was effectively most people. I wouldn’t entertain excuses and my
expectations were impossible to meet. I was nitroglycerin. The slightest things sent me into an
internal rage, that could last for days. Lucky for everyone, myself included, I was dedicated to
non-violence. Nonetheless, my anger was always at a rolling boil just below the surface and it
wasn’t only killing me, it was affecting my relationships with those that I loved the most.

Because I had the necessities of life, shelter, security, food, clean water, and the luxuries of a
career, warm bed, electricity, and a hot shower, any time anyone ever complained to me I
shut them down and dismissed their complaints. “You have no idea how good you have it”,
was the thought that crossed my mind more times than I could count and on most
occasions, and I didn’t hold back from saying so. All I could think was, “These spoiled-ass
Americans are so comfortable. They’re soft. They complain about the dumbest shit on earth.
They’re inventing problems that humans have never had the luxury to complain about. Until
Americans are made uncomfortable nothing will change. We’re headed for civil war. We’re
headed for financial collapse.

How Bitcoin Reunited Me with Humanity, America, My Loved Ones, and My True Self 36
Good, maybe when they’re broke and war has destroyed their lives they’ll understand”. I
didn’t know it at the time, but what I really wanted, what I missed from other people was to
be understood.

Duality had caught up with me. I didn’t want anyone to have to go through what I had – the
indoctrination, the war, the suffering, the realization my world view was built on lies. The
Marine in me wanted people to take stock of how good they had it. However the American in
me wanted people to recognize that we lived in a system of enslavement. I wanted people to
get off their collective asses and fight back against tyranny as peacefully as possible.

I had a choice to make. Put my skill sets to work, lead by example, provide solutions, and
wake as many people up as possible, or sit back and watch the American Empire fall as every
other empire had via economic collapse, chaos, civil war, and famine. As angry as I was, I
couldn’t stand by and do nothing about the falling empire, America. What would I tell my kids
if I didn’t do everything in my power to keep them from living through a war here in America?
So in 2017 I made my entry into US Politics and ran for US Congress. I ran again in 2020 for
US Senate, and again in 2022 for Governor of Georgia. My goal, “End the Wars, End the Fed,
End the Empire”

“ The people who are crazy enough to think they can change the
world are the ones who do.
— Steve Jobs

In prior years I had watched and cheered the great Ron Paul, which also meant watching him
get railroaded by a corrupt GOP and completely blacked out by legacy media. I knew if they
could do this to Ron Paul, I had no chance of winning these races. What I did have was the
opportunity and a platform to expose politicians and embolden more people to the idea of
decentralization of government and ending the central bank. In the vein of Leonidas, all I
needed to prove was that Xerxes could bleed, and the people would do the rest.

In 2017 I also began a casual yet extremely skeptical flirtation with Bitcoin having no idea
what it was. My understanding of American politics, banking, and Bitcoin evolved together
over the course of the next five years.

How Bitcoin Reunited Me with Humanity, America, My Loved Ones, and My True Self 37
The Bitcoin rEVOLution
As I launched my campaign against the state, Bitcoin launched its revolution within me. 

When I really began to dig into Bitcoin and hang around Bitcoiners, I was elated to find them
extolling the principles of low time preference and proof of work. These principles were
more than familiar to me. They were a way of life, at least in my work, education, and physical
fitness. However Bitcoiners were applying these principles more broadly in all aspects of
their lives, which I had not considered.

When you meet Bitcoiners in person the vast majority of them are welcoming, encouraging,
gracious, well-mannered, and voracious students. Bitcoiners want to know you and they want
to know what you know. They have this desire to teach, to bring people together and to get
new bitcoiners up to maximalist speed. They’re action-oriented. Bitcoiners crave self-
development of the mind, body, and maybe most importantly of all, the soul.

For the first time since leaving the Marines I had found a group of people that understood
me. A group that I could learn from, teach, and grow with. I had found people that challenged
me to be better. Over time I began to see people as they did.

“ I've concluded that genius is as common as dirt. We suppress

genius because we haven't yet figured out how to manage a
population of educated men and women. The solution, I
think, is simple and glorious. Let them manage themselves.
— John Taylor Gatto

Bitcoin’s incentive structure motivates the best Bitcoiners to become the best version of
themselves. For me ,that meant changing my perspective towards the masses and letting go
of my anger. I became incentivized to see people as the answer to the problems of the world
and not as the problems themselves. I became incentivized to understand that once upon a
time, I was, like them, an indoctrinated citizen that hadn’t stumbled upon or even heard of
the path to enlightenment. I was incentivized to foster passion in others so that their genius
could rise and with it the human species. I was incentivized to look within and change.

How Bitcoin Reunited Me with Humanity, America, My Loved Ones, and My True Self 38
It took years of dedication, study, and experience, but my anger subsided. I became a more
patient father and a more loving husband. I began reaching out to family and friends to let
them know that I loved them. “I apologize, I was wrong, I’m sorry” became easy to say.
Consideration for strangers became as natural as breathing. Gone were my days of rage and
before long I was seeking others to help.

In 2022 I founded the Brave Mission to help other veterans deal with their post-traumatic
stress and introduce them to the Bitcoin incentive structure with hopes that they would
find the peace that I had. In 2023 I co-founded Bitcoin Veterans with Alex Stancyk, Game
Lord, Jordan Gambrell, and Mike Hobart. In the coming years, thanks to all the Bitcoin
Veterans, the Brave Mission will be replicated, decentralized, and localized across the
country and beyond.

If you want to change the world, look within, find peace, build the best version of yourself and
then teach others how they can build the best version of themselves. Thank you my Bitcoin
family for your genius, patience, and your love.

Peace!

How Bitcoin Reunited Me with Humanity, America, My Loved Ones, and My True Self 39
Are “Ordinals”
Worth Worrying
About?

Are “Ordinals” Worth

Worrying About?
By Stephan Livera
Are “Ordinals” Worth
Worrying About?

Stephan Livera
Head of Education

As users go to transact using Bitcoin on-chain today, they may be surprised to see that

fees to “hit the chain” have gone up dramatically. But why? Where are the stampeding

hordes of newcoiners stacking sats into their Coldcard? They do exist, but there is also a

new class of bitcoin on-chain user: those partaking in Ordinals and Inscriptions. This new

craze has ignited a new round of community debate, but it has also been a boon to bitcoin

miners all around the world because of greater on-chain fees. But are these ‘ordinals’

worth worrying about and can they be stopped or filtered? Or, is it best to leave them, and

instead ‘bite the bullet’, with the expectation that monetary transactions will eventually

outcompete Ordinals/Inscriptions uses? Let’s explore:

Firstly, what are ordinals?

Quoting the Ordinal theory FAQ:

“ Ordinal theory is a protocol for assigning serial numbers to

satoshis, the smallest subdivision of a bitcoin, and tracking

those bitcoins as they are spent by transactions.

So in other words, it is a made up ‘lens’ or overlay that some people can apply to bitcoin’s

transaction ledger. And in doing so, they come up with an arbitrary way of ‘tracking’

satoshis as they move from transaction inputs to outputs. Think of Bitcoin outputs as

‘coins’, you use outputs from a previous transaction as inputs for the next one. When

Bitcoin transactions occur, the inputs are consumed/destroyed. So the ‘ordinals lens’

specifies a way that the satoshis hypothetically move from inputs to outputs. People who

use the ord software are using this lens to ‘track’ the satoshis, independently of the

people simply using bitcoin without any care or interest in the ordinals protocol.

Are “Ordinals” Worth Worrying About? 41

There are different levels of rarity for satoshis under ordinal theory, which can be seen
from the table below:

So now there are ordinals and people who ‘collect’ these rare types of satoshis. Given the
different way ordinals and ‘rare satoshis’ have to be managed, there are now specialized
wallets, exchanges and front ends available for these users.

Now this overall ordinals method is essentially made up, as Casey Rodarmor admitted on
my podcast in episode 456. Even though it is arbitrary, there seems to be a committed
audience of people who adopt this view. While Ordinals became popular as of early 2023,
they are not a new idea, and in fact originated in 2012 as Giacomo Zucco explains in his talk
here. What’s old is new again!

What about the other ‘ordinals’?

“Ordinals” has become somewhat of an umbrella term. So let’s walk through some of the
other pieces here:

à Inscriptions - these are bitcoin-native digital artifacts written to bitcoin’s blockchain in

a taproot script. They are otherwise commonly known as “NFTs” or Non-Fungible
Tokens. Commonly, they are JPEG image files but they can take other formats too.
These inscriptions leverage the above ‘ordinals’ protocol in how satoshis are tracked
across transactions, which allows these inscriptions to be transferred, bought, sold
etc. Inscriptions are done in two phases, a ‘commit’ and ‘reveal’. The inscription is
contained in the input of a reveal transaction, and the inscription is deemed to be
made on the first sat of its input. Inscriptions do exist on altcoin chains also. But given
Bitcoin’s special properties of decentralization, immutability, and longevity, Bitcoin
inscriptions have become very popular. Some of the enthusiasts particularly like that it
is on-chain, and not merely ‘pointed to’ like in some altcoin NFT schemes. As they
make use of Taproot transactions, inscriptions also receive the ‘Segwit discount’ which
makes them cheaper to inscribe on chain.

Are “Ordinals” Worth Worrying About? 42

 U BRC-20 - This is an experimental standard from March 2023 for creating fungible
tokens using a text inscription using JSON (JavaScript Object Notation) data. The name
BRC-20 is a play on ERC-20 from the Ethereum world. There are three actions possible:
these BRC-20 tokens can be deployed, minted, or transferred. There are many users
who are attempting to ‘mint’ BRC-20 tokens for themselves. Generally they consider
themselves ‘collectors’ or in many cases, they are minting in the hope of being able to
dump the token later on to somebody else. There are various ‘Ordinals-aware’ wallets,
front-ends, and exchanges that help users manage and transfer their ordinals,
inscriptions, BRC-20 assets etc.

U Stamps (aka SRC-20) - This is another protocol to ‘inscribe’ images into bitcoin, however
these are stored in UTXOs in bitcoin’s chain, and these cannot be pruned like ‘regular’
Ordinal inscriptions can. These Stamps do not receive the segwit discount that
inscriptions do (thus they cost more), but offer more flexibility in minting larger quantities
than Ordinal Inscriptions. Stamps are more pollutive for Bitcoin’s network, as the UTXOs
cannot be pruned, and it raises the requirement to be able to run a bitcoin node.

What’s the impact of these ordinals and inscriptions?

“Regular” Ordinal Inscriptions can be pruned out from the bitcoin blockchain, as they are
stored only in the witness data. So as an example you could set up a full node that has
downloaded and verified the full bitcoin blockchain, and if you didn’t want to store the
ordinal inscription images and data, you could prune your node down to free up storage
space. In this case you would still be running a full node, but not maintain the archival
status of containing all bitcoin blockchain data. Of course, in order to remain synced with
the bitcoin network, you must still download and process blocks, which can contain new
inscriptions.

Stamps and BRC-20 do increase the UTXO set, and given there is not a cost charged by the
protocol for the net creation of UTXOs, this is arguably spam. The UTXO set expansion shown
in the chart below shows how the UTXO count was previously around ~80M as of early 2023,
and has now blown up to ~156M UTXOs as of January 2024.

Are “Ordinals” Worth Worrying About? 43

 Unspent Transaction Outputs
The total number of valid unspent transaction outputs. This excludes invalid UTXOs with opcode OP_RETURN

160.0M
140.0M
Unspent Transaction Outputs (UTXOs)

120.0M
100.0M
80.0M
60.0M
40.0M
20.0M
0
2010 2012 2014 2016 2018 2020 2022 2024
Source: Blockchain.com

The Stamps (SRC-20) protocol was published in March 2023 and the BRC-20 standard was
also created in March 2023. This aligns pretty well with the blow up in UTXO count. Though
this is not ideal for keeping bitcoin nodes cheap and easy to run, it is not a systemic issue for
Bitcoin at this stage.

Is there an impact at the transaction fee level?

We have seen some fee spikes over the past year, particularly during times of a BRC-20 mint.
These fee spikes have raised the cost to use bitcoin on-chain transactions. As an example, in
September, fees to get your on-chain transaction confirmed in the next block were in the
600-700 satoshis/vByte range at the peak level. The fee spikes can be visualized in the
chart below from mempool.space.

600Mvb

500Mvb

400Mvb

300Mvb

200Mvb

100Mvb

0Mvb
Mar May Jul Sep Nov 2024
While a lot of criticism was leveraged against the ‘JPEGs’ (Regular Ordinal Inscriptions), in
actual fact, a lot of the volume was/is coming from text based inscriptions, such as BRC-20.
So while these BRC-20 transactions are not having as much impact individually in terms of
transaction size, they are to an extent driving the blockspace / fee market higher. So
generally what we’ve seen is that in low fee market times, regular monetary transactions,
JPEG inscriptions and text inscriptions are all present in blocks. But as fees rise, JPEG
inscriptions tend to be priced out because of their large size. As fees really rise, we still see a
lot of BRC-20 transactions because of how small the transactions are, and how fee
insensitive these transactors tend to be. Why is this? Probably because of the time pressure
to ‘mint’ BRC-20 tokens before the limited opportunity is gone, and this is what causes very
high time preference bidding (aka high fee tolerance) in order to get a ‘mint’ transaction
confirmed quickly. I.e. after a BRC-20 has been ‘deployed’, people compete in the open
blockspace/fee market to ‘mint’.

Considering things from a bitcoin miner perspective, this is a boon to their bottom line. We
have seen consistently full bitcoin blocks for some time now, and we’ve seen bitcoin
transaction fees become a meaningful part of the bitcoin block reward. Previously, the
bitcoin block reward was mostly made up of block subsidy, and we historically only saw
transaction fees become meaningful during heated bitcoin price bull runs. Perhaps, post-
ordinals, this is changing and there will be a persistent backlog of transactions to fill blocks.

What are some of the arguments for and against here?

The anti ordinals, pro-filtering side

This group generally views these non-monetary transactions as spam or spammy, and that
they are bringing a “token pump and dump” dynamic to Bitcoin. They might also argue that
the purpose of bitcoin is for financial transactions, not arbitrary data file storage. The
‘ability’ to store arbitrary data into bitcoin is seen as a bug by this group, and they believe it
should be patched, even if imperfectly. Perhaps in a way akin to email and email spam, the
mere fact that somebody sends you a ‘valid email’ is not itself a reason that you must read
those emails. So too, with bitcoin transactions that bitcoin nodes do filter for various
reasons e.g. DDoS protection or other invalidness rules.

This camp believes that putting in filters at the bitcoin node mempool level should be
done, to discourage spam. In other words this would mean that bitcoin nodes who run this
kind of filtering would not recognise them as valid, and they would not forward the
inscription transactions on bitcoin’s relay network.

Are “Ordinals” Worth Worrying About? 45

However, Bitcoin Core developers do not agree with this filtering approach, so for now,
inscription filtering is only applied within an alternate implementation, Bitcoin Knots
(maintained by Luke Dashjr).

Another argument here could be that the monetary network of Bitcoin is being slightly
degraded, as the inscriptions crowd out monetary transactions. And in some ways, it could
be argued that the BRC-20 transactions disproportionately price out other transactions. Of
course, many people suspected that on-chain transaction fees for bitcoin were going to
rise eventually anyway, and that this is just a premature fee rise. For monetary focused
users though, it is perhaps lamentable that this prices out some individuals from Bitcoin
self custody.

The anti-filtering side

Some in the anti-filtering camp make various arguments:

Bitcoin is permissionless and users of the system should acknowledge that there will be
other uses of the chain. They might also argue that there is no easy way to make sure that
bitcoin is only used for financial transactions given the overall censorship-resistant design
of Bitcoin.

Attempts to filter transactions will just result in the inscription users finding even more
pollutive or destructive ways to do what they want to do e.g. instead of regular ordinal
inscriptions, that they would encode their messages into the UTXO set in a way that can’t
easily be detected. This perspective was explained here by long time Bitcoin researcher and
developer Andrew Poelstra. Or alternatively, if transactions are filtered at mempool level,
they can instead be sent directly to mining pools “out of band” (i.e. not over the standard
bitcoin relay network). And because these transactions are consensus valid i.e. your bitcoin
node will not reject these if they are included in a valid block by miners, it would mean
mempool filtering becomes mostly futile.

Not wanting to risk losing the mempool as a mechanism for the decentralized use of
bitcoin, it may push people towards centralized ways of submitting transactions. For
example, instead of sending a bitcoin transaction normally through your bitcoin node over
the network, you could go to a miner and give them the transaction out of band, and pay
them out of band for them to include it in their next block. Ben Carman has spelled this
out in his post here for those interested.

Are “Ordinals” Worth Worrying About? 46

Increased node running costs are arguably marginal given the substantial hard drive cost
decreases over the years. Cheap 2TB SSD drives nowadays are available for say, $120
USD and would likely last another 10 years at current pace. It’s worth noting that the limits
set by bitcoin developers in terms of block size were conservative.

Those interested in feedback collected on a specific Bitcoin Core Pull request can also
view Gloria Zhao’s summary of related arguments pro and against here.

Value density 

Perhaps the real longer term answer is that we must increase the value density of on-chain
transactions. This can be done by using other layers, such as lightning to aggregate more
transactions. For example, if you use two on chain transactions to open and close a
lightning channel, but while that channel was open you did thousands of off-chain
transactions - you packed a lot more value density into those two on chain transactions.
Thus, you’d be willing to pay more for those on-chain transactions, which in turn helps you
justify paying high on-chain fees, because fundamentally, it’s now worth it to you. As more
layer 2 protocols come online or continue advancing, the value density increases. This may
be the point on which most people can agree, whether they are pro or anti filtering. In this
way, monetary transactions could outcompete ordinal/inscription transactions through
economic incentives.

So what’s the bottom line? 

Ordinals and Inscriptions are not ideal for monetary users of Bitcoin, but they are not
currently a systemic issue for Bitcoin. While it may be an issue for specific individuals who
are priced out of self custody, Bitcoin was always going to be subject to the free market
forces of those who want to use Bitcoin’s blockchain. In the short term, it may be best to
‘bite the bullet’ and wait the ordinals and inscription users out. There is still some chance
this is a passing fad. But even if it is not a fad, increasing the value density of monetary
transactions seems best over the medium to long term.

Credit to Brandon Black (aka reardencode) from the Swan team, and Mononaut from the
mempool.space team for their insights that helped with this article.

Are “Ordinals” Worth Worrying About? 47

Bitcoin
News
Roundup
A summary of the month’s news in Bitcoin

By Drew Mealey
SEC Officially Approves Spot Bitcoin ETFs, Trading Begins
Following ten long years of rejections, on January 10th, the U.S. Securities and Exchange
Commission (SEC) authorized the trading of the first spot Bitcoin Exchange-Traded Funds (ETFs).

All 11 qualified applicants received approval to trade on U.S. exchanges. In their first day of
trading, Bitcoin ETFs saw over $4 billion in inflows, a record for an ETF product.

"After a thorough examination, the [SEC] concludes that the proposals align with the Exchange
Act and the regulations applicable to a national securities exchange," the commission stated in
the approval notice.

According to the SEC, the rule modifications permit the NYSE to list the Grayscale Bitcoin Trust,
transitioning into a spot Bitcoin ETF, alongside the new Bitwise Bitcoin ETF and Hashdex Bitcoin
ETF listings.

The Nasdaq lists BlackRock's iShares Bitcoin Trust and the Valkyrie Bitcoin Fund.

The CBOE's BZX exchange lists ARK 21Shares Bitcoin ETF, the Invesco Galaxy Bitcoin ETF,
VanEck Bitcoin Trust, the WisdomTree Bitcoin Fund, Fidelity Wise Origin Bitcoin Fund, and the
Franklin Bitcoin ETF.

Swan is providing ongoing daily coverage of Bitcoin ETF news on its YouTube channel.

Jack Dorsey’s Block Release Bitkey Bitcoin Self-Custody Wallet

Block, Inc., led by CEO Jack Dorsey, has launched pre-ordering for its new self-custody Bitcoin
wallet, Bitkey, in over 95 countries on six continents. The wallet is designed to give users easy
and secure control over their Bitcoin holdings.

Currently, many Bitcoin owners use custodial services or exchanges, where they don't have full
control over their assets. Bitkey claims to offer a simpler solution for self-custody, combining a
mobile app, a hardware device, and recovery tools, making it accessible for both experienced
and new Bitcoin users.

Thomas Templeton from Block's Proto team highlighted the importance of self-custody in
creating a more inclusive financial system. Bitkey, he said, aims to provide a secure and
straightforward way for people worldwide to manage their Bitcoin on their terms.

49
One of Bitkey's main features is its 2-of-3 multi-signature design. The system uses three keys,
with any two required for transactions or security actions. Two keys are given to the user: one in
the mobile app for everyday use and one in a hardware device for enhanced security and as a
backup. The third key is stored on Block's server, facilitating mobile transactions and acting as an
additional recovery option. This design ensures that Block cannot move a user's Bitcoin without
their consent.

Additionally, Bitkey has partnered with major platforms including Coinbase and Cash App,
enabling users to easily transfer Bitcoin from these exchanges to their self-custody wallet.

New FASB Go Into Effect December 2024, Companies Can

Apply Earlier
The Financial Accounting Standards Board
(FASB) announced on December 13 that
new accounting rules will be introduced
requiring companies to value
cryptocurrencies like Bitcoin at their fair
market price. These rules are set to take
effect on December 15, 2024, but
companies can adopt them sooner.

The guidelines will require companies to

report the value of cryptocurrencies at their
market price at the close of each financial
reporting period.
50
In contrast to the previous method, where Bitcoin was treated as an intangible asset,
requiring impairment charges for price drops but not allowing for booking benefits from
price rises unless sold, the new fair value accounting provides for reporting both unrealized
gains and losses. This change could encourage companies to add Bitcoin to their balance
sheets and hold it long-term, as they can now reflect value appreciation without selling.

Bitcoin Rewards Lolli Concludes $8M Series B + Bitcoin

Back Rewards ‘SatsBack” Launches in U.S.
Lolli, a leading Bitcoin, and cashback rewards platform has completed an $8 million Series B
funding round. The investment, led by BITKRAFT Ventures and supported by various investors,
will support Lolli's expansion and introduce a multi-currency rewards system for enterprise
partners.

Lolli allows users to earn Bitcoin and cashback rewards at over 25,000 retailers, and plans to
extend its rewards offerings to enterprise partners, enhancing the user experience in earning
digital assets. Since its launch in 2018, Lolli users have accumulated over $10 million in
Bitcoin rewards.

In similar news, Satsback, a Bitcoin

rewards platform, has expanded to the
United States, allowing American
online shoppers to earn Bitcoin on their
purchases. Initially successful in
Europe and 16 other countries,
Satsback.com partners with over 500
online retailers.
Shoppers earn Bitcoin on purchases from major brands like Macy's and The Home Depot, with
rewards transferred to their Lightning wallet. Satsback.com also offers a browser extension for
Chrome, Firefox, and Safari to alert users about earning opportunities.

Argentina’s Minister of Foreign Affairs Affirms and

Formalizes Contractual Agreements Can Be Denominated
in Bitcoin
Argentina's Minister of Foreign Affairs, Diana Mondino, announced the country's recognition
of using Bitcoin in contract agreements. The declaration marks a significant stride towards
embracing Bitcoin in the South American nation.

Mondino stated, "And also any other

crypto or units like kilograms of beef or
liters of milk," referring to Article 766:
"Obligation of the debtor. The debtor is
obliged to deliver the agreed quantity
of the specified currency, regardless of
its legal tender status in the Republic."

The Minister's declaration emphasizes

Argentina's openness to permitting
Bitcoin's use. By acknowledging
Bitcoin in contractual dealings, the
government seeks to create a
favorable climate for investment and
business growth.

While the exact implementation details

and legal specifics are yet to be
determined, Mondino's announcement
marks a step forward towards
legitimizing Bitcoin for formal
transactions in Argentina.

Bitcoin News Roundup 52

Human Rights Foundation Grants $500k to 18 Bitcoin
Projects Worldwide
The Human Rights Foundation (HRF) has revealed a new round of Bitcoin Development Fund
grants in a press release to Bitcoin Magazine.

These grants, totaling $500,000, are allocated to 18 projects focusing on areas such as global
Bitcoin education, Bitcoin Core development, mining decentralization, and facilitating
participation of developers from repressive regimes in industry conferences.

This follows a previous round of grants in September, where HRF also allocated $500,000
to various Bitcoin-related projects. The specific grant amounts for each project in this round
haven't been disclosed.

Michael Saylor and MicroStrategy Buy Another 14,620

BTC for $615M
MicroStrategy, led by Founder & Chairman Michael Saylor, recently acquired an additional
14,620 Bitcoins, investing $615.7 million. This purchase boosts the company's total Bitcoin
holdings to 189,150 BTC, valued at $8.11 billion.

Since its initial Bitcoin investment of $250 million in August 2020, MicroStrategy has
consistently increased its Bitcoin assets. The recent acquisition, made between November
30 and December 26, 2023, had an average purchase price of around $42,110 per Bitcoin,
including all fees and expenses.

Bitcoin News Roundup 53

MicroStrategy's total Bitcoin investment is approximately $5.895 billion, with an average
purchase price of $31,168 per Bitcoin.

VanEck Commits to Donating 5% of Spot ETF Profits to

Bitcoin Core Developers
VanEck, a prominent investment management firm, announced a substantial commitment to
support the Bitcoin ecosystem by promising to donate 5% of its Spot Exchange-Traded Fund
(ETF) earnings to Bitcoin Core developers. This commitment spans over a decade and
reflects the firm's long-term dedication to Bitcoin.

The initiative began with a $10,000 contribution to Brink, a nonprofit dedicated to backing
open-source Bitcoin.

"We're deeply invested in the future of

Bitcoin," VanEck stated. "To show our
commitment, we've already donated
$10,000 and have committed to donating
5% of our Bitcoin ETF profits to support
Bitcoin Core developers at Brink for at
least 10 years. We recognize your
relentless pursuit of decentralization and
innovation as the foundation of the Bitcoin
ecosystem, and we're eager to support it
with more details forthcoming."

Bitcoin News Roundup 54

Amidst Intense Competition, Blackrock, Fidelity, Others
Lowered ETF Fees Ahead of SEC Approval
BlackRock, the world's biggest ETF issuer, listed a reduced management fee of 0.20% in its
filing, undercutting the expenses proposed by rivals. ARK/21Shares, in their joint proposal,
slashed their fee to 0.25% from 0.80%. BlackRock's fee jumps to 0.30% after 12 months or $5
billion.

Hours after potential Bitcoin ETF providers began disclosing their fees, many began
announcing that they were already reducing them, indicating intense competition to gather
assets when these products received approval.

Valkyrie nearly halved its fee to 0.49%

from 0.8% and will not charge any fee for
the first three months. Invesco decreased
its fee by 20 basis points to 0.39%.
Bitwise, previously the most affordable at
0.24%, further reduced its fee to 0.20%.
WisdomTree has also lowered its fee by
20 basis points to 0.30%, while Fidelity
has set its fee at 0.39%.

Grayscale, however, is oddly maintaining

its higher fee, which now stands out even
more after the recent reductions.

El Salvador Freedom VISA, $1M in BTC of Tether

El Salvador is launching a "freedom visa" program, targeting affluent individuals willing to
invest in the nation.

The Salvadoran government unveiled a new visa initiative, granting passports and residency
to foreigners who invest a minimum of $1 million in Bitcoin or Tether in El Salvador.

Designed for wealthy investors, the "freedom visa" aims to attract those committed to
contributing to El Salvador's vision of a futuristic country, as stated on the
government's website.

Bitcoin News Roundup 55

The government's
announcement
emphasizes El Salvador's
transformation into a hub
of economic freedom,
inviting global
participation in shaping
its future.

This Adopting Salvador strategy is akin to "golden visa" programs found in countries like
Spain, Portugal, and Ireland, where substantial investments are rewarded with residency visas.

Tether, known for its USDT stablecoin - the most traded cryptocurrency linked to the U.S.
dollar - supports this program, seeing it as an opportunity for El Salvador to become a key
player in technology and financial innovation.

The visa will allow 1,000 applicants annually to donate $1 million in cryptocurrency, with the
funds allocated to economic and cultural development and social programs aimed at
national revitalization.

In return, applicants receive a passport and residency.

Grayscale Chairman Barry Silbert Resigns

Barry Silbert has resigned as chairman of Grayscale Investments. Mark Shifke, the CFO of
Digital Currency Group (DCG), Grayscale's parent company, will replace him. The company's
board will also welcome new members, including DCG's Vice President of Operations, Matt
Kummell, and Grayscale's CFO, Edward McGee.

Silbert's resignation follows legal challenges involving DCG,

including a lawsuit filed by Gemini over handling customer
funds and a subsequent lawsuit from the New York Attorney
General accusing DCG and others of defrauding customers.

The exact reasons for Silbert's departure are not confirmed. The connection between
Silbert's resignation and his involvement in DCG's legal issues remains unclear. Some
analysts suggest that Silbert initiated the move to facilitate Grayscale's chances of
launching a Bitcoin ETF.

Bitcoin News Roundup 56

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Lyn Alden
Macro View
Macro View 59
Macro View
January 2024

Lyn Alden
Investment Strategist

The following is excerpted from Lyn Alden’s private subscription email newsletter sent on

January 7th, 2024. Note that this was sent prior to the ETF approvals, yet we include

Lyn’s commentary on their expected approval as it contains many relevant and valuable

insights. To subscribe to Lyn’s newsletter please visit LynAlden.com

Liquidity Indicators

Domestic liquidity rolled over a bit in mid-December, and equities have followed with a lag:

Ever since the pandemic, liquidity conditions have had a larger impact on markets and the

economy than usual, and risk assets like stocks have tracked liquidity pretty closely. So far,

the biggest divergence was in mid-2023, where stocks rallied sharply (concentrated mainly

around the mega-cap tech stocks amid AI hype) despite liquidity flattening out. Other than

that, the correlation has been quite strong.

Macro View 60
A metric that I’ve liked tracking ever since the September 2019 repo spike is the ratio of bank

cash to total bank assets. The global financial crisis represented an all-time low for bank

liquidity, where they had just 2.5% of their total assets in cash, and since then there have

been more regulations around bank liquidity and solvency, including an “ample reserve

regime” so that banks are less dependent on borrowing from other banks to accommodate

their liquidity needs.

This chart shows large bank cash levels as a ratio of their total bank assets, which were the

main problem in 2008 and 2019 but less-so in 2023:

This chart shows small bank cash levels as a ratio of their total bank assets, which were

more-so the problem in 2023:

Macro View 61
As we can see, ever since early 2023 when Silicon Valley Bank and some other banks blew
up ironically due to being underwater on “risk-free” Treasuries, overall bank liquidity has
been higher due to coordinated Fed and Treasury intervention. However, large banks are in
much better shape liquidity-wise than small banks. Small banks also have the problem of
being way more exposed to commercial real estate on average.

In general, large banks lend to large companies, while small banks lend to small companies.
And so, credit availability is likely going to remain more accessible to larger companies than
smaller companies, and small banks continue to be at risk of solvency issues and
consolidation, whereas large banks in general are in decent shape.

Global liquidity continues to be well off its highs but still rangebound. I expect a little while
longer of rangebound liquidity, and then an upward run into 2025/2026, although I’ll update
that view quarter by quarter as new information comes in.

U.S. Economic Data

The U.S. economy continues to have very mixed results.

The primary surface readings of unemployment and real GDP growth continue to be solid,
but underneath the surface there is an unusually sharp divergence between different
sectors of the economy. This economic divergence, in my view, is occurring due to the
unusually sharp divergence between loose fiscal policy and tight monetary policy, since
that policy mix affects sectors that

are sensitive to interest rates very

differently than sectors that are not.

Based on a range of indicators,

the Atlanta Fed’s automatic tool
continues to expect positive real
GDP growth at this time. The
fourth quarter of 2023 just
ended but has not been
reported yet, so data are still
coming in with regards to how
that quarter went:

Macro View 62
The U.S. manufacturing sector has been decelerating since mid-2021, and since late 2022
has had 14 consecutive months of mild contraction. The services sector is less cyclical in
general and has held up better, but is currently at stall speed:

The most cyclical parts of the labor market, such as temporary workers and overtime hours, tend
to be volatile leading indicators for broader employment. They’ve been weakening for a while:

Macro View 63
Overall, it’s currently more important than usual to be sector-specific when analyzing the
economy. And most of the pain is skewed on the smaller entities in the economy.

-Large corporations, wealthy households, and upper-middle class households, in general

are in good shape unless they happen to be in the commercial real estate business or other
hard-hit niches. For the most part, these larger and wealthier entities have locked in long-
duration debt against good assets, and are thus buffered against tight monetary policy and
are in many cases benefiting from higher interest rates because they’re on the receiving side
of the large U.S. fiscal deficits.

-Small businesses, and middle/working class households are under more pressure
depending on what sector they’re in. They generally rely on shorter-duration debt, which has
become a lot more expensive over the past couple years. They have smaller amounts of
cash-equivalents, equities, or other liquid assets, and thus are not benefiting much from
higher interest rates on cash-equivalents or from robust equity prices.

The employment-to-population ratio is lower than its peak in 2000, and lower than pre-
pandemic levels, as society has aged and more people have left the workforce. So, even in
an economic downturn should one occur in 2024 or 2025, I wouldn’t expect a very high
unemployment ratio to materialize this time. This chart shows the employment-to-
population ratio:

If we focus exclusively on working-age people (the BLS uses 25-54 for this age band), the
ratio is a bit below peak 2000 levels but otherwise near the top end of its modern normal
range:
Macro View 64
Geopolitical Disruptions
The Houthi Rebels’ attacks on Red Sea ships in recent weeks have caused virtually all
containership activity in the Red Sea to cease. This means that ships now have to go south
around the African continent, which adds fuel costs and travel time. The increased travel
time means that more ships are necessary to move the same amount of goods.

In the aftermath of the pandemic-related stimulus, most prices went permanently higher
due to there being more broad money in the system:

Macro View 65
There were, however, some highly-commoditized prices that were truly driven almost
entirely by pandemic-related supply/demand shocks, such as lumber prices and
containership prices. They jumped tremendously and then fell back down to where they
were before. This current Red Sea situation is thus far causing a minor repeat of what
happened during the pandemic, with a rapid 70% jump in containership prices:

Containerized Freight Index

Source: tradingeconomics.com

I don’t have any firm view or expertise in this topic, so it’s merely something I’m monitoring.
However, I do study the economics and history of globalization and de-globalization more
broadly, so that provides a scope for how I monitor it.

The late 1880s and early 1900s were a period of significant globalization, but that ended
during the WWI and WWII years. Globalization resumed slowly after WWII, but it was limited
in the context of a big West-vs-East divide, with the communist regimes largely isolated due
to their closed and centralized economies.

During the 1980s, a series of reforms in China began to add some openness and capitalism
back in, and the trickle of offshoring to them began. The fall of the Berlin Wall in 1989 and the
collapse of the Soviet Union in 1991 further connected the West and East. The first
McDonalds in Russia opened in 1990, which as random as it sounds, was kind of a watershed
moment and quintessential example of the changes in that era. Tens of thousands of
Russians waited in line to eat at McDonalds for the first time.

Macro View 66
From there, the three decade period in the 1990s, 2000s, and 2010s was an era of unusual
unipolar peace. China and the former Soviet regions were opening up to the world, and the
United States was the world’s sole hyperpower. Globalization accelerated, as western capital
connected with eastern labor and resources. This globalization of supply chains reduced
prices for many goods.

But it wasn’t long until cracks began to form. The United States performed what was by most
measures a failed war across the Middle East in the 2000s and 2010s, which cost trillions of
dollars, killed and displaced millions of people, and damaged the reputation of the country
on the global level. The 2008 global financial crisis centered in the United States occurred,
followed by the 2012 European sovereign debt crisis, and all of this marked a weakening of
the West in relative terms. Global central banks had been reducing their gold reserves for
decades heading into 2009 in favor of U.S. Treasuries, but ever since that year they started
to increase their aggregate gold reserves again.

Starting in the late 2010s, China’s economy began seriously rivaling the size of the United
States’ economy. Meanwhile, the relative de-industrialization of the United States toward
China began having more domestic political consequences, the United States and China
entered a more rivalrous economic relationship.

After decades of debt growth, the pandemic-related stimulus threatened the value of global
bonds, including U.S. Treasuries which are the primary reserve asset of global finance. And
then the 2022 invasion of Ukraine by Russia further accelerated things, and likely marked a
watershed trend change in geopolitics.

Macro View 67
Russian reserves were frozen by American and European countries, which impaired Russia
financially but also impaired the overall “moneyness” of western sovereign bonds by
encouraging more BRICS+ type countries to seek out bilateral currency trading relationships and
to accumulate more gold so that their reserves are less freeze-able by any hegemonic power.

Speaking of BRICS+, January 2024 marks the month where new BRICS+ members have
officially joined. Back in 2023, it was announced that Argentina, Egypt, Ethiopia, Saudi Arabia,
Iran, and the UAE would join the existing members Brazil, Russia, India, China, and South Africa
in the broader BRICS+ group starting on the first day of this year. Of those six, five have now
joined, but Argentina dropped out before joining.

Back in September, I brought up the connection between Milei’s potential election and
Argentina’s potential BRICS+ drop-out:

Argentina’s inclusion is at least somewhat in question at this time, because while their
establishment leaders want to be included and the formal plan is to join, their rising
populist leaders generally do not favor BRICS. In particular, Javier Milei came out
ahead in Argentina’s August 2023 primary election, and he has a less favorable view
of BRICS than his political peers. Should he win the autumn presidential 2023
election, it’s unclear if this would affect Argentina’s BRICS inclusion.

– September 3, 2023 premium report

Although BRICS+ represents a group with shared interests with regard to bilateral trade and
a hope for de-dollarization, many of them are not exactly friends. China and India have long
had a cold relationship and border disputes. Egypt and Ethiopia have been at odds for a
decade over Ethiopia’s Grand Ethiopian Renaissance dam on the Nile. Saudi Arabia and Iran
have long been enemies, although China has taken steps in recent years to open that
relationship back up a bit.

Overall, there is more global conflict now, and there is less ability and appetite within the
United States to serve the global role it once did.

But as we’ve seen with the Houthi Rebels’ attacks on ships in the Red Sea, we don’t exactly
see BRICS+ spearheading the defense of that region, even though some of its members
(notably Egypt and Saudi Arabia) are the most directly harmed by what’s happening there
currently, and a number of their new members are situated close to it. Instead, it’s still the
United States trying to lead a coalition (Operation Prosperity Guardian) to open the Red
Sea back up.

Macro View 68
On net, the ongoing geopolitical situation risks being structurally inflationary for certain
goods and commodities. Decreasing global frictions are disinflationary, while increasing
global frictions are inflationary, because they result in less efficiency and require more
resiliency and duplication to deal with. Fiscal debt spirals, which are occurring in some
western countries today, are also inflationary. Countering some of that, technological growth
is disinflationary, including AI in the decade ahead for the cost of many types of services.

Digital Assets Note

Bitcoin has spent the past month being rangebound between $41,000 and $45,000, which
let off some near-term overbought steam.

I don’t have any firm view on price action over the next couple quarters, but I have a
relatively high conviction view that it’ll do well over the next two years.

That opinion is formed from a combination of 1) likely bitcoin ETF approvals which is
constructive for demand, 2) an expectation of higher global liquidity during that two-year
stretch which is constructive for demand, 3) the supply halving in April 2024 which reduces
the daily new supply that will come to market, 4) various on-chain indicators that show how
much of the current supply is held by illiquid holders, and 5) a strong Bitcoin ecosystem
development pipeline in the venture space.

Bitcoin: Realized Cap HODL Waves

Source: Look Into Bitcoin

Macro View 69
For most people, I generally recommend dollar-cost averaging into it for those that want
some, rather than trying to actively trade it.

Bitcoin ETF News

It’s widely-believed that the SEC will approve a bunch of bitcoin spot ETFs next week. Multiple
major financial media outlets have reported from credible sources regarding that. However, I
have no firm view on when they will be approved, and although I assume the consensus is
correct, there is indeed a nonzero chance that they won’t be approved within the week.

A bitcoin spot ETF holds actual bitcoin in a custodian, rather than relying on cash-settled
futures to provide a proxy for the bitcoin price. Bitcoin spot ETFs have been repeatedly
proposed for nearly a decade, but the SEC has always denied them. The SEC even approved a
2x leveraged futures bitcoin ETF, but never a spot bitcoin ETF.

Back in 2023, an appeals court unanimously shut down the SEC’s arguments against bitcoin
spot ETFs and said that they acted “arbitrarily and capriciously” by allowing futures ETFs but
not spot ETFs. That court decision paved the way for these ETFs to move toward approval.

There has been significant

debate regarding what is
Bitcoin: MVRV Z-Score
“priced in” or not relative to
those spot bitcoin ETF
approvals and the spark they
could ignite for demand.
Ultimately, I don’t think
anyone knows, and a lot of it
is just narration for the sake of
having a narrative. Bitcoin’s
price action is acting similarly
to how it always has:

Source: Look Into Bitcoin

Macro View 70
Bitcoin has been around for 15 years now (its 15th birthday was four days ago), so there are

plenty of ways to buy it, but there are tens of trillions of dollars worth of managed financial

assets in the United States. These “walled gardens” for the most part have been unable to

participate except in limited ways by some of the more forward-thinking firms that have gone

through frictions to do so.

Bitcoin has had very imperfect wrappers for these walled gardens to get exposure to. The

Grayscale Bitcoin ETF (GBTC) is a trust rather than an ETF and trades over-the-counter, so it

has no daily redemption feature and thus its value can change considerably relative to its net

asset value. Many firms do not allow access to it. MicroStrategy (MSTR) has been a popular

proxy for investors, but similarly its value can fluctuate considerably relative to the net asset

value of its bitcoin holdings. There are futures ETFs, but they generally underperform the

price of bitcoin due to roll costs.

Galaxy Digital has provided some useful numbers to estimate the potential inflows to a

bitcoin ETF. They start with an estimate for $48 trillion in AUM of these managed assets that

currently has little way to allowably invest in bitcoin. They then assume that in year one,

30% of that capital will be granted access to do so, and of those only 10% will decide to do

so, and of those they will only put an average of 1% of AUM into bitcoin via an ETF. That

would yield $14.4 billion in inflows that year. By the third year they estimate $38.6 billion in

cumulative inflows.

If these numbers are even moderately accurate, it would likely contribute to a sizable price

increase over time because there is generally a significant multiplier on how much the

market cap goes up from inflows of this nature. However, there’s not much about my two-

year outlook on bitcoin that rests on there being bitcoin spot ETFs or there not being bitcoin

spot ETFs. All of this just affects the potential magnitude of the next bull run, which I’m not

really trying to guess anyway.

Ongoing Crackdown on Financial Privacy

Governments in general have been increasingly focused on financial surveillance over

the past several decades. Continuous inflation has helped them with that mission,

because many governments set specific thresholds above which reporting is necessary,

and then never adjust those threshold for inflation. Therefore, the threshold effectively

tightens each year.

Macro View 71
 The 1970 Bank Secrecy Act, enacted into law by the U.S. government and still in
effect, compels banks to file reports with the government if a customer’s daily
transactions exceed $10,000.

When this law was enacted in 1970, the median American annual income was less
than $10,000. Therefore, the law only covered rather large sums of money moving
within a day — worth well over $80,000 in today’s weaker dollars. However, there
was no inflation adjustment embedded into the law. As the value of the dollar
eroded over time, banks effectively had to file reports regarding smaller and
smaller levels of transactions, since $10,000 worth of transactions occurring in a
day became more and more commonplace. Every year, the government
effectively lowered the threshold regarding its financial surveillance, simply
through inflation, without passing further legislation.

Over the next fifty years, if the rate of inflation averages the same amount it has
over the past fifty years, then the reporting threshold will shrink by another 8x or
so in terms of purchasing power. When the law was enacted, the government
granted itself the ability to keep tabs on house-sized transactions. Over time,
inflation enhanced the law so that they can keep track of transactions the size of
used cars. If this keeps up, it will enable them to keep track of transactions the size
of lawnmowers or bicycles.

— Broken Money, page 446

Most of the increasingly strict anti-financial-privacy rules are operational on the institutional
level which makes them easy to enforce, but cryptocurrencies throw a curve ball into the
situation because they enable people to send money peer-to-peer using free open-source
software. This leads the government try to enforce similar anti-privacy rules on the individual
level, which is orders of magnitude more difficult to enforce because there are orders of
magnitude more potential enforcement points.

The 2021 Infrastructure and Jobs Act requires individuals to report information about people
who send them cryptocurrency if the amount is over $10,000 (even if spread among
multiple transactions). However, this requirement didn’t become active until January 1, 2024.

Macro View 72
 The report must include, among other things, the name, address, and Social
Security number of the person from whom the funds were received, the amount
received, and the date and nature of the transaction. If you don’t file a report within
15 days of receiving the transaction, you could be found guilty of a felony offense.
— Coincenter

A challenge for this legislation is that cryptocurrencies can be sent anonymously, so

sometimes such reporting is not even possible by the person who received it. Coincenter is
currently suing the government regarding this rule being potentially unconstitutional, but
that’ll take time to work its way through courts.

For years, a lot of people have been hung up on the question of whether the government will
“ban bitcoin” or not. That’s extremely difficult to do because ultimately, holding bitcoin just
means holding a private key, which is a large number. Bitcoin is basically just a decentralized
spreadsheet, with its users updating the spreadsheet by signing updates with their large
numbers. The draconian levels that a government has to go to to ban the usage of a
decentralized spreadsheet are very large and optically unfavorable. Even China has had a
tough time with it.

Instead, the main question is how many frictions the government will add to using it,
including all sorts of reporting requirements that are hard to comply with and hard to
enforce, but that can be selectively forced to make examples out of people and thus put
downward pressure on usage, liquidity, development, and so forth.

I think this friction is going to last quite a while. Cryptography inherently enables people to
send value to each other, including across borders and including via private means, which is
disruptive to the legacy system that has 160 different centralized (and for the most part
rapidly-devaluing) fiat currencies with various capital controls built around them.

Additionally, the entire apparatus of basing government revenue primarily on income taxes
came into being with modern centralized banking, and is based on the idea that everyone’s
finances can be readily surveilled by central authorities at all times. If more commerce
happens peer-to-peer and outside of banks and across borders, and if ubiquitous financial
surveillance is no longer easy to accomplish due to shifts in technology, then that is a long-
term disruptive change for governments.

Macro View 73
In the face of these changes, governments are likely going to keep trying to apply bank-style
rules on peer-to-peer transactions unless or until such technology becomes so widespread
as to make those rules unenforceable, at which point they’ll have to adjust their tactics.

Bitcoin vs M2 (Absolute $):

Bitcoin vs M2 (YoY %):

Macro View 74
 Resources for Your
Friends and Colleagues
Swan Private offers the following benefits to help you talk to your friends and
colleagues about Bitcoin:

1. Free Copy of One of the Following Books to Share

We’d love to mail one of these essential books from the Bitcoin canon to any of
your friends and colleagues. Just let us know at [email protected].

Yan Pritzker Vijay Boyapati Tomer Strolight Gigi

2. Private Hour-long Webinar with a Bitcoin Expert

Many of our clients are excited to talk about Bitcoin with their friends but have
a hard time explaining it. We get it. Bitcoin is complicated and the rabbit hole
runs deep. Swan can help by hosting you and your friends for a webinar. We will
make a presentation and lead a discussion just for you and your friends.

3. Three Month Subscription to Swan Private Insight

Introduce us to your friends and colleagues at [email protected], and
we will send them three issues of this monthly research report.

75
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