BTC Sessions - Bitcoin price erratic, Fed drops rates to zero, BTC Hashrate drops EP028

Episode Date: March 16, 2020

SHOW RESOURCES: Fed cuts rates to zero, announces $700B QE https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html What did QE look like from 08-14? http://wp-uploads-trefis.s3.amazonaws.com/articles/wp-content/uploads/2015/11/QE.png Fed Announces additional $500B for overnight repo markets https://www.cnbc.com/2020/03/16/fed-says-it-will-offer-an-additional-500-billion-in-overnight-repo-funding-markets.html Fed Press release, including zero-reserve banking https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm Bitcoin hashrate drops with profitability, Chinese miners selling rigs to Russia/Middle East https://decrypt.co/22538/chinese-miners-hash-halving-coronavirus Hashrate chart https://www.blockchain.com/en/charts/hash-rate Bitcoin and Gold both dropping – no current flight to safety https://decrypt.co/22540/bitcoins-not-a-safe-haven-but-neither-is-gold-right-now 3 years after fee crunch, Coinbase adds transaction batching https://cointelegraph.com/news/coinbase-launches-btc-transaction-batching-saving-users-50-on-fees GPU miners can volunteer computing power to help find a vaccine via Folding@Home https://decrypt.co/22492/bitcoin-coronavirus-gpu https://foldingathome.org/ SUPPORT THE SHOW: Visit LEDN to check out getting a bitcoin-backed loan https://platform.ledn.io/join/0a00cca3dd61dea5909c95cd41f41685 Visit and sign up for Paxful: http://bit.ly/2HYQnOG Paxful Tutorial: https://www.youtube.com/watch?v=QyKJvjzLmag Get Wasabi wallet and enjoy your privacy https://wasabiwallet.io/ Wasabi Tutorial https://www.youtube.com/watch?v=ECQHAzSckK0 Get NORDVPN to protect your online privacy. 75% off a 3 year https://nordvpn.org/btcsessions Check out my website for private bookings: http://btcsessions.ca/ Looking for an audio-only version of the show?  https://anchor.fm/btcsessions Join my Telegram channel! https://t.me/btc_sessions If you value my work and would like to send me a tip, they are always appreciated! LIGHTNING tips: https://tippin.me/@BTCsessions

Wasabi wallet. I'm fairly private. What's up everyone? I'm Ben with the BTC sessions and this is your daily session. Before we dive in, of course, shout out to sponsors of the show, leaden.com. This is where you can use your Bitcoin for a variety of services. They've got Bitcoin savings accounts where you can earn interest on your Bitcoin. They've got their Bitcoin back loans. This is actually the first service I use with them. Essentially, you can use Bitcoin as collateral to obtain a Canadian or U.S. dollar loan. So in my case, it was early last spring before the April pump, and I was in a pinch and I really needed dollars, but I didn't want to sell my Bitcoin because I thought it might be a bad time,

which ended up being the case. It would have been a terrible time to sell my Bitcoin. So I used it as collateral, got my dollar loan, and then when the time came to pay it back, I got all of my Bitcoin back. it had been sitting exclusively in a dedicated address, which I could audit 24-7. So that's of interest to you, given the current drop in price. Maybe you're in a similar position where you need dollars, but you don't want to sell your Bitcoin. This could be a decent option for you. They do have, as I said, Canadian and US dollar-backed loans. And then, of course, they've got their B2X offering.

This is where you use Bitcoin as collateral to immediately obtain a loan and then buy more Bitcoin with it. So essentially it doubles your Bitcoin on the spot and then, of course, you will experience the price fluctuations that go along with that. So if you want to check out any of that, there's a link in the show notes down below. And if you opt to get a Bitcoin back loan, they'll actually credit you with an additional 50 bucks with a Bitcoin into your account using that link. And secondly, we've got Paxful. This is an online peer-to-peer Bitcoin marketplace. And it's particularly useful. for those of you looking for a lot of different payment methods, maybe some untraditional payment

methods. These guys have over 300, 330 different types of payment methods on the site. They've got regular things like bank transfers, e-transfers, all of that. They've got a lot of the payment apps like PayPal and cash app. And then they've got other payment methods like various gift cards that you can use to buy Bitcoin. So very cool. On the first, flip side of that, if you're looking to make some money buying and selling Bitcoin, you can actually set up as a merchant and buy and sell here and create your own offers and make a fair amount of money on the spread. And outside of that, if you're looking for super cheap gift cards, then I would definitely take a look at Paxville because I've seen some killer deals, things like Amazon, Starbucks and Walmart

gift cards all for sometimes 20, 30, 40% off. It's pretty crazy. So if you want to check them out, They've also got an affiliate program that you can make some extra money on as well. Anyways, there's a link in the show notes down below to go and try it out. With that, let's dive into the news. It has been an insane week and a bit, and this one is getting off to no different of a start. Late last night in the evening, we had the Federal Reserve announced that it, It was cutting rates to essentially zero, so between zero and 25 basis points or a quarter of a percent, and that they were also launching a massive $700 billion quantitative easing program.

So just to sum it up with the article here on CNBC, a few of the key points. An emergency move on Sunday, the Federal Reserve announced it's dropping its benchmark interest rate to zero and launching a new round of QE. the QE program will entail 700 billion worth of asset purchases entailing treasuries and mortgage-backed securities. Markets responded negatively with Dow Futures pointing to a drop of 900 points when the markets open Monday morning. So, as you've heard there, there was a distinct drop in the futures markets as soon as this was announced. So they got this announcement out between an hour and 30 minutes prior to the launch of futures markets. would start at 6 p.m. Eastern every Sunday evening. And the market was not favorable. So these

are measures that typically the Fed would use to boost markets in times of unease. They pull out the big guns and say, hey, we're going to pump some liquidity into the market. We're going to drop interest rates so it's cheap to borrow. And that usually would be a method to get people to regain some trust in the stock market and use that money and that cheap capital to be able to purchase more equities and raise prices. But the market seems to have just lost all confidence in the Federal Reserve and its capabilities of actually getting a handle on this financial crisis in the face of the spread of the virus and people panicking around the world. Now, one of the key points here that not a lot of people are talking about outside of, from what I've noticed as mostly just

bitcoins, is this. In one of the articles outlining what the Fed was doing, they said the central bank also announced several other actions, including letting banks borrow from a discount window for as long as 90 days. And this is the point that really interests most Bitcoiners, reducing reserve requirement ratios to zero percent. Now, if you don't know what that means, this is a hell of a bombshell. Essentially what it means is normally in fractional reserve banking, banks, depending on where they are, have to retain a certain amount of reserves in order to lend capital out. A lot of people assume that it's 10%. So if you get a $100 deposit, you're allowed to lend out $90 of that. And in turn, somebody that you lend it to may redeposit it, which means you can.

can then again lend out 90% of that and retain 10. All in all, if that keeps on happening over and over again, then you're left with about 10% capital and 90% obligations to other people. What this would mean is that if you deposit $100, that $100 can be completely re-hypothicated, can be essentially lent out in full to somebody else. And then when somebody redeposites that that $100 once again can be lent out in full to somebody else. So there is no limit on the amount of capital that can be created out of absolutely nothing in the system. And this is insane.

Now, I mean, for me in Canada, oddly enough, it's not much of a jump from what we currently have. Our reserve rate in Canada is 0.2%, which is the lowest in the developed, world, which is absolutely insane. Now, on top of this, on top of the 700 billion QE, the drop in rates to 0%, the 0% reserve ratio required of banks to do lending, the Fed also dropped today on top of all of that, that they're injecting another 500 billion into the overnight repo markets, this on top of last week, having dropped 1.5 trillion into the overnight repo markets. So a total of $2 trillion there on top of the $700 billion in QE and all of the other crazy

measures that they're taking. So, and that's just this week. Let's take a look at, in comparison to kind of where we were last time around with the financial crisis in 2008. So in November of 2008, QE1 was initiated, and that meant that the Fed was buying 100 billion of agency debt and 500 billion of mortgage-backed securities. That went on from November 2008 to March 2009. We're in the beginning stages of this, and in the last week, essentially, wow, what, $2 trillion plus the other $700 billion, and this is 600 here.

So really, we're looking at a four times that, four times QE1 in about a week and a half when you talk about injecting liquidity into the system. Now, in March 2009, they extended QE and added another $750 billion. So that takes it up to over the course of November 2008 to March 2010. That is just $13.1.3 trillion. Yes, that's $1.35 trillion. And we've already surpassed that in a week. Moving on, November 2010 to June 2011, QE2 was initiated.

So there's a break from March to November of 2010. So with this, they bought $600 billion in long-term treasury bonds at $75 billion per month until mid-2011. So $600 billion over the course of around seven months. Then they started at the printing presses yet again in September of 2011. This was called Operation Twist. The Fed bought 400 billion worth of treasuries with maturities between 72 and 360 months and sold off treasuries with maturities between three and 36 months. And then finally, September 2012 to October, 2014. QE3 was initiated and the Fed bought 40 billion per month worth of mortgage-backed securities. So that's what we saw in QE 1, 2, and 3 quite a bit. And we're already getting close to that

amount of liquidity injected into the system inside of a week what they did over the course of six years here. It's really unprecedented what we're seeing. And beyond that, taking a look at the markets right now, the Dow is down at the time of recording this, about 13%. As soon as it opened, just a couple minutes into trading this morning, the circuit breakers were triggered because it dropped more than 7%. And trading was suspended for 15 minutes before resuming. And now it's looking like, Think if we get to 15% down, they trip the circuit breakers again and once again suspend trading. It doesn't look like they would suspend it for the entire day, although we're getting pretty close to the close anyways. But 20% would be that magic number to shut it for the day.

Either way, it would dangerously close to triggering the circuit breakers again. Down nearly 3,000 points on the Dow wild. Now, Bitcoin was not immune to this. Of course, we saw a dump. Oddly enough, we saw a pump and then a dump. It's been insane. Okay, so here's the timeline. Last night, they drop the news about QE and Bitcoin pumps like crazy.

It went from as low as the 5200s all the way up to almost $6,000. Then a small window of time passed. This was about an hour. and then the futures markets opened and started to dump and Bitcoin started dumping with it. And that took us all the way back to the level that we were previously at in and around the 53, 5200 range. And then around midnight, again, I'm talking my time, but middle of the night, it continued to dump. It went as low as the mid-4,400s and then started to pump back through the morning, even through the morning, even through the opening of the stock market all the way up to around the 5,200 range,

and then more recently has dumped down. It went down to around the mid-4800s and had a pretty long wick and seems to be bouncing back a little bit. It's getting close to around 5K right now and maybe peaking over that. But if anything, it's just been volatile as hell. And there's no kind of clear trajectory of where it's going in the short, term. Now, on top of this, the price fluctuations and namely the drop that we saw from 8K a few days back all the way down to where we are now around the 5,000 range, has had an effect on

Bitcoin miners. And so miners are already kind of bracing for the halving. Typically, they, I imagine, are planning in advance since it's a known event, but the dump in the market has taken its toll and that can affect profitability for those that were expecting it to either stay in the same range or perhaps rise. Well, mining pools are indeed seeing Bitcoin miners drop off the network. Bitcoin has indeed become less profitable following the crash. And Chinese miners appear to be selling some of their machines to Russia and the Middle East. The reason for that being is that Russia in the Middle East often have access to cheaper power than they may in China. So the drop in hash rate over the past week has been around 26.

Although those numbers aren't exact. You can kind of draw an estimate of it using hash rate and the frequency of mined blocks. And you can kind of look at the mining pools and the miners dropping in and out of them, which appear to be around the 24% tile as far as those dropping off the network. If you look at the hash rate chart on blockchain.info, it appears. is to be just shy of it's around 97 terra hash per second right now coming down from a high of around 136 tarahash however to put that in perspective 97 terra hash we saw that literally last week and we also saw that in mid-February and early February so it's it's really not too much of a deviation from where we've been the last little bit these types of charts are volatile

because it really depends on the absolute chance of when a block is mined. So you can never really know the entire amount of hashing power on the network, the entire amount of computing power backing it, but you can generalize with these trends. So regardless of all of this, what happens when a bunch of miners become basically not profitable and drop off the network? Well, Bitcoin was designed specifically for this. So let's say 25% of miners drop off of the network all of the sudden.

Well, what happens in that instance is it becomes a little bit more difficult to mine Bitcoin because there's less people attempting to mine it. And so it goes through a period where blocks take a little bit longer, so about 25% longer. But at a set amount of time, typically it's two weeks, add about 25% of that. maybe around two and a half weeks or so, that's how long it would take for the difficulty to retarget and then all of a sudden it goes back to blocks roughly every 10 minutes. And it becomes also much easier for the remaining miners to mine blocks, once again making them profitable with their current overhead and their current costs of production

and infrastructure. So Bitcoin was indeed designed for exactly this so that even with crazy price fluctuations, quite quickly, the network can price it in, and the miners that are the most efficient can stick around and continue to secure the network. So I wouldn't be super worried about the state of mining with Bitcoin. Now, there's been a lot of talk,

and we've touched on this on the show last week about Bitcoin, in regards to being a safe haven asset, I would say that it is not necessarily a safe haven asset, especially in the midst of something like a global pandemic where everything is crazy, but it is in the long term an uncorrelated asset. Now, it may be dumping with the markets right now, but so is gold, which is traditionally a safe haven asset. So why is that? Well, in a liquidity crunch like this, let's say you've got a lot of leverage that you're trading with and you need access to cash to cover your positions.

What are you going to do? Well, I mean, stocks are dumping what's left. Cash, if you have it. And if not, the easiest most saleable goods. So if you've got contracts on gold, you can sell those. If you got Bitcoin, it's quite easy to liquidate that to get your hands on some cash. And that's what we've seen. People that were over leveraged or using a ton of leverage on something like Bitmex are just

getting liquidated like crazy and forced to sell at these lower prices. Whereas people that haven't really exposed themselves to that aren't subject to this and can continue holding without having to really worry. So my hope for you is that you're not over leveraged, that you haven't put in money you can't afford to lose, and that you can just sit tight and not have to worry about any of this. If that's the case, then wonderful you're doing it right. But regardless, gold has taken a bit of a tumble as well. It did rise 30% over the last year, but has dropped 11% over the last nine days with further

declines today. I'm not sure what it's at the time of recording this, but either way, it's on the downtrend. And odds are that will continue to be so until it kind of hits a low. bottom and as we saw last time with the financial crescent 2008 the rally came later gold hit all-time highs in 2011 so a year and a bit after the first collapse sorry two two years after the first collapse is when it was hitting all-time highs I think that Bitcoin may take a similar trajectory but because it's so young and so small on the market cap is so small, that may be exacerbated. It may happen much quicker than it does with gold because gold has

such a large market cap. It's harder to bat it around. In fact, it's crazy that it dropped 11% already. Of course, Peter Schiff is failing to kind of see that he's making the same argument as Bitcoiners with sound money. But anyways, he tweeted out, gold is falling because investors are clueless as to what is coming. Their mindset is similar to that of central bankers. They have no idea how bad the consequences of the current monetary and fiscal policy mistakes will be. When they figure it out en masse, gold will skyrocket. So here's the thing with this. I don't have any doubt that gold will probably rise in the next couple of years and probably significantly. It may hit new all-time highs and go well beyond.

The thing about that is, when the price of gold rises, that means that there's more incentive to dig it out of the ground and it makes more sense to do so. So a lot of mining operations that are offline, not offline, but shut down right now, we'll turn back on. And with that, an influx of gold will come into the market. And once that happens with that new flow of gold into the market, the prices will start to slow down the rise and that influx of new gold on the market. there won't be as many ready buyers for it and you will see a price leveling off and potentially

a dip after that. With Bitcoin, that equilibrium does not exist. No matter what happens, no matter how crazy the price gets, whether it's to the downside or the upside, the influx of new coins onto the market stays static no matter what other than when the having comes. So right now, 12 and a half coins every 10 minutes roughly. In two months, less than two months now, in May, that gets cut in half. Six and a quarter coins every 10 minutes added to the network.

And that cannot change. It doesn't matter how much the price goes up. If it goes up like crazy, there's no way to get more coins onto the market. It is stuck at that. If a ton of miners pile in, there may be expedited blocks for, a little bit, but then it readjusts after a set amount of time. And that's it. Back to 6.25 every 10 minutes. Gold, not the case. So it has like a built-in mechanism that essentially will quell the price rises if it gets to that. So we will see. But as I said before, in the face of the most

unprecedented amount of money printing and QE and overnight repo market injections, Bitcoin is about to slash its monetary issuance, which will be a very stark contrast to the rest of the world. Anyways, let's move on here. I wanted to touch on a couple other things here. Coinbase launches BTC transaction batching, saving users 50% on fees. Sounds wonderful until you realize that the fucking fee crunch was in. in 2017 and they just are implementing this now. I mean, at least it happened at all, but holy hell, you guys, everybody else is doing this already.

This should not be, I mean, whoever is in their marketing department that decided this was an amazing, great thing to launch and, well, yes, to launch, but to gloat about is insane. Even Brian, even Brian himself said it was embarrassing last year that they had not yet implemented transaction batching. Brian Armstrong said that in June 2019. It's embarrassing how long it has taken. It is, it is embarrassing. You should be embarrassed and you should feel bad. Anyways, Coinbase has transaction batching, which it's a net positive for the network.

It basically what happens is when they want to send out coins to users. What was happening up until then, up until now, was if you made a withdrawal, they would basically have a manually single one-off transaction that goes directly to you. Transaction batching means they take a whole bunch of withdrawals all at once, put it into a single Bitcoin transaction, which is a large transaction with a large transaction fee, but it's still one. It's a lot less data in a single block and it frees up space for other people and eases fees for everybody else on the network. So I guess good job. I don't know. God, I hate Coinbase. Let's move on. And then I saw this article here about Bitcoin miners donating, hashing power to

fight coronavirus. So this is something called folding ads. home with the at symbol. Essentially, you can volunteer computing power to help these guys, help find cures and do complex computations in their search for a cure or a vaccine for various different illnesses. It just so happens that obviously coronavirus is the top of the list right now. Now, the article over here at decrypt says Bitcoin miners could donate GPU power to fight coronavirus. However, Bitcoin miners have not been using GPUs for quite some time to use ASICs. I don't think that you'd be able to pour that hashing power over to helping these guys. However, if you're mining shitcoins with GPUs, I mean, why would you even want to do that in the first place?

You may as well dedicate your GPUs over to folding at home and help find a vaccine for the coronavirus as opposed to digging up centralized shitcoins with your GPS. use. Let's put those wasted hashes to a good cause. And I guess I will wrap up here with a single tweet from Russell Okung and he said, the world has never needed Bitcoin more. I agree. Let's wrap it there, guys. Thank you so much for watching. Of course, as always, do hit like, subscribe, and share if you're watching this on YouTube. If you are listening audio only on the podcast, please do share it on your social media links. Outside of that, if you want to help out the show, you can hit up the sponsors that I mentioned down below.

That was Leiden and Paxful. You can also check out with Sabu Wallet for your Bitcoin privacy. And if you really like what you saw, you can drop me a Bitcoin Lightning Network tip at my tipin.combe page. That's tippin.combe slash at BTC sessions. With that, I'm out. Have a wonderful evening. And I will see you guys next time for your daily session.