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To investors,

Reflexivity Research’s Will Clemente put together an overview below of the bitcoin market that can help explain why price has been rising in recent weeks, along with a few surprises to consider going into 2024.

According to Will: Over the last few weeks, the Bitcoin network crossed a major milestone with 50 million addresses with a balance of greater than 0 BTC. This perpetual rise is one way to measure Bitcoin’s accelerative growth as an emerging digital monetary network.

User adoption is not the only thing growing in the bitcoin ecosystem though. This week Bitcoin transaction fees surged to their highest single day reading of all time at $23.6 million.

What’s behind the spike in Bitcoin network transactions?

Ordinals inscriptions have caught a second wind, as shown in both the daily and cumulative values of transaction fees derived from ordinals inscriptions. Inscriptions have now generated over $175 million in transaction fees for the Bitcoin network.

What are the implications going forward?

Bitcoin miner revenues are made up by the block subsidy paid out from the protocol as well as transaction fees paid by users to get their transactions included in the next block on the blockchain. While higher transaction fees on Bitcoin’s base chain may price out small purchases, more miner revenue up for grabs means that more miners will plug in machines to capture the surge in fees; ultimately making the network more secure.

Does this solve Bitcoin’s “security budget issue”?

This also brings into question the concerns some pundits have expressed around Bitcoin’s security budget issue; the theory that Bitcoin will run into a security issue once Bitcoin rewards are longer being issued after the 21 millionth coin has been mined. The idea of sustained transaction fees from inscriptions combats this theory.

It is also worth noting that should there ever be a substantial drop in miner revenues and hash rate comes offline, the difficulty adjustment that takes place every two weeks would bring block times back in line with the amount of hash rate; the China mining ban of summer 2021 is a great example of this. The theoretical debate lies on whether there is a quantifiable threshold of “sufficient security”.

Speaking of China, country-by-country flows are something to always keep an eye on.

In the charts below, showing cumulative return by geographic trading sessions, we can see that the US has led the way for both BTC and ETH; with the EU clearly falling behind.

So who is buying?

One interesting development to continue to keep an eye on is the trend within on-chain wallet cohorts by size. The chart below compares the daily net change in on-chain wallet clusters with 1 Bitcoin or less to the daily issuance of Bitcoin that is rewarded to miners. As you can see, this spread has continues to push towards positive territory. With the upcoming halving set to cut issuance in half, should accumulation from “fish”’ persist at current rates, this would offset the entirety of Bitcoin’s block issuance of the first sustained period of time ever.

Pomp note: It is very compelling to see so much activity and adoption happening weeks before a potential spot bitcoin ETF and months before the bitcoin halving. These underlying metric point to an increase in demand in a variety of ways, which should only be amplified by the two events on the horizon.

The first half of 2024 should be packed with developments. If you want to subscribe to Will Clemente and Reflexivity Research, who do great work in my opinion, then you can click here to get their weekly insights.

Hope each of you has a great day. I’ll talk to you tomorrow.

-Anthony Pompliano

If you enjoyed this letter, you should consider subscribing to the Pomp Letter. I write 3-5x per week and explain in simple language what is happening in the economy, financial markets, and bitcoin.

Eric Jorgenson is the author of, “Almanack of Naval Ravikant” and “Anthology of Balaji.” He also serves as CEO of Scribe Media, and General Partner at Rolling Fund writing checks to high-tech startups.

In this conversation, we talk about his books, the process, Scribe Media, and then we dig deep into the ideas and takeaways of Balaji Srinivasan.

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Balaji Srinivasan’s Big Ideas on Bitcoin, Tech & Media

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