While most of the world is focused on the lead up to the Presidential election here in the US and louder war drums being beat across the world, the number of bullish developments that are stacking up for bitcoin is increasing rapidly. These developments deserve the OG Marty's Bent smorgasbord treatments, so here are the things that have caught my attention over the last week in no particular order.

The First Ark Transactions on Bitcoin Mainnet

I had the pleasure of participating in a demo of Second's Ark protocol implementation. For those who are unaware, Ark is a new layer-two protocol solution for making off-chain bitcoin payments. Unlike the lightning network, Ark doesn't depend on liquidity channels to facilitate payments. Within the lightning network two counterparties share UTXOs within a channel to move sats back and forth, nodes connect to many different channels to create a network effect that increases the chance of payments getting routed successfully, and node operators manage their channel liquidity as channel imbalances emerge.

Ark is similar in the sense that it also leverages a shared UTXO model. However, instead of having one-to-one channels that come with liquidity management issues, Ark enables a large amount of individuals to share UTXOs, which are managed by an Ark Service Provider (ASP). The ASP is a central party within the protocol, but it is a central party that does not custody UTXOs. It only coordinates the transfer of sats between Ark "rounds". Users have the ability to unilaterally exit the second-layer protocol whenever they deem necessary by broadcasting a Virtual UTXO (vtxo) transaction.

This may seem daunting and complicated. All you need to know is that there is now an new way to make off-chain bitcoin payments that are fast and relatively cheap and it is possible today. As it stands today, Ark has some scaling limitations that can be solved if covenants get merged into the bitcoin protocol, which would significantly reduce the data requirements for signing this type of transaction.

It should also be noted that Ark isn't here to replace the lightning network. It can help serve different use cases and, at the same time, significantly improve the UX of the lightning network. Particularly channel management. The progression of the Ark protocol is a welcomed development. I look forward to following what's going on with Ark as the protocol matures.

The Kingdom of Bhutan is Stacking A LOT of Sats

We were made aware of the fact that the Kingdom of Bhutan, a small country in the Himalayas with a population less than 1,000,000 people, was mining bitcoin in early 2023 when their sovereign wealth fund was doxxed in the bankruptcy proceedings of BlockFi and Celsius. Don't look now, but Bhutan has been doxxed again, this time by the chain surveillance firm Arkham, which is reporting that the nation currently holds more than 13,000 bitcoin, which is nearly 1/3 of its GDP. Driven predominately by its mining operations, which have expanded significantly over the last two years in an attempt to monetize the country's excess hydroelectric power.

While we're not big fans of doxxing here at TFTC, we are fans of the game theory of bitcoin playing out in front of our eyes. And the Kingdom of Bhutan is a shining example of the game theory bitcoiners have been talking about for 15 years playing out perfectly.

Bitcoin is a very thorny topic for individuals at every layer of society. At the individual layer, people have to independently decide that bitcoin is a better money and they have to actively decide to store their wealth in it instead of other assets. For companies, the decision to use bitcoin as the preferred savings vehicle is even harder because most businesses have multiple stakeholders that need to align on a decision before making it. When you move up to the nation state level, the complexity of making the decision to add bitcoin as a strategic reserve asset gets even harder. Many more people and different branches of government need to agree and pass bills (in most cases) before bitcoin can ever make it into a nation's treasury asset mix.

It has long been said within bitcoin circles that individuals who have the ability to think independently, companies that have a lean corporate structure, and nation states with little to lose will be the first movers into bitcoin. And they will benefit massively over the long-run for being early. If you're an individual reading this who is using bitcoin as their money of choice, you are one of these early movers. Microstrategy under Michael Saylor, who has the ability to make somewhat unilateral decisions due to the company's share structure, is an early move. And, Bhutan, a small nation in the Himalaya mountains with a sovereign wealth fund that seems to have the ability to take risk, is an early mover.

With little to lose and greatness to gain, Bhutan is giving other small nation states the playbook for leap frogging the competition in the digital age. Stack a shit ton of bitcoin on the DL, hold on to it for a considerable amount of time, and wake up one day as an economic powerhouse.

The Fed Cuts Rates by 50 Basis Points

I'm sure all of you are well aware at this point. Last week the Federal Reserve made it's first rate cuts in over four years when it cut the fed funds target rate by 0.50% to 4.75-5.00%. With the economy reeling despite what the official government and mainstream narrative may try to make you believe, Jerome Powell and crew have decided it is time to ease up on their monetary policy.

Put another way, inflation is likely to come back with a vengeance as easy money begins to reenter the economy. To be clear, a lower fed funds rate doesn't technically necessitate that newly printed dollars enter the economy like they have over the last 15 years via operations like quantitative easing. However, one has to imagine that the Fed sees some sort of liquidity crisis on the horizon that requires them to begin cutting rates. And not only cutting, but cutting at a pace that was very low probability only a couple of months ago. The consensus in the middle of the Summer was that the Fed would begin lowering rates with a modest 25bps cut this month. They doubled that.

It's probably safe to assume that something is approaching a breaking point on the back end of the financial system. One only has to look at record high credit card debt, record low savings rates, the state of the job market for native born Americans, and the continued turn over of commercial real estate markets to see that not all is well in the American economy. Your Uncle Marty's spidey senses are signaling that a liquidity crunch is likely lurking around the corner. When it does rear its ugly head, you can expect quantitative easing to make a big come back.

When money printer goes brrr, bitcoin goes berserk.

It seems that the Treasury's move over the last 18-months of over-indexing on the front end of the curve during their auctions is already having an expansionary effect on M2 as it has officially entered expansion territory for the first time since 2022. Hold on to your butts, freaks.

Bitcoin's fundamentals are only getting stronger as time goes on. This is evidenced by continued improvement to the protocol stack via second layer protocols, continued adoption by reputable actors like the Kingdom of Bhutan, and the continued mismanagement of the fiat monetary system.

The price of bitcoin has been range bound since the Spring and it has lulled the market into a state of boredom. Enjoy the boring period while it lasts. All signs are pointing to a bitcoin bull run the likes of which the world hasn't seen before. There is a lot of tinder, it is extremely dry, and there are flame throwers on the horizon.

Final thought...

Nothing makes me happier than meeting someone who gets value from this newsletter or the podcasts in the wild. Love you, freaks.