NOTaCryptoAdvisor 🏴‍☠️⚓️

OpenAI says one of its AI models disproved the Exponential Time Hypothesis (ETH). OpenAI also released a computer-checked formal proof, but independent researchers are still reviewing whether it proves what it claims. For those unfamiliar, the Exponential Time Hypothesis is a longstanding assumption in computer science about how difficult certain problems are to solve. One example is something called 3-SAT. Imagine you have a large number of variables that can each be true or false, along with a set of rules. Each rule involves three conditions, at least one of which must be true. The goal is to find a combination of true and false values that satisfies every rule simultaneously. With 100 true/false variables, there are roughly 1.27 nonillion possible combinations (2^100). Checking whether a particular combination works is relatively easy. Finding one that satisfies all the rules can be much harder. The hypothesis essentially says no algorithm can solve every instance of this problem in subexponential time. In other words, the computational effort required in the worst case cannot grow subexponentially as the number of variables increases. OpenAI claims its model found an algorithm that breaks this assumption. The claimed algorithm would still be extremely slow, but its running time would grow subexponentially rather than exponentially. If independently verified, that would be a significant result in theoretical computer science. But to be clear, disproving the Exponential Time Hypothesis would not prove P = NP, nor would it mean Bitcoin or Ethereum are compromised. P = NP is a separate, much bigger unsolved question: if a solution to a problem can be checked quickly, does that mean there is also a way to find the solution quickly? Most researchers believe the answer is no, or P ≠ NP. If P = NP were ever proven, it would have major implications for cryptography. For example, Bitcoin uses elliptic curve cryptography to secure digital signatures. This relies on mathematical problems that are extremely difficult to reverse. You can verify a signature relatively easily, but figuring out the private key from the public key is believed to be computationally infeasible. If P = NP were proven, it would imply that problems like recovering a private key could theoretically be solved in polynomial time, meaning the computational effort grows as a fixed power of the problem size rather than exponentially. However, that does not necessarily mean such an algorithm would be practical. Polynomial time can still be prohibitively expensive. Also, the algorithm OpenAI claims to have discovered is not polynomial time, and it does not directly provide a way to break Bitcoin's cryptography. Still, I think it's an interesting reminder that developments in fields seemingly unrelated to financial markets can eventually have significant implications for them.

The 10Y yield is now at around 5.3% Yields have gone up rapidly since the market became concerned that the Fed was no longer taking inflation seriously. Well the bond market has revolted, and until the Fed gets a proper handle on inflation, this will likely continue.

We are in the rally now after the golden cross dump. A rally to a higher high and weekly closes above the 50W SMA would materially weaken the bear case. A rejection at these levels would still be in line with a bear market continuation

Bitcoin dumps on golden crosses are normal. What is more telling is the bounce after the golden cross dump is over. In 2019/2023, Bitcoin dumped into the golden cross then put in a higher high, thus confirming the end of the bear market. In 2014/2015, Bitcoin dumped into the golden cross, then put in a lower high, and the bear market continued. A higher high (if achieved) would likely correspond to a weekly close above the 50W SMA (which is a good predictor of the bear market being over). A lower high (rejected at the 50W) would be a sign that the Q4 low occurs right on schedule. To summarize: The dump BTC is experiencing right now has happened previously in bear markets and in the beginning of bull markets. The thing to watch for whether the low is behind us is after this dump is over, does Bitcoin print a higher high (and go above the 50W) or a lower high (rejected again). Once that data point arrives, it would likely be the nail in the coffin for either the bull or the bear case.