I have a couple of comments, and please don't take this negatively because I am coming from a place of trying to help you. First, I am not a lawyer, I'm an engineer. I have read a lot about immigration due to my own circumstances and have successfully filed many applications without ever seeing an RFE or denial... But I am far from an expert and I have never deeply looked into an immigration case such as yours. So please don't take my comments as fact, but more something to consider as you search for the legal facts that will help you win your case. The best advice would probably be to talk to a very good immigration lawyer that has experience with a USC that is locked up. If you consult with a lawyer or not, I believe your next step needs to be to file an appeal. But prior to filing an appeal I want to talk about the reasons for your denial.
https://www.uscis.gov/forms/all-forms/questions-and-answers-appeals-and-motions
Remember that the person denying you is just a person like anyone here. They are looking at the evidence you provided and are making a decision based on what they think is correct in their head. Whenever I am dealing with USCIS, I like to make my evidence organized, concise, and telling a complete story. I don't want to leave anything for them to 'make up' because there were holes in the evidence. I also don't want them having to wade through mountains and mountains of the same bullshit evidence that doesn't really add to the story but overwhelms them which pretty much the same thing. I am not saying you did anything wrong here, I am only telling you my approach to dealing with USCIS because that might help you in your appeal. When an RFE or denial is given, I think it is important that the response be exactly in response to what they asked for. Your goal isn't to re-prove your entire case, but to prove the parts that are in question. Now lets get to your specifics.
1. Did not establish he is a USC. Yet you stated you provided his Birth Certificate. Well that's strange isn't it? Either the agent didn't see the birth certificate, or you didn't provide a decent or official copy? In the US sometimes people will be given a certificate of birth at the hospital, and sometimes people think these are their BC's but they are not.... That's literally just garbage. Could you have submitted that instead of a official birth certificate? I think that one thing you should do in your appeal is get another copy of the BC from town government if it's not too much trouble. I can't think of anything else as to why they would list that as one of the reasons. The good news is if you really did submit the official BC then I personally believe your appeal is very valid. How can they say he's not a USC if he has a US BC? stupid.
2. Did not establish a bona fide relationship. You don't need to convince me but I am not going to sugar coat this because I want you to understand what you are up against. You stated in this post that for the 12 years of your relationship and 8 years of your marriage, you have never cohabitated because I assume he was in prison. My instant reaction to that is, this is a sham of a marriage. How can someone be in a genuine relationship if they have never spent any real time together???.... sleeping in the same bed, working through relationship issues that come up because you see each other 24/7? If someone told me your situation in 2 sentences like I have read here, I would assume that this not a real marriage. What does normal i-130's provide to prove a bona fide relationship? Well supporting documents showing bona fide marriage usually include things like
a. Copy of Marriage Certificate
b. Apartment lease agreement
c. Health insurance under petitioner
d. Joint Financials - bank accounts, 401k, Ira, Venmo transactions to each other
e. Proof of Beneficiary as beneficiary on retirement accounts
f. Three letters of support from friends with licenses
g. Pictures of couple together with friends and family
All of those things seem like they might be pretty unlikely in your situation.... and that's what you are up against. Are you providing official prison visit logs? Is that even something you can get? I don't think it will be enough to say your visit "3 times a week for 3 hours every day, trust me". Are your correspondences dated? What evidence can you provide to show that this is a real relationship and not that you just found some guy who is locked up with nothing better to do that agreed to help bring you here? In my non-legal, non-expert opinion, you have a massively uphill battle here. What you need to do is find some people who have been in similar circumstances as you, and listen to their advice well... specifically on the evidence part. I've heard stories (this could be made up, never verified) of USCIS agents doubting a bona fide relationship when the couple has a child together and live together full time ("A child just proves you had sex once, not that you are together").
So my thoughts to you is that your appeal brief needs to specifically address the two reasons for denial. First the USC part which should be easily resolved with a new Official BC. Secondly think really hard about what you can say in response to the Bona Fide marriage. Was the marriage certificate you provided an official government marriage certificate? or an unofficial copy? What hard evidence can you provide that shows the amount of time you spend together and was what you submitted originally sufficient? These are all things you need to address and address it very concisely with clear evidence that backs it up. Don't get yourself stuck on "we were denied because he's incarcerated".... No It specifically stated it was because he didn't think it was a bona fide relationship. Possibly the agent was biased against those incarcerated, but that's not what you are fighting in your appeal... You are fighting that it was a "bona fide" relationship.
Best wishes on your journey for a favorable ruling.