Is Bitcoin Back? Market Shows Tremendous Growth

  • Year to date, BTC is experiencing +169% with a current price of $10,123.
  • Bitcoin Network Momentum continues to trend downwards and is currently near YTD lows at ~247k.
  • Bitcoin will eventually emerge as a global hedge, but only as it gets closer to being fully mined.

Bitcoin has seen tremendous growth so far this year. Year to date, BTC is experiencing +169% with a current price of $10,123. We have recently seen a sell-off in Bitcoin which we will explain in the report below. Despite BTC showing strong growth this year, most of the growth occurred in the beginning of the year. We can see that by tracking the following metrics. We can see as the duration decreases, Bitcoin has slowed down in terms up upward momentum.

  • YTD ( Year to Date): +169%
  • Last 6 Months: +182%
  • Last 3 Months: +28%
  • Last 1 Month: -14.38%

Bitcoin Acts As Global Hedge But Then Doesn’t

In a recent article by Visionary Financial, we talked about the similarities between Bitcoin and Gold. We argued the point that BTC could eventually be labeled as “Digital Gold” and that Bitcoin has arguably been more effective than Gold during market turmoil. You are starting to see industry professionals such as Brian Kelly of CNBC come out and state that Bitcoin is acting as a global hedge. History has shown Bitcoin being highly uncorrelated to traditional markets, but we must understand that Bitcoin is only 10 years old. We believe that Bitcoin will eventually emerge as a global hedge, but we see that happening as Bitcoin gets closer to being fully mined at 21 million.

Right now Bitcoin has 85% total supply issued. VF believes BTC needs to issue the remaining 15% before true utility hits. Bitcoin still acts as a minor global hedge, but with the growth multiple we potentially apply to Bitcoin, we see it being a more speculative/high growth asset in the near future. Despite BTC doing well in recent market downturns, we take a look at a couple days ago for example where traditional markets had the worst day of the year. The dow jones fell -800 points. Gold rallied during the turmoil and BTC had a massive sell-off as well.

Instances like this justify our argument that Bitcoin needs more time to develop as a true “store of value” and global hedge. With the current Bitcoin infrastructure we see it operating in a 60/40 capacity where 40% of the time it will act as a true global hedge and 60% will be allocated towards its high risk (volatility) / high reward framework until it gets closer to being fully mined.

Bitcoin Network Momentum

By monitoring the Blockchain momentum we are able to identify when we are closing in on the start of the next BTC price bull run.

Month over Month Change: -9.6%; YTD Change: -19.4%.

Bitcoin Network Momentum continues to trend downwards and is currently near YTD lows at ~247k. On-chain volume (proxy for long term investor activity) continues to diverge from the price movement of BTC. This could be due to a rise in short term market participants in relation to longer term investors since short term traders have transactions that typically happen off-chain.

As we mentioned in earlier reports, previous BTC market cycles have gone as follows:

  • Early Bear Phase: Daily transaction value have dropped down to 100K BTC a day. Price is falling.
  • Late Bear Phase: Daily Transaction values are rising. Price is broadly flat
  • Bull Phase: Daily Transactions have reached a sufficient minimum value (220K in the last market cycle, 150K in the one before) where the market finally responds and price increases.

BTC Market Value to Realized Value (MVRV Ratio)

Market Value: (AKA Market Cap) is equal to the latest price multiplied by the number of Bitcoin units outstanding. Instead of counting all the mined coins at equal, current price, Realized Value (RV) refers to the aggregated market price of all BTC UTXOs when last moved.

Realized cap adjusts for lost coins and coins used for “HODLING.” MVRV is calculated by dividing Market Value by Realized Value on a daily basis. Two historical thresholds emerge: 3.7 (which denotes overvaluation) and 1 (which denotes undervaluation).

Month over Month Change: -6.0%; YTD Change: +138%.

Bitcoin’s MVRV fell 6% in the past month with BTC’s price ranging during this period. The current value of 2.05 and is well below the overvalued threshold of 3.7 but above the undervalued threshold of 1.0.

Bitcoin Mayer Multiple

Introduced by Trace Mayer as a way to gauge the current price of Bitcoin against its long range historical movements (200-day moving average), the Mayer Multiple highlights when Bitcoin is overbought or oversold in the context of longer time frames. The MM is calculated by dividing the Bitcoin price by the 200-day Ma. The MM essentially quantified the gap between the price and 200-day MA to identify points where Bitcoin enters a speculative bubble. In other words: when its price significantly exceeds its intrinsic value or points of seller exhaustion. A Mayer Multiple above 1 could be considered  a sign of a bull market and below 1 could be considered a bear market. Any multiple above 2.4 threshold has historically shown to signify the beginning of a speculative bubble.

Month over Month Change: -16.9%; YTD Change: +151%.

After peeking above long term resistance at 2.4 (dotted line), BTC’s mayer multiple fell to a low of 1.5 in late July before recovering slightly to a current level of 1.62. We had previously noted that the multiple has pulled back to 1.5 after it touched the 2.4 level over the past few years. The multiple could be signaling that we are close to a bottom in the current sell off for BTC.

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