Bitcoin Bearish or Bullish? Here my thoughts: JULY UPDATE (+POLL)

[fillippone]

EDIT: Post updates:

End of February Update
End of March Update
End of April Update
End of May Update
End of June Update
End of July Update



I still cannot decide.
There is a number of different issues pointing to an higher or lower bitcoin. Both are valid, but still I cannot decide which one will prevail and when.
Here I collect a few evidences, trying to sum up a few conclusion. I don’t think every one of this indicators has to be fully trusted independently, but looking at them all together might give us first of all a clear snapshot of the current environment, secondly might help rationalize it.
There are a lot of graphs, I will post here both picture and graph link, so you can check the source independently.

BULLISH: Halving.

We all know that in May, 2020 bitcoin will halve mining reward from 12.5 BTC to 6.25 BTC, this mean every day the number of bitcoin mined everyday will drop from 1800 to 900 dropping actual inflation rate from 3.82% to 1,80%. Just for comparison the rate M1 (money + money like instruments) is growing in US is 5%.
An new way of looking at is is thinking at the impact of money inflows on the market:

https://twitter.com/HassMcCook/status/1092593192854159360



Just to give you an idea: I told you before M1 is growing 5% annually: this means $500m are created on a daily basis, in USD only (other CB’s are increasing money supply at similar or higher levels).
Halving will happen in May ’20, history told us pre halving rally starts 6ish month before, this leaves us with at least another 10 months of crypto winter ahead of us.
Provided history repeats again this time everyone expecting it to do so.

BULLISH: Layer 2 applications - Lightning Network

https://bitcoinvisuals.com/lightning
https://graph.lndexplorer.com/

Lightning network recently capacity 645 BTC. This is an impressive growth for a technology still in his full development, needing a border line reckless attitude to put funds in it, being the change of losing those fund not negligible.
This is an “invisible asset” for bitcoin adoption, allowing truly decentralised, trustless, instant payments with ridiculously low fees. This will allow the creation of a whole new industry of payment processors: ending point? Competition with credit cards.
In addition to that every Layer 2 progress allows further developments (layer 3 applications I cannot even think of) and in addition to that strengthens Layer One: the Bitcoin protocol, like a big Jenga game, where every superior layer presses and consolidate lower layers.

BULLISH: Transactions number:
https://www.blockchain.com/charts/n-transactions-excluding-popular?daysAverageString=7&timespan=2years

We had times where Bitcoin prices went up without transaction number going up accordingly, now the opposite is happening: transaction number is back to a steadyily high, and growing, level, whils price is still lagging behind.
If we couple this finding with the growing success of LN, then we can be positive about the future.


BULLISH: Cryptopia, Quadriga Exchanges disasters

https://www.chepicap.com/en/news/7157/cryptopia-hack-timeline-as-it-happened.html
https://www.coindesk.com/quadrigacx-crypto-exchange-users-say-they-still-cant-get-their-money-out

Yes, those are actually bullish news. Firstly every destroyed bitcoin, is a bitcoin actually lost forever, meaning available bitcoin are even less than theoretically available, thus increasing value of remaining bitcoins.
Secondly, exchanges are the weakest link in the cryptosystem: subpar operations, poor security and suboptimal protection for the inexperienced users are the norm so far. There’s a reason if one of the first suggestion is not to keep your funds on an exchange. This is meant to change, if we want cryptos to succeed: we have to make exchanges evolve toward more evolved context. If this must happen via Darwinist-like evolution (of both users and exchanges) or via law enforcements is yet to be seen (I prefer the first one, but I am open to suggestions).

BULLISH: Bitcoin working for what it was meant for by Satoshi, uncensurable Store of Value.

This is not my idea, but it is too relevant not to be added here.
There is a very nice work by Matt Ahlborg  https://medium.com/@mattahlborg/nuanced-analysis-of-localbitcoins-data-suggests-bitcoin-is-working-as-satoshi-intended-d8b04d3ac7b2 applying big data analysis on Localbitcoin raw data.  I do recommend the whole post, but the main finding i carried away is that Bitcoin is personal, uncensorable financial sovereignty. Local Bitcoins volume analysis allow to grasp this reality emerging in countries where personal freedom is endangered. This is a symptom that begun to be observed only there, but the reality is that this i a fundamental value that has everyone of us potentially impacted, and not only on a dystopic future, as JP Morgan want us to believe.

BEARISH: Unique addresses number is not picking up

https://www.blockchain.com/charts/n-unique-addresses?timespan=2years&daysAverageString=7

Unique Bitcoin addresses used has shown signs of stabilization, but they are at levels last associated with much lower prices:  we have a number of addresses first seen at the end of 2016 lows that were associated with price range of $700-$1,000.


BEARISH: Volatility and NVT



Here a couple of more technical indicators: realised (historical) volatility coupled with Network value-to-transactions (NVT) ratio.
The first indicates the realised swings of Bitcoin Prices, the attached graph shows a blue line of such index computed over the last 120 days.
The second can be interpreted for Bitcoin in the same way P/E ratio for a stock-market. More insight and details on the interpretation of such signal can be found here:
https://woobull.com/introducing-nvt-ratio-bitcoins-pe-ratio-use-it-to-detect-bubbles/
Both are heading down, but remain far-above the levels that have typically marked price bottoms (NTV Ratio above 40 signals a bottom on the market) . The end of 2015 was the last time these measures marked a nadir. That near-simultaneous trough set the stage for the bull market, when prices surged from $300 to $19,000. The indicators should breach the 2015 low, if history is a guide, notably volatility to signal the end of bearish market. At the moment both indicators are well above those lows, and there’s a pressure and space for them to fall lower together.

BEARISH: USD Exchange Trade Volume

https://www.blockchain.com/charts/trade-volume?daysAverageString=7&timespan=2years

Exchange traded volume are touching multi year lows. Also Bitcoin future activity (open interest) is hovering at minuscule levels both on CME and CBOE futures, evening considering the “business cycle” of such instruments.
Low volume are correlated with low prices, and last time we had this volume on exchanges, back in first days of August ’17 Bitcoin price was hovering just USD 3,000. As I said speaking about halvening, big volumes are needed to sustain prices, and future open interest is a signal of “interest” of Wall Street, or broader traditional finance, on the world of cryptos. It is not a good sign if this interest is at low levels, even remembering that is not Bitcoin that needs Wall Street, but rather Wall Street that needs Bitcoin.

CBOE future
http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures
CME future
https://www.cmegroup.com/trading/equity-index/us-index/bitcoin.html


BEARISH: Transaction Value is not picking up .

https://www.blockchain.com/charts/estimated-transaction-volume-usd?daysAverageString=7&timespan=2years

Highly correlated to Bitcoin (BTC), estimated dollar-transaction value has declined to levels last when the cryptocurrency's price was about $2,400. For most of 2018, the measure flashed warnings that BTC was priced too high. It still is. May 2017, when BTC first traded above $2,400, was the last time the 30-day average of dollar-based transactions from Blockchain.com was at current levels. Despite this average measure of past transactions, the scale of our graphic shows it acts as a leading indicator.
Clearly in a downtrend, with prices briefly dipping below the white transactions line in December, BTC should drop a further $1,000 just to catch up with plunging transactions. When 180-day volatility bottomed in October 2015, transactions were in a clear uptrend. We expect new lows in volatility for a similar indication.

EDIT:
Please note that i didn't include anything about mining cost. I hence dismiss mining revenues as an explaination of bitcoin price.
Of course low prices cause miners to sell more and more bitcoins to pay their FIAT bills, but least efficient miners will be eventually pushed out of business, difficulty will adjust and equilibium would eventually be gained again. 
So only a temporary effect.
Ready to be proven wrong.


What are your thoughts?

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[yesyes18]

I was initially skeptical about the exchange issues but got it after your explanation and I'm with you on that. One amazing feature about crypto that many haven't realized is that everything about it speaks about decentralization. Should trading occur mostly of DEXes, fund losing will reduce drastically coz no one will be a custodian of your Gold for you.

Also, for the transaction volume aspect, I'd say we should givebthe market some more time, it'll pick up along. What I have realized is that many people are of the notion of "wait and see" so they're psychologically watching tonenter at another new low which no one kniws whether it'll happen or not. Anyways, any breakout sooner or later will bring us alk the volume we need.

Overall, I'm bullish here lol. I believe we've reached the bottom. This is no TA buh I want to be one of the first people who called out the bottom. 

Nice analyses. Good job mate!

[fillippone]

I was initially skeptical about the exchange issues but got it after your explanation and I'm with you on that. One amazing feature about crypto that many haven't realized is that everything about it speaks about decentralization. Should trading occur mostly of DEXes, fund losing will reduce drastically coz no one will be a custodian of your Gold for you.

Also, for the transaction volume aspect, I'd say we should givebthe market some more time, it'll pick up along. What I have realized is that many people are of the notion of "wait and see" so they're psychologically watching tonenter at another new low which no one kniws whether it'll happen or not. Anyways, any breakout sooner or later will bring us alk the volume we need.

Overall, I'm bullish here lol. I believe we've reached the bottom. This is no TA buh I want to be one of the first people who called out the bottom. 

Nice analyses. Good job mate!

Thanks.
While I do agree on DEX in principle, those are still a very tiny part of global trading today, so I don’t think they could tilt the analysis on either way. Also because they lack a series of features that are compulsory for a large part of institutional investors.

[BitBustah]

1 trillion marketcap is still low, gold has a 7 trillion marketcap and that is mainly from store of value.  The world is moving to a digital world and gold is a hassle to transport globally while bitcoin just requires a few clicks of the mouse.

[fillippone]

1 trillion marketcap is still low, gold has a 7 trillion marketcap and that is mainly from store of value.  The world is moving to a digital world and gold is a hassle to transport globally while bitcoin just requires a few clicks of the mouse.

So true.
Next step is: if you think digital gold (Bitcoin) can be equal in store of value to physical gold, and physical gold has 7 TN of market value, what is the “fair” value of the digital gold, provided there are only 21 millions unit of this?
That was one of the back of the envelope calculations I made when I decided to invest in bitcoin.

[lyfecoin]

I think bitcoin is looking for directions..It is stable now .But more chances of going upwards as any price less than $3k is not sustainable for miners

[fillippone]

I think bitcoin is looking for directions..It is stable now .But more chances of going upwards as any price less than $3k is not sustainable for miners

As you can see mining price is not a reason to be bearish or bullish. So I discard that explaination.

[ePesoInitiative]

Based on your findings, it is typical of an asset to have the results you gathered. The bearish cases are in line with the general sentiment of the market. On the other hand, the bullish cases are also typical of an oversold and undervalued market.

Basically, the Bitcoin market is due for a rally but everyone is still waiting for another drop (bearish sentiment, low volume)

[davis196]

For me, the Lightning Network is wasted as a bullish factor.All the hype regarding LN is already gone.
The transaction volume increase shows that there is some demand for bitcoins(at the current low prices),which means that there is support of the current price.
BTC will go bullish after 2 years,despite all the bearish factors.

[el kaka22]

It doesn't matter what the miners will be making, we all talked about how bitcoin wouldn't go under $5.8k back in the day because that wouldn't allow miners to profit and the cost was too much for them to keep on mining when the price goes lower than that which means the price would stay above that. What happened afterwards ? Price dropped so much that many miners left the mining equipment idle and that caused the difficulty to drop and made the cost of mining a lot cheaper and here we are now.

Do not even attempt to think miners will have anything to do with bitcoin because they don't and they never will. It is the whales and the public opinion that shapes the price of bitcoin and according to what people think bitcoin worth the price changes.

[aoluain]

This is a very interesting thread. From now on the block halving is going
to get more and more attention.

In crypto im normally have a glass half full attitude but to me those bearish
points outweigh the bullish ones.

Im wondering will the block halving bring out the bulls or will it be just a
temporary rise followed by a correction back to bearish?

Great OP!

[fillippone]

It doesn't matter what the miners will be making, we all talked about how bitcoin wouldn't go under $5.8k back in the day because that wouldn't allow miners to profit and the cost was too much for them to keep on mining when the price goes lower than that which means the price would stay above that. What happened afterwards ? Price dropped so much that many miners left the mining equipment idle and that caused the difficulty to drop and made the cost of mining a lot cheaper and here we are now.

Do not even attempt to think miners will have anything to do with bitcoin because they don't and they never will. It is the whales and the public opinion that shapes the price of bitcoin and according to what people think bitcoin worth the price changes.

Yeah,  I do agree, basically it is the same reasoning I did a couple of posts above.

[HODL2090]

The most important factor now might be the upcoming bitcoin reward halving which is dated for mid next year. This could have a more than significant impact on the price, in the interval before that time however, some suggest the market would again turn bullish in the coming months and recover some of the lost value.

[fillippone]

The most important factor now might be the upcoming bitcoin reward halving which is dated for mid next year. This could have a more than significant impact on the price, in the interval before that time however, some suggest the market would again turn bullish in the coming months and recover some of the lost value.

This is why halving is first on the list on the bullish part of the post.

[mu_enrico]

Firstly every destroyed bitcoin, is a bitcoin actually lost forever, meaning available bitcoin are even less than theoretically available, thus increasing value of remaining bitcoins.

I think I read somewhere that we can recover the lost bitcoin later in the future (20+ years), oh here:

Cryptanalysis never get worse, it always get better with time. One day, the current algorithms used to secure bitcoin could get old and weak enough. It will probably be, as it typically is with cryptanalysis, a gradual process. First there will be some unpractical, but theoretically possible attacks, then some practical, if not too hard or improbable, then with a good equipment and enough money it will be possible to spend those coins and finally everyone will be able to do that with their PC. This whole process will probably take years of slowly advancing cryptanalysis.

The bitcoin community will probably adapt a new algorithms which will require a new generation of addresses when the current algorights will be close to be broken, but the old coins will remain insecure as long as they are on old addresses. That will probably require users to transfer their coins to the new-generation addresses to secure their BTC. If that will be the case, the lost BTC will remain on the old addresses, where they will be vulnerable to retrieval. It will result with a new enterprise of retrieving those coins, which will therefore return into circulation.

Source: https://bitcoin.stackexchange.com/questions/57654/curious-about-lost-bitcoin

But you are correct it is a bull case because, in the not-that-long run, BTC supply will get more pressure.

[nur rochid]

The most important factor now might be the upcoming bitcoin reward halving which is dated for mid next year. This could have a more than significant impact on the price, in the interval before that time however, some suggest the market would again turn bullish in the coming months and recover some of the lost value.

that's our hope. hopefully after mid-year, bitcoin will see its glory, and a bullish trend will occur. so that investors grew their trust again and the crypto market returned to excitement

[d5000]

Nice post I'll give my opinion about some of your assessments.

BULLISH: Halving.

I consider halving a bullish event, but more a psychological factor than one really tied to a supply-demand question. The influence of later halvings on real supply is tiny, because there are tens or even hundreds of thousands of sellers and buyers apart from miners, and I am sure most investors already price in the final number of 21 million bitcoins when they estimate a possible long-term value.

BULLISH: Layer 2 applications - Lightning Network

Fully agree here. However, I'm a bit sceptical about layers built on top of Lightning, because Lightning itself is not totally trustless, and thus, problems at this layer may "spread" up to layers built on top of it. I would prefer sidechains (with the Drivechain model as my current favourite) as a "second base layer" and Lightning networks as third or even fourth layers.

BULLISH: Transactions number:
https://www.blockchain.com/charts/n-transactions-excluding-popular?daysAverageString=7&timespan=2years

Agree fully. Similar to 2015. Quantity Theory of Money eventually will do the trick if the long-term trend prevails

BULLISH: Cryptopia, Quadriga Exchanges disasters

Here I disagree:

Firstly every destroyed bitcoin, is a bitcoin actually lost forever, meaning available bitcoin are even less than theoretically available, thus increasing value of remaining bitcoins.

The influence of "lost bitcoins" on valuation is tiny, and it's possible that we won't know for a long time if the bitcoins really have been lost (as it happens now with Satoshi's coins).

Secondly, exchanges are the weakest link in the cryptosystem: subpar operations, poor security and suboptimal protection for the inexperienced users are the norm so far. [...] If this must happen via Darwinist-like evolution (of both users and exchanges) or via law enforcements is yet to be seen (I prefer the first one, but I am open to suggestions).

I share some of your hopes, but I don't think they cause the news about exchange hacks really "bullish" ones. I think that even without hacks the ecosystem should tend to improve, so imo I would consider them "neutral".

BEARISH: Unique addresses number is not picking up

Agree. I think the current situation is that we don't have a high influx of new Bitcoiners, but the current Bitcoiners are using their Bitcoins more frequently. This could drive more people in in the future, but currently for the average Joes Bitcoin is "dead".

It's however debatable if the spam attacks in 2017 have inflated the number of unique addresses in a disproportionate way and we're now "back to normal".

BEARISH: Volatility and NVT

Agree mostly, but I have to investigate more about NVT to really give a qualified opinion.

BEARISH: USD Exchange Trade Volume

Imo this is more a consequence of the current crypto winter than a bearish sign for the future. It is neutral in my opinion, it means that the winter hasn't ended, but that doesn't mean that the bear market has to continue.

BEARISH: Transaction Value is not picking up .

Here I tend to disagree again; smaller values and higher transaction volumes may be a sign of more usage "as a currency" and less "wallet-to-exchange-and-back" transactions, which are often speculative. Apart from that, the downward trend in this indicator may be simply a consequence of the sinking price (if you own 1 BTC, you won't transact 2 BTC if price drops from 6000 to 3000).

I would evaluate this indicator to be simply neutral.

Please note that i didn't include anything about mining cost. I hence dismiss mining revenues as an explaination of bitcoin price.

Wise decision, fully agree.

In short, I mostly agree with your post, with some differences in details. I think a real trend change to bullish is still away, but we may be headed sideways for a pretty long time ... like in 2015. And we all know what happened then after a year ...

[rattle_rattle]

BULLISH: Halving.

I consider halving a bullish event, but more a psychological factor than one really tied to a supply-demand question. The influence of later halvings on real supply is tiny, because there are tens or even hundreds of thousands of sellers and buyers apart from miners, and I am sure most investors already price in the final number of 21 million bitcoins when they estimate a possible long-term value.

I think halvings are not a psychological effect, but proper discontinuities in supply of Bitcoins, white a real effect on various aspect of protocol : mining revenues digitally impacted, hence hash rate and difficulty adjustment. But actually the tweet above demonstrate how the bitcoin supply is actually halved from one block to the next one. So effect on price is not a psychological effect, but rather a fact.

BEARISH: Unique addresses number is not picking up

Agree. I think the current situation is that we don't have a high influx of new Bitcoiners, but the current Bitcoiners are using their Bitcoins more frequently. This could drive more people in in the future, but currently for the average Joes Bitcoin is "dead".

It's however debatable if the spam attacks in 2017 have inflated the number of unique addresses in a disproportionate way and we're now "back to normal".

This is actually a good point. I didn’t think about that. Luckily this is not going to be an issue anymore, first because the person responsible for those attack are almost financially dead, but also because Layer 2 solution and Segway utilisation have caused those attacks to be so much dearer to pay.

[Magkirap]

The most important factor now might be the upcoming bitcoin reward halving which is dated for mid next year. This could have a more than significant impact on the price, in the interval before that time however, some suggest the market would again turn bullish in the coming months and recover some of the lost value.

that's our hope. hopefully after mid-year, bitcoin will see its glory, and a bullish trend will occur. so that investors grew their trust again and the crypto market returned to excitement

We are not sure if the next halving will be have a positive output to the price of bitcoin or it will help to recove the market. We still facing bearish market and all of us are now suffering to a big losses. Maybe some investors already lost their hope in bitcoin but to all investors that still believe in bitcoin we must endure this bearish market because it will be end soon.

[d5000]

I think halvings are not a psychological effect, but proper discontinuities in supply of Bitcoins, white a real effect on various aspect of protocol : mining revenues digitally impacted, hence hash rate and difficulty adjustment. But actually the tweet above demonstrate how the bitcoin supply is actually halved from one block to the next one. So effect on price is not a psychological effect, but rather a fact.

The tweet actually falls in a very well-known trap: the erroneous belief that there is a certain, measurable "fiat influx" necessary to move (or in this case, sustain) a certain price.

For example, let's say you have a "market cap" of $100 and coins valuated $1 each. In a low-volume period where the orderbook up to $2 is thin, it is easy to double the market cap if you buy all the coins in the orderbook. While in other periods there may be so many sell orders between $1.0 and $1.1 that it may be extremely difficult to move the price up even 10%.

In altcoins, this is a well-known phenomenon and it is actively used for pumping and dumping, but the principle also applies to Bitcoin: There is no "mandatory fiat influx" - and much less a "predictable" one - to sustain a certain price. Everything depends on the conditions of the order book.

Besides of that, the drop in inflation from 3.82% to 1,80% would justify only a 2% price increase per year. In bull markets, 2% per day are very common - totally unjustified by halving effects, but justified by speculation on future prices.

The first halving, however, may have had a much stronger effects on price, because 1) the weight of miners on the supply side was much higher and orderbooks were generally thin, and 2) the halving effect on supply inflation was higher (at the first halving, supply inflation went from ~26% to ~13%).

With respect to the second part of your post, I fully agree.