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Halving:
BULLISHLast Month: BULLISH
Time Horizon: Medium
Rationale: Yes, if you read me in the past months you know this is the main reason I am bullish on bitcoin.
I was bullish for the halving even before getting in contact with
PlanB, but he then more rigorously formalised what I had as a gut-feeling.
Every month the guy provides new food for thoughts. So I am posting a new graph here.
This graph is very important for at least two reasons:
- Bitcoin is undervalued from a SF perspective related to other scarce commodities. And eventually Bitcoin is going to be worth 30Trln market valuation, once his stock to flow goes to 100 (2024). Warning: this is uncharted territory.
- The fact that many commodities lies on the same straight line (R^2=0.995) assures us that the correlation between SF and price is not a spurious correlation, but it is actually something that is true for every scarce commodity. Very reassuring this feature not holding true for bitcoin only
For a more complete understanding of his works I do recommend listening to both
Stephen Livera podcasts where PlanB was the main guest.
In addition we can also think at the incoming halvening as a reason why Bitcoin Dominance is rising: halving is something that characterise Bitcoin only, so, it's impacting only BTC value relative to shitcoins. In addition we saw with LTC, that's going to experience an halvening in the news weeks, that SF doesn't holds for shitcoins. SF is not a sufficient reason for a shitcoin to have value, rather than a necessary condition. At least the
Ledger costliness (the amount paid to validators/transaction selectors per unit of time) is a required condition.
As a last tough I start anyway to believe that next halving is crucial. I don’t know if it’s priced in or not (my gut feeling tells me it’s not), but if price don’t move seriously upward as PlanB suggests, maybe even lagging SF model for up to one year after May 2020, then we could have a proper test of bitcoin value proposition as an experiment of Store of Value/digital gold.
All the institutional money that is supposedly flowing into Bitcoin is surely looking into that.
Just a word on Litecoin Halving: as we outlined last month, it simply doesn't seems to have, beside all the efforts and rhetoric put into place, any price effect. This might be due to the fact that SF models in LTC are not effective at all in predicting value (very low R^2). So take care when comparing to bitcoin.
Layer 2 applications:
BULLISHLast month status: BULLISH
Time Horizon: Long Term
Rationale: Bitcoin has a low throughput for his on-chain transaction. Corollary of this Bitcoin protocol feature, is that not every transaction need the level of security guaranteed by an on-chain transaction. So we are building other solutions on the base of Bitcoin Protocol, known as Layer 2 solutions.
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 adding robustness and immutability to the protocol itself (immutability of a protocol should be considered a feature, not a bug. Research the DAO disaster for an example).
Comment: Lightning Network has continued to decline both in BTC terms and in USD MoM:
This is the first time both measures decline, together with number of channels. I am still bullish, but this reduction might be analysed with more data in the future: of course growth must be organic and requires a certain degree of capital allocation on each channel, so this might be a temporary "reshaping" of the network.
As I said last month capacity or user adoption is of course an important parameter, but not the only one to focus on, but there are other important factors to consider. Usability and broad user experience is one of the most important now and we saw various improvements on the software itself and third party support.
Thinking about downgrading to neutral next month if metrics down resume improving.
Usability this month wasn't improved not on the user side, but on the liquidity provider side:
- LND Labs released a tool to help visualise statistics and manage channels Introducing lndmon: Dockerized Lightning Network Monitoring
“As the network has grown over the past year, we’ve noticed gaps in its observability and the need for an easy-to-use tool for routing node operators to manage their nodes.”
- LND labs released new update of their client Announcing lnd v0.7-beta!
- BlockStream updated their client too: New Release: c-lightning 0.7.1
- BlockStream launched USDt on their Liquid SidecChain: Tether Stablecoin Launches on Blockstream’s Liquid Sidechain
Liquid was designed as an additional layer to the bitcoin blockchain to offer the ability to transact large volumes of transactions at a higher speed. At launch, a number of industry firms, including Tether’s sister firm Bitfinex, had already signed up to help manage and transact with the network using its bitcoin-pegged token L-BTC.
With tether entering the network, it will now be possible to make atomic swaps between Liquid BTC and Liquid tethers, a feature that the firms say will offer lower counterparty risk for those carrying out OTC trades. Further, Liquid’s faster block times will allow traders to quickly complete transfers of fiat between exchanges, making more efficient arbitrage trades.
At Blockstream they have skin in the game and studied what a million channel Lightning Network could look like:
Letting a Million Channels BloomLastly, an interesting article on how Lightning network works:
Lightning Network: The good, the bad and the most talked-about thing in Bitcoin right now
Transactions number:
NEUTRALLast month status: NEUTRAL
Time Horizon: Short Term
https://www.blockchain.com/charts/n-transactions-excluding-popular?timespan=180daysRationale: transaction number can be interpreted as the “bitcoin heart beat”. If transactions are scarce means one of Bitcoin primary functions (“mean of value transfer”) is not properly working. Of course the advent of layer 2 solutions is going to make this measure less and less relevant in the future. But as far as L2 capacity is not comparable to the whole bitcoin capitalisation, transaction number cannot be discarded.
Comment: As last month price rose dramatically and transaction number remained flat, this month price remained flat and transaction number went dramatically down. Still, this is puzzling as I would expect transaction being positively correlated with price: instead with a flat price, transactions broke the level of 300K:
As Expected things in the mempool are back to dead calm, after the peak witnessed last month:
Accordingly pending transaction fees fell to 2.5 BTC or below, 1sat/byte transactions were quite possible during this month: market is regulating himself and getting into block is again easy with empty mempool.
Veriblock transaction are about 25% of the Bitcoin Total Transactions according to their network monitoring website (
https://explore.veriblock.org/network-stats). This is a pretty high figure after being below 10% during last time. This has probably to do with BTCUSD price, as PoP transactions are meant to decrease in number with higher fees (typically associated with bull movements in price).
Hashrate is on a parallel universe of unrestricted climb:
Hashrate is on a climb, and it's now almost 8 times higher than Dec'17, when we had ATH in price. This is important as ledger costliness is a prerequisite for a blockchain to have value, and as long as Storing Value on the Bitcoin Blockchain will be secure, then BTC will prosper.
Last month we saw
www.howmanyconfs.com to show how bitcoin network is secure thanks to his hashpower. This month we'll see that exact things though the lens of the cost to setup a 51% attack to the chain .
The website
https://www.crypto51.app/ give us a nice estimate of this cost:
Attacking the bitcoin network for one hours costs 772,000 USD, again, this is more than 6 times the cash needed to take the same attack on ETH.
Last month we warned you about a drop in ETH transactions(
Ethereum’s Transaction Volume is Down 40% in a Year). Apparently this is causing a drop in hasrate too:
Ethereum is Becoming Increasingly Vulnerable to Attack: the fewer the transactions, the fewer the economic incentives for the miners, the less hashrate, the less security, the less ledger costliness, the less incentive for user to use such blockchain. A death spiral.
Unique addresses number:
BEARISHLast month status: BULLISH
Time Horizon: Medium Term
RATIONALE: unique addresses is a loose measure of users in the ecosystem. True, many users could share the same address (like exchange addresses used by many users) or vice-versa each user could have many addresses (think about someone trying to entangle his addresses in order to gain some degrees of privacy).
Addresses numbers are also used in some kind of Bitcoin valuations involving Metcalfe’s law, or a law trying do determine the value of a network, users being the asset of such network.
COMMENT: WOW, since last update active addresses have taken a plunge and nosedive to 480,000, a level not seen since endo of April, after having touched a maximum of around 650,000 at the beginning of last month.
Last month I was puzzled by the incoherent pictures of active addresses/mempool fees/daily transactions. This might be a clue of what's happening.
Given hash rate, difficulty, and daily transaction are going on the opposite direction I would say something happened at transaction-level. Maybe the coinjoin season has already finished? After a flurry of coinjoin rounds during last two months all the privacy has been regained? so there's not a flood of many inputs-many outputs (single) transactions? I haven't any evidence here, It might be worth investigating more.
Source:
https://www.blockchain.com/charts/n-unique-addresses?daysAverageString=7×pan=180days
Bitcoin is working for what it was meant for by Satoshi:
BULLISHLast month status: BULLISH
Time Horizon: Long Term
Rationale: Bitcoin is digital gold. This means that can serve an uncensorable store of value in now derailed regimes. As more and more government indulges in hopeless funding/money printing options, in many cases BTC is the only way to preserve the right to defend your own wealth against (hyper)inflation
In this section we usually analyse how bitcoin is used by citizens of disarray-nations trying to protect their own purchasing power against theft from central governments, either in the form of seizures, taxation of hyperinflation.
This month I will focus on how one of this very "oppressive" government is turning to bitcoin just because it is uncensorable, borderless and ultimately... works.
Venezuela Turned Airport Taxes Into Bitcoin to Avoid Sanctions: ReportAs detailed in a story published Monday, the newspaper asserts it uncovered a scheme by which Maduro and his associates were using a digital wallet app to turn tax revenue from domestic airports into bitcoin and other cryptocurrencies that were then transferred to exchanges in Hong Kong, Hungary, Russia and China.
There, the funds were converted and sent back to Venezuela, according to the report.
The effort is the latest example of how the ban on Maduro’s government from using US bank accounts and from participating in the open international market has forced it to look at cryptocurrencies as a way to obtain dollars.
According to Coin.dance, volumes on P2P exchanges are stable, with slight improvements on exchanges requiring less stringent KYC procedures.
NVT:
BULLISH Previous month Status: NEUTRAL
Time Horizon: Medium Term
RATIONALE: Network Value to Transaction (NVT) is defined as the Bitcoin Network Value over the Daily Transaction Volume and 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 in the resource links at the end of the post.
COMMENT: During Jul NTV reversed the course of action observed during last months and it is definitely pointing north. NTV ratio (not pictures here) is also bullish @69, still in the price positive region, well away from levels signalling downturn in markets or bubbles. Both indicators continue to signal an healthy price action for the moment.
Realized Cap:
BULLISHPrevious Month: BULLISH
Time Horizon: Medium Term
RATIONALE: The realised cap attempts to improve the market cap by valuing different part of the Bitcoin supply at different prices, instead of using the daily close as market cap does: every coin, or more properly every UTXO is valued at the price of their creation. In a less technically correct explanation let’s say that while Market Cap use the last traded price and multiplies it times by the coins in circulation, Realised Cap computes the total value paid for each coin at the price they last moved on the blockchain. You can look at this indicator as an improvement to the market capitalisation, a very misleading indicator for crypto currencies, trying to capture the “true hodling value” of Bitcoin.
COMMENT: Lateral price movement during last month slowed the rise in realised cap. Probably fewer observed transactions also made realised value slowing growth. Market Cap is anyway a lot above realised cap, meaning we are still poised to a bullish environment: realised cap seems not shy to hit new AYH
MVRV:
NEUTRAL Previous month: NEUTRAL
Time Horizon: Medium Term
RATIONALE:
MVRV (Market Value to Realised Value Ratio) is an indicator was designed by David Puell and Murad Mahmudov and is simply the ratio of Market Cap / Realised Cap. It’s useful for getting a sense of when the exchange traded price is below “fair value” and is also quite useful for spotting market tops and bottoms.
Awe and Wonder, later revised MVRV with a z-score, the resulting MVRV-z provides a clearer picture of the market cycle with tops and bottoms normalising around common levels. Refer to linked Woobull website for an in-depth explanation.
COMMENT: During last month both indicator stabilised around 2.20 for the MRVR and 3.15 for the MRVR-3, confirming high levels, but still far from irrational exuberance and consolidating for further rises. Price consolidation is a welcome opportunity to re evaluate scenarios before going further up in an healthy movement not driven (only) by FOMO.
USD Exchange Trade Volume:
NEUTRALPrevious month Status: NEUTRAL
Time Horizon: Medium Term
RATIONALE: Exchange traded futures are the closest instrument to Bitcoin Wall Street can touch to gain exposure to the cryptocurrency. Provided the price will follow quite closely the Bitcoin price, or what can be observed in the relevant “walled gardens” used to settle the futures, what is interesting for us is the contract volumes, that can give us a few hints of the interest Wall Street has towards the digital gold.
COMMENT: Unsurprisingly, overall traded volumes are back to the low and stable volumes observed since a few months: this is , given price action:
https://www.blockchain.com/charts/trade-volume?daysAverageString=7×pan=2years
Bitcoin CME future volumes (sum of all traded position) and Open Interests (net open positions on daily settlements) have experienced record after record during last month.
at CME, after CBOE settled last trade on his now defunct BTC future.
A few of interesting insight come from
Cryptocompare Exchange Review June 2019. Even if data are a little bit outdated, we can draw up some thoughtful considerations.
Bitcoin volumes in June have been stable, slightly decreasing from May, to 587 Billions USD, the vast majority of this trading is in fee regulated markets. Of this trading 69.4% is against stablecoins, mostly USDT (97% of total stablecoins trading is in USDT).
Dex exchanges are stable, but still represent a tiny amount of total trading volumes. Total monthly trading in DEX has been only 126 Millions USD, representing only 0.02% of total volume. This is an hard limit for customers looking for liquidity, even in tiny sizes.
Concerning derivatives markets Cryptocompare notes that:
Regulated bitcoin derivatives product volumes are still dominated by CME, despite a
30% decrease in total trading volume since May. This is followed by Grayscale’s GBTC
product.
CME’s bitcoin futures product volumes decreased from a total of 11.3 billion USD traded in
May to a total of 7.9 billion USD traded in June. Meanwhile, Grayscale’s bitcoin trust product
(GBTC), continued to increase in terms of total trading volume with 1.87 billion USD traded in
June (up 48.1% since May).
On July 22, Bakkt initiated user acceptance testing for its bitcoin futures listed and traded at ICE Futures U.S. and cleared at ICE Clear US.
Apparently the tests were a huge success, unknown the metric for this statement. Still waiting for a clear production launch timeline.
On a surprising plot twist, coindesk reported that
Beating Bakkt, LedgerX Is First to Launch ‘Physical’ Bitcoin Futures in USThe Takeaway
Bitcoin derivatives provider LedgerX announced it has launched the first physically-settled bitcoin futures contracts in the U.S. Wednesday.
The contracts, which pay traders out in bitcoin, rather than U.S. dollars, will be available to both institutional and retail investors.
Customers can deposit bitcoin, rather than dollars, when buying a contract.
LedgerX has beaten the Intercontinental Exchange’s Bakkt and TD Ameritrade-backed ErisX to the punch with its new offering.
Last note on derivatives on Bitfinex: we note that during last month short interest almost disappeared:
This poses a double scenario: or shorts have closed their position, getting closer to halving and given the positive momentum (bullish) or, in case of negative movements, there won't be any buyer (short closing their positions) amplifying bearish movements because of longs being stopped out (bearish case). Which scenario will prevail?
Just as a reference i am posting here a recap of the costs for shorting bitcoins on the exchanges: this helps evaluate the short positioning
Source: messsari.io
Exchange Scrutiny:
BULLISHPrevious month Status: BULLISH
Time Horizon: Long Term
Rationale: exchanges are the weak link in the Bitcoin ecosystem: poor operations, subpar technologies, prone to frauds, scams and every kind of market rigging schemes (pump and dumps, market manipulations etc: basically every illicit operation banned in traditional financial markets since 20 years ago, to say the least). Every month news report of lost founds, hacked accounts, founder's frauds. Every news is a Darwin's push for the Bitcoin ecosystem toward a more efficient functioning.
COMMENT:Another busy month in the exchange world. Not only regulators are cracking down exchanges, with the already mentioned measures to enforce data sharing and compulsory KYC, but also general public is going to audit exchanges operations in order to protect their investments. Cryptocompare Exchange Benchmark we examined last month goes in this direction.
Of course part of user job is trying to discount publicly available information and select better exchanges.
Useful links:
Reading from Coinmetrics state of the network Newsletter wee learn that exchanges have been prone to market manipulations, again.
From the newsletter:
Engineered Price Movements Continue
Recent price movements over the past week reveal that engineered price movements designed to trigger stop losses, margin calls, and forced liquidations of leveraged positions continue with high frequency. Cryptocurrency prices have been characterized by periods of low trading activity and price movement interspersed with extremely concentrated trading designed for maximum market impact. Weekends can be targeted by traders seeking to engineer these price movements because there is strong seasonality in trading volume with much lower trading volume on Saturdays and Sundays, particularly in the morning hours in the UTC timezone.
Of course Exchanges have little incentives to get rid of those schemes.
Given the bad review of market practice of "volume faking" fabricated via automatic trading, one might considered HFT has only negative consequences. Well, ErisX's Matthew Trudeau has a different view: automated trading and HFT are not faking volumes, but providing liquidity to markets, where ultimately customers can benefit from such activity:
Crypto Exchanges Are Benefiting from Algorithmic Trading: Here’s How
This is a long standing debate in regulated traditional finance, I suspect on wild roaring unregulated crypto- markets effect can have a very different twist. We will see in the coming future.
HODL Waves:
BULLISHPrevious month Status: BULLISH
Time Horizon: Long Term
RATIONALE: Bitcoin HODL Waves is a visualisation by
Unchained Capital, it shows the cross section of Bitcoin held in wallets grouped by the age since they last moved. The upper contours, represent supply (old coins that have remained unmoved) while the lower contours represent new demand (coins that have recently shifted). The composite view clearly shows each bull cycle bringing in new demand. This visualisation is useful for locating exactly where the market timing is during its long term oscillations between bull and bear phases.
TL,DR: The area Above each line is the amount of "coins" not moved since the relevant time horizon.
COMMENT: We have a few observations here. Firstly I would say that, broadly speaking, lines on the upper pat of the chat, the #stronghands, are hodling, 5y lines is at minimum levels since a long time and a lot of those lines are moving sharlòply downward, meaning long time hodlers are hodling. On the contrary , lines in the bottom part of the chart, apart the "trading" lines (12m, 6m and most notably, 3m) are moving up, meaning they are trading their BTC, #weakhands, as they are probably selling at loss aor for a small gain. As we said last month: #weakhands, once the price recovers and you are in the money with your trades, you want to get rid of those coins you bought. This is a decision you are going to regret in a short period of time!
Last month I introduced a new index,
Bitcoin Average Dormancy, as I haven't been able to find a real time source for this index, not to calculate it by myself, I am abiding any comment on this for this month. I will try harder!
Reading from Coinometrics State of the Network weekly newsletter Issue 9, we have a confirmation of what we empirically observed:
The Amount of Bitcoin Untouched for At Least 5 Years is at an All-Time High
The amount of Bitcoin (BTC) supply that has been untouched (i.e. not transferred) for at least five years recently reached an all-time high. This potentially signals that BTC is increasingly becoming a store of value, as opposed to a medium of exchange. On July 19th, there were 3,847,859 BTC that had not moved since at least five years prior:
We calculate total untouched supply by looking at the total active supply (we define “active supply” as the amount of unique supply that transacted at least once over a specific time period) and subtracting it from the total current supply. Although the size of the BTC supply has been consistently growing, the percent of the overall supply of BTC that has been untouched for at least five years also recently reached a five year high of 21.6%:
Untouched supply tends to mirror price movements. The below chart shows supply that has been untouched for at least 180 days, 1 year, and 2 years, relative to BTC price USD (shown on a log scale). The untouched supply tends to peak towards the bottom of a price trough, and vice versa:
BONUS SECTION:
FACEBOOK LIBRA:
BULLISHWell, this month in libra universe: Crickets and Tumbleweeds.
The good news is that the
Congressional Hearings were more focused on FB privacy management and security stance, than actual Libra questioning. Also
Mnuchin reaction was in this direction. Of course they are scared and not open to innovation in such a critical aspect, but I guess Libra executive are well prepared to this.
Later during the month
Mnuching held a weird press conference on cryptocurrencies “Libra could be misused by money launderers and terrorist financiers,” Mnuchin said, using money laundering, terrorist financing, extortion, human trafficking, drug trafficking and tax evasion as examples of crimes that could be facilitated by cryptocurrencies and Libra. He added:
“This is indeed a national security issue.”
Here, a nice infographic on how bitcoin relates to USD:
https://messari.io/c/research/bitcoin-in-the-grand-scheme-of-thingsOnly important news is that apparently FB is not going to force a launch before g-man are fully GO with that, even postponing indefinitely Libra launch as per this Coindesk article:
Facebook Libra Might Never Launch, Company Concedes in SEC Disclosure“These laws and regulations, as well as any associated inquiries or investigations, may delay or impede the launch of the Libra currency as well as the development of our products and services, increase our operating costs, require significant management time and attention, or otherwise harm our business.”
Of course the stake is high, the market is huge so are the gains, no need to rush pissing off regulators.
Others Read:
A few interesting reports:
Bitcoin Models reference list:
As usual I would like to thanks everyone who contributed to this post, in particular the guys in the Bitcoin Pump! thread on the Italian board for invaluable exchange of ideas (Plutosky amongst the others) and help in keeping track of news, as well as the whole WO's family for moral support, entertainment. Special mention of the month goes to VB1001 that provided good content!
What are your thoughts?
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