Grayscale's estimates for the course of cryptocurrencies. The similarities of the market with that of 2016 and the economic situation. The role of short-term and long-term investors.
A new report entitled "Appreciating bitcoin" has come out of Grayscale , the largest cryptocurrency fund traded on Wall Street. In conclusion, the authors of the study argue that the current structure of the cryptocurrency market is very similar to that of the period in early 2016, before the big upward movement began .
They predict that the demand for bitcoin will increase significantly, as the current monetary situation has created the need for a monetary value with the feature of rarity. The report says easing monetary policy is an addiction that is difficult to break. When the Fed tried to reduce its balance sheet in 2018, the market responded annoyed, dropping the S&P 500 index by about 20% in just three months.
Paul Tudor Jones's reasoning
In May 2020, celebrity investor Paul Tudor Jones wrote a letter to investors stating that he had included bitcoin in his portfolio. He justified it by comparing different assets with each other. Examine purchasing power, reliability, liquidity and portability for stock, cash, gold and bitcoin.
Bitcoin comes last in the ranking, but with a high score. The overall rating of bitcoin was 60% of the stock market values, but its valuation is 1 to 1,200! In relation to gold, its rating is 2/3, but its capitalization is 1 to 60! With this data, it is obvious that bitcoin is extremely undervalued.
Long-term VS short-term
Grayscale analysts speculate that the currencies that have not been moved for one to three years belong to long-term investors. Those who have moved in the last 90 days assume they belong to a short-term speculator. The rise of long-term, relative short-term currencies is a clear sign of growth.
With this in mind, the chart below is very promising for bitcoin, as there is a growing number of long-term investors compared to a smaller number of speculators. There was a similar pattern at the beginning of 2016.
Realistic capitalization
Another measure of the total value of all bitcoins is calculated by taking the price of each bitcoin based on its own latest movement in the chain. For example, currencies whose last move was in 2012 contribute much less to the overall market capitalization, as they were less expensive than currencies that moved in 2020. This method has the advantage that it allows analysts to calculate the currencies that most likely lost.
For many, this is the most expensive value of bitcoin capitalization, because it takes into account the last price of all currencies traded, not just the most recent ones. This calculation has historically functioned as a support zone . If the classic valuation method finds capitalization underneath, bitcoin is considered oversold.
The active addresses
Daily Active Addresses (DAA) is a measure of the total number of unique addresses involved in a bitcoin transaction in a given day. It does not include all users, but reveals a view of the development of the network and is indicative of the increased adoption of bitcoin. In the chart below we see that DAAs are at the highest level since 2017 .
Close to the highest level of all time is the number of unique bitcoin addresses that hold more than 1,000 bitcoins (about $ 12 million ). Here to specify how users can have multiple addresses. Therefore, an individual can be the owner of multiple wallets.
Production cost
Grid electricity consumption can be used to calculate production costs per bitcoin. Mining is nothing more than a process of converting electricity into currencies. It is therefore logical that the price of coins tend to fluctuate around the cost of production.
Cost is important because it gives us an indication of the profitability of producers, a critical contribution to calculating the value of bitcoin. As its price increases, profitability tends to increase, which motivates miners to spend more energy. Conversely, when profitability declines, some miners, unable to remain competitive, are forced to sell their bitcoins and turn down the switches or even quit.
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