Previous updates:
January OPFebruary UpdateHalving:
BULLISHLast Month: BULLISH
Time Horizon: Medium
Rationale: Yes, for the third time in a row this is the first reason why I am bullish on Bitcoin. As the reason I have explained in the two last updates are still valid, I will try to add another one inspired by a
good Medium post by post from PlanB (Twitter:
https://twitter.com/100trillionUSD)
This idea of course it is not new. Saifedean Ammous spend a whole chapter in his book detailing how S/F is a good indicator for sound money in his book
The Bitcoin Standard, but the post is well written and detailed, providing us with a nice price prediction I cannot disagree with.
The key message is that ultimately people now investing in "... silver, gold, countries with negative interest rate (Europe, Japan, US soon), countries with predatory governments (Venezuela, China, Iran, Turkey etc), billionaires and millionaires hedging against quantitative easing (QE), and institutional investors discovering the best performing asset of last 10 yrs". That's because Bitcoin will eventually be the ultimate form of hard money available to invest in.
Layer 2 applications - Lightning Network:
BULLISHLast month status: BULLISH
Time Horizon: Long Term
Rationale: 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: network grew scaringly fast last month. Nodes and channels grew in line with past months (+15% MoM and + 30% MoM respectively) but capacity really exceeded expectations topping 1,050 BTC (a whopping + 45% MoM) committed to the network:
Growth in capacity can be assigned to a single player putting funds in the network with a series of nodes with huge channels. Someone said this is an attack to the LN, some other underlined that this player put funds at risks in the network, so even if decentralisation would suffer, routing was expedited, hence cannot be defined a negative impact for the network itself.
Note also that even if growth in node is meaningful: now
The Lightning Network Has More Active Nodes Than XRP, Litecoin, and EOS CombinedEcosystem growth has been likewise magnificent with many vendors and payment processors jumping on the ship: the following infographic can give you an idea of the current enrolment in LN:
Technology progressed too. This month Lightning Labs, the team behind LND, put
LOOP feature in productions. This is a feature allowing more effective channel management allowing users to "loop out" fund from an unbalanced channel without closing them (effectively saving fees)
Of course there is a lot of space for improvements, above all on the usability, that is where new competitors are in town:
Mobile payments with LN are still cumbersome. User experience must be polished out, if we do really want Lightning network to thrive as a payment processor suitable for everyone.
Of course there are obvious implication in terms of privacy in favour of LN over Apple Pay, as outlined by
Kyle Torpey's nice read on Foerbes "Why Apple Card Can't Compete With Bitcoin" , but I think privacy is a benefit must be granted to everyone, not only to the tech-savy can manage a BTC full node and LN receipt in the first place.
Resources:
https://bitcoinvisuals.com/lightninghttps://graph.lndexplorer.com/https://1ml.comTransactions number:
NEUTRALLast month status: NEUTRAL
Time Horizon: Short Term
https://www.blockchain.com/charts/n-transactions-excluding-popular?daysAverageString=7×pan=2yearsRationale: 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: During last month price has been lackluster, so has been the transaction number. Transaction number is still in the high “recent range” but didn’t maintain the bullish momentum it had last month and actually reverted some of the recent gains. Bullish with a little suspension of disbelief, also it's very difficult to observe high level of hodling (crf. following analysis of Hodl Waves) and high levels of transactions.
Also,
Veriblock production chain went live on March 26th. We discovered in last month post that large increase in transaction was due to Veriblock testing their own notarisation processes, now their business is in production we can expect a slow grinding up of their transactions, together with their business development. We'll keep an eye on this.
Bitcoin is working for what it was meant for by Satoshi:
BULLISHLast month status: BULLISH
Time Horizon: Long Term
Last month we analysed the case in Indonesia: volumes exploded on the back of government providing legislative framework to Bitcoin users: volumes exploded, but slowly reverted toward usual levels (even if they still are notably higher than averages).
More interesting is what happened in the South American Scenario: bitcoin as uncensorable store of value in now derailed South American regimens.
Let's have a look at Venezuelan Volumes (I will provide absolute BTC volumes, as volumes in Bolivar are irrelevant due to the explosive inflation in the VES):
We can observe the transaction volume is quite elevated, even if we notice a few dips in the transaction volumes: this were cause d by extensive blackout all over the country. Surprise! Bitcoin can thrive also on stranded environments, demonstrating quite a lot of resilience on electricity scarcity, when compared to other payments system. I wrote a
short post on the subject a few weeks ago. Food for though.
Don't forget that Bitcoin was created in part as a response to the banking crisis of 2008 ("The Times 3 January 2009 Chancellor on brink of second bailout for banks' is engraved forever on the first block) and the next major crisis will be the first during Bitcoin's existence. Already it's happening in Venezuela, Turkey might be the next, or EC, or who knows where de spiralling debt can get the US (they won't default, as
Alan Greenspan wittingly pointed out, but that doesn't mean that there won't be consequences).
Anyway if Bitcoin is working as Satoshi intended, or Bitcoin is working as Satoshi didn’t intend, then the common finding is that Bitcoin is working!
Source:
https://coin.dance/volume/localbitcoins/VESUnique addresses number is not picking up:
NEUTRALLast month status: NEUTRAL
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: Unique Bitcoin addresses used has shown some sign of bullish momentum during last month, but they are still at levels last associated with much lower prices. We are still below 500,000 and slightly lower than last month, not much.
Source:
https://www.blockchain.com/charts/n-unique-addresses?timespan=2years&daysAverageString=7NVT:
BEARISH Previous month Status: BEARISH
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 here:
https://woobull.com/introducing-nvt-ratio-bitcoins-pe-ratio-use-it-to-detect-bubbles/COMMENT: NTV continued to slide down, but remain far-above the levels that have typically marked price bottoms (NTV Ratio above 40 signals a bottom on the market). As stated last month, we are looking to a repeat of 2015-2018 cycle, where both NTV and volatility were both indicating lower levels, so there’s still a pressure and space for them to fall lower together.
Realised Cap:
BEARISHPrevious Month:BEARISH
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
COMMENT: I do like this indicator not only because improve the market capitalisation, that is a very misleading indicator for crypto currencies, but also because it really grasps the “true hodling value” of Bitcoin. Imagine getting long at 100$, you probably still value your investment at that level. Of course you do MtM, but 100$ is probably a significative level that can be used by other to find significant price levels. I think, but I have to dig into it , that this indicator should be looked coupled with HODL Waves one.
MVRV:
BEARISH 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. Refer to linked Woobull website for an in-depth explanation.
Also this indicator is not so positive, as the relative strength of Market Cap to Realised Cap means the market is becoming more "expensive". We might see new low in the indicators, meaning locals minimum to buy.
Resources:
Realised Cap:
https://coinmetrics.io/realized-capitalization/MVRV:
https://blog.goodaudience.com/bitcoin-market-value-to-realized-value-mvrv-ratio-3ebc914dbaeeUSD Exchange Trade Volume:
NEUTRALPrevious month Status: BEARISH
Time Horizon: Medium Term
https://www.blockchain.com/charts/trade-volume?daysAverageString=7×pan=2yearsRATIONALE: 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: big news in March was CBOT decision to delist future series of their Bitcoin futures. This move was widely expected as CBOT has been lagging behind CME in trading volumes with increasing underperformance in recent months:
CBOE Bitcoin futures daily contract trading volumes decreased from a daily average of 8.1 mios USD to 5.6 mios USD in February, while the opposite was noted on CME's, where the same metric increased from 79.9 mios USD in Jan. to 98.9 million USD in Feb. With CME volumes being an order of magnitude bigger than CBOT's made little sense going on quoting such instruments where competitive advantage resides almost entirely in market liquidity and depth.
I wouldn't read too much in this decision about any lack of institutional interest, but implications are important regarding hopes of a Bitcoin Exchange Traded Product (ETF) diminished slightly as this decision do not to bode well with regulators who already questioned market liquidity: CBOE was set to be the listing exchange for the Vaneck SolidX Bitcoin Trust, who has consequently been delayed yet another time. Also Gemini is suffering, as CBOE was the elected venue to source daily settlement price.
Exchange traded futures still represent a tiny fraction of total futures trading in Bitcoin: futures represent roughly 25% of trading in Bitcoin (75% being spot transactions), and only 5% of this 25% is traded on traditional exchange traded Futures. This data is constant since last month. (decentralised exchanges continue to represent only a tiny fraction of global spot volume, roughly 0.17%).
I think however they are relevant as traditional finance player cannot trade on BitMex or other futures platform. And I think the looming shock on the demand side of bitcoin (shock on the offer ha already been analysed on the halving section) is the firehouse on the liquidity of traditional investment waiting to be open on bitcoin (that’s also why the next step in Futures adoption, Bakkt, is so important).
Last month's concerns about lack of volatility still hold true, in my opinion.
Cumulate short positions at Bitfinex stay at low levels, after having been punished during this month:
Lack of short positions means either there aren't people looking to sell now, as BTC has likely bottomed up (bullish statement) but also means there's buy order ready to be fired when the down move begins (bearish argument). The choice is yours.
Of course all of these considerations have to be weighted after the evidences of many exchanges rigging trading volumes, exposed by Bitwise in their
very well documented report. More on this report later, but we can say that if 95% of volumes are fake, then the relative weight of futures trading (not being faked) changes dramatically:
.
Second implications of that study is the fact that now yet another time, digital Gold closely resembles physical gold:
.
This is a good sign of hope, and I am changing the sentiment index to Neutral.
CME future
https://www.cmegroup.com/trading/equity-index/us-index/bitcoin.htmlCBOE future
http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futuresBitwise Report:
BULLISHTime Horizon: Long Term
RATIONALE: if you haven't been sleeping under a stone last month, you know that Bitwise presented a complete report on Bitcoin market status to the FED.
You can find the whole document (229 slides)
here.Rationale: This report is utterly important. First of all clearly demonstrate how many Tier2 exchanges basically rigged their volume statistics to attract investors. The conclusion is that almost 95% of daily Bitcoin Volumes are fake. Exposing the fraudulent techniques of second tier exchanges, the best practice implemented in first tier exchanges emerges: many of the best known exchanges are actually immune from this report, and thus have their reputation tightened.
I said many times 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.
Even to expert users is difficult to tell what is happening:
the first thinking is once a lousy exchange's long term sophisticated scam scheme get spoiled by a report like Bitwise's, you revert to simple, quick run-away-with-the-funds scam, disguised ad KYC lock. (EDIT: eventually everything has been sorted out, so the scam insinuations are not founded, this time).
Second result of this report is doing some sound and clear statements about some major and very well radicated misconceptions about some negatively perceived aspects related to bitcoin: liquidity, transparency, custody issues, revealing the truth is far less worrying than what the regulators or general public perceive.
So, again, every step taken in separating genuine operators from scammers, top quality counterpart from low quality piggy riders, truth from misconceptions, goes in the right direction making Bitcoin more and more viable for general public.
After the first we of this post came out this news:
Crypto Exchange Bithumb Hacked for $13 Million in Suspected Insider JobDear Lord, the did it again. They've been hacked in the past, they got hacked again, from an insider (I still cannot decide if it worst to be hacked by outside, or be hacked by someone you deliberately chose to work with): anyway the tale of the story is always the same: don't keep your funds on any exchanges, and be happy when some exchange gets hacked, because it's like a Darwin race to a modern Exchange ecosystem.
HODL Waves:
BULLISHTime 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: Most lines are downward trending (look particularly at 12m brown line). This means coins are being HODLED: coins have been pulled from exchanges (trading activity is mostly off-chain and not relevant for this graph) and kept on wallets. This means strong hands are building a wall for future up-movements.
Additional interesting resources:
A collection of very useful Bitcoin valuation toolsTop Cap and Delta Cap: New Metrics for Spotting Bitcoin Price Trend Reversals VIDEO: How Lightning Makes Bitcoin Great Again (For Payments) - Alex Bosworth | CoinDeskI would like to thanks all who contributed to this post, in particular Plutosky and Neo_Coin from the “Bitcoin Pump!” thread on the Italian board for invaluable exchange of ideas and help in keeping track of news, Suchmoon for a few suggestions as well as the whole WO's family for moral support and entertainment.
What are your thoughts?
i dont understand all graphs or all numbers, but is precius work anyway 
