Topic: Bitcoin Bearish or Bullish? Here my thoughts: JULY UPDATE (+POLL) - page 5. (Read 2385 times)

I think that Bitcoin is at a time when it is most likely to rise, the only thing is that it can be a bullish trap due to the current phase of the market, however, the Strong Hands will do their tests at higher levels of the market. In the same way, I think we should be cautious, because a fall may be prepared due to a strong rise, only to take profits.

Thanks.
I will try to find sone correction on the firs point you wrote to try to get more insight into it.
Regarding futures, I tried to focus on exchange traded futures on those platform you are fully regulated: you are subject to both  KYC/AML and all the financial regulations applicable to any financial market. So I cannot fully accept your point.

Very nice reports, I'm subscribing! And I didn't know that about Indonesia.

I agree with everything except 2 points,

"Unique addresses" shouldn't prove anything, even if we see a huge spike in the future we won't be able to tell if it came from new users influx, a hacker doing something or new exchanges. For example, Cryptopia alone will have to open so many new addresses for all its users after the hack, probably all of them this month.

"Futures", I find high volume of this more of a negative. Without any rules and regulation, people can manipulate the market using futures... but only if there's volume there.

This is really the best to make a big profit long term. With cryptocurrency we should not expect a big profit long term just on holding in short term, trading is the one that gives a bigger earning in short term. With long term holding we'll surely get a assured bullish trend. Some even miss this waiting for big growth, and one such is the growth that happened is the past peaking of around $20000.

My outlook is long term so I am always bullish.  I'm not worried about the next few months or even the next year.  I'm looking a decade in the future.

In my option btc is very much on the bullish radar as we have seen how it has rose to 4200$ few days back. So their is a lot of hope still exists that btc has not died or it will just not continue to fall. It can even rise and will grow in coming time. It is only a matter of time now where the bull run will begins.

After almost a month I re read the post and I thought it would be nice to transform it on a monthly updated post.
Each month I would update the indicators, also reviewing each one given their significance in explaining price dynamics over the last month.

I decided to slightly edit the format of each entry:
For each indicator I will:

• declare the status of the indicator, comparing it with the last status,
• provide what I think is the time horizon you should consider this indicator valid for: as you can see most of them are on the medium/long. I don’t like trading in the short term (daily trading  is not for me) as there are completely different factors to consider, and I think that kind of analysis has way lower added value.
• Provide a rationale on why the indicator should be considered. Think of it as an explanation on why you should look at this indicator and how you should interpret it. I don’t expect this to change significantly from month to month.
  
• A brief comment on how this indicator evolved during last month.
  
• Post any relevant link where you can get more information and insight about each indicator.
  

Each comment should be read having in mind previous comments, like a conversation about the same topic resuming where it was left.


Halving: BULLISH
Last Month: BULLISH
Time Horizon: Medium


Rationale: we all know that in May, 2020 bitcoin will halve mining reward from 12.5 BTC to 6.25 BTC, this mean 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%. Many Centrals Banks around the world have target in terms of annual price inflation rate of around 2%. This means that by design FIAT currencies should lose 2% of their value yearly. For the first time in history the BTC will be less inflationary than FIAT money.

An alternative 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 (as I said before 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.


Layer 2 applications - Lightning Network: BULLISH
Last 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: Growth in the network is steadily consistent. Nodes, channels and capacity are growing every months at a steady rate. Vendors are adopting the technology quickly and development of new features is progressing amongst the different implementations. The torch challenge and Jack Dorsey comment (that are actually not price relevant)  have drawn media attention to it (that is actually price relevant, as usual).

Lightning network is now at 730 BTC capacity (+23% MoM) with little less than 7,000 nodes (+18% MoM) . 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.




Resources:
https://bitcoinvisuals.com/lightning
https://graph.lndexplorer.com/
https://1ml.com



Transactions number: NEUTRAL
Last month status: BULLISH
Time Horizon: Short Term
 
https://www.blockchain.com/charts/n-transactions-excluding-popular?daysAverageString=7×pan=2years

Rationale: 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 lacklustre, 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. Bullish with a little suspension of disbelief.

More sophisticated analysis however aren’t so bullish. Purging OP_RETURN transactions (Veriblock might have a role here) and other non payment transaction we see that bitcoin as a mean of payment is not properly picking up.



Reference:
https://www.longhash.com/news/bitcoin-is-processing-fewer-payments-per-month-than-it-was-in-2016


Bitcoin is working for what it was not meant for by Satoshi: BULLISH

Last month we reviewed how bitcoin is actually working in a manner Satoshi Would have agreed on: Uncensorable store of value in now derailed South American regimens.
This month came another news that had a similar impact on LocalBitcoins volumes: government of Indonesia recognised Bitcoin as a commodity, providing users, both private and institutional, a legislative framework regulating Bitcoins. Result of those action was an explosion in volumes on LocalBitcoins in anticipation of legalised Bitcoin Exchanges. Absolute transaction amounts in BTC is not significative yet at a global level, but the volume dynamic with 15x increase is very important thou.Bitcoin here became a powerful accelerator of traditional finance: something probably Satoshi didn’t think of and probability didn’t like either. 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!

Provided that bitcoins cannot be regulated, and the maximum extent of regulations can be the ambitions to create some “walled gardens” where well-behaved bitcoins can circulate under all the KYC\AML\market regulations that are today standard in traditional financial markets, this is a good example of what can happen when/if SEC allows traditional money to pour into Bitcoin. Also remember that Bitcoins doesn’t need Wall Street, but Wall Street does need Bitcoin.

If you like more last month’s reasoning, we still have news on Bitcoin working a reliable mean of wealth transfer: for the second year in a row Bitcoin transferred more value than PayPal.

Resources:
https://bitcoinist.com/indonesia-bitcoin-commodity-regulations/
https://www.newsbtc.com/2019/02/26/bitcoin-surpasses-paypal-in-yearly-transaction-volume-at-1-3-trillion/





Unique addresses number is not picking up: NEUTRAL
Last month status: BEARISH
Time Horizon: Medium Term

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

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 adddresses (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:  as d5000 has correctly stated in the thread also, it could be possible that the spam attacks that have plagued Bitcoin in 2017 had their role in the address number. Now this kind of attack has become way more difficult and dearer (due to Segwit and L2), so we are back at physiological levels. We are still below 500,000 addresses thou, not much.


NVT: BEARISH: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: 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.



Realised Cap: 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.
Another interesting way to look at this is looking at MVRV (Market Value to Realised Value Ratio): I think the name is self explanatory. This indicator was designed by David Puell and Murad Mahmudov. Definetly more on this indicator and others derived from this on the next months.
Resources:
Realised Cap:
https://coinmetrics.io/realized-capitalization/
MVRV:
https://blog.goodaudience.com/bitcoin-market-value-to-realized-value-mvrv-ratio-3ebc914dbaee


USD Exchange Trade Volume: BEARISH
Previous month Status: BEARISH
Time Horizon: Medium Term

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

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: in February the trend in low volatility we observed over the past several months continued unabated, and actually, despite a few double digit moves in price, volatility continued to slide south. This of course impacted negatively open interest and volumes on Exchange traded futures.



We have to underline that 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), only 5% of this 25% is traded on traditional exchange traded Futures.



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).  

This low volatility helped Exchange traded volume staying at multi years lows. As I wrote last months this is not good for at least two reasons: first low volume are correlated with low prices, and we have send this level is compatible with a sub 3,000$ price, but more importantly, for all the reasons we have clarified above, 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.

Researching this topic, I stumbled on the only contrarian indication coming from cumulate short positions at Bitfinex reaching yearly lows:



This is not enough, I am afraid.

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


Transaction Value is not picking up: BEARISH
Last month status: BEARISH
Time Horizon: Medium Term

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

RATIONALE: observed together with Bitcoin price and transaction number transaction value can give some additional insight on how Bitcoin is perceived.

COMMENT:as we said last month being highly correlated to Bitcoin (BTC), estimated dollar-transaction value kept his has declined 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. Also here we observe that L2 layer is still irrelevant on the analysis.

JPM Coin: MEH, BULLISH
First they ignore you, then they laugh at you, then they fight you then they Join you. Yes, this has been the JPM trajectory towards Bitcoin and cryptos in general. Beware, I don’t even think JPM Coin is a crypto, or at least in the sense I like crypto to be. But let’s say it’s positive because they will eventually embrace Bitcoin after realising how dead and fallacious this JPM coin experiment is.



References for this post:

• A few toughs on recent bitcoin price  evolution:some are good, some are crap.
  https://www.ccn.com/10-reasons-bitcoin-will-party-like-2017-for-a-massive-bull-run-in-2019
  
• A great summary of Bitcoin valuation models, and how they evolved over time, I draw some ideas from there:
  https://medium.com/@adamant_capital/a-primer-on-bitcoin-investor-sentiment-and-changes-in-saving-behavior-a5fb70109d32?_referrer=twitter
   That article is gold. I have already drawn some ideas, but there’s more.
  

Last but not least, I would like to thanks all who contributed to this post, in particular d5000, who shared many useful insight, and Plutosky and Neo_Coin from “Bitcoin Pump!” Thread on the Italian board.  

What are your thoughts?

Thanks for the list, it's nice to have the main pros and cons in one place. However, I would include Rakuten accepting Bitcoin and Japanese experiment with cryptos as money to the list of the bullish things. As for the bearish, I think there should be a general point about "expert X predicting Bitcoin to go as low as Y". FUD really makes the price go down pretty often.
Even though sometimes things go in a different direction, there seems to be a positive correlation between halving and price growth from the past. It might not happen at once, it is not ought to happen, but it's likely that it will.

Added another bullish reason, based on work by Matt Ahlborg. Very relevant.

In this case, I fully agree. In Bitcoin's "valuation model" or "value proposition" halvings are definitively important: they ensure that long term the coin supply reaches a predictable maximum. As an investor, you always are able to determine your "share" of that maximum (the famous 21 million). That's what gives Bitcoin some gold-like properties.

What I question, however, is the (in my opinion, disproportionate) importance some people assign to the halving event (the moment when the halving occurs) in the supply/demand equation and thus, for the price movement around that moment. A bull market, in my opinion, can start anytime, not only around an halving event. The same applies for bear markets: the sinking miners' supply at a halving is not enough to counter a sustainable downward price pressure.

Bitcoin halving could bring bitcoin price rising again but many factor can affecting bitcoin price. More adoption can be a catalyst for bitcoin price and government regulation can bring more investor to market and invest in bitcoin. Bitcoin halving is one of many factor and hopely with halving bitcoin price will recover again

Yes I understand what you mean here.
OF course market capitalisation (and derived indicators, like "makret dominance")  is an awful indicator of the reliability, success or value in a borader sense of any shitcoin.
I think it was one of my first messages here on the forum a long time ago.
https://bitcointalksearch.org/topic/m.40921522

Anyway I think halving is not actually fully comparable to this: in the LONG RUN money supply is a very important metric to value a currency. OF course you can manipulate demand/offer in the short run (guess what CB's are doing right now with FIAT currencies?), but in the end only sound money will prevail, and sound money are the ones what can attract capital inflows.

my two cents.

I also feel that halving in 2020 will provide a very terrible price increase because many traders will be surprised to see that the price of bitcoin can rise again and become expensive and even more expensive than a few years ago.

I agree with d5000 that transaction value and exchange trading volume aren't strictly bearish indicators.
If we assume the number of people in the space in 2019 is the same as in 2018 many of those people sold in this bear market and are now waiting to go back in with their fiat so there's no transaction volume and no volatility. Whoever was thinking about selling sold and is waiting for bullish patterns to show. 2015 was a very similar year.

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.

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.

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.

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.

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

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.
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.

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

Here I disagree:
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).

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".

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".

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

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.

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.

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 ...

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

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

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.