Bitcoin has been consolidating around the $ 1 trillion market cap threshold for almost three months, which is a very healthy development during a bitcoin bull market. So what’s going on behind the scenes and how should investors think about the recent bitcoin price action?
Let’s go dig.
Long-term trend still clear: the bull market is far from over
While it is true that at the time of writing this article, BTC is trading at a price that it first saw 75 days ago, there is absolutely nothing to worry about in terms of fundamentals and long-term outlook for monetary assets. Many market viewers were quick to call this ‘top’ due to speculation in the illiquid altcoin markets, but this is a short-sighted interpretation that does not take into account the empirical data. New entrants and capital are entering the market every day, and Bitcoin’s fixed monetary policy remains consistent.
Long-term HODLers pile up
The change in HODLer’s long-term net position, which measures the 30-day change in supply held by long-term bitcoin holders, recently turned positive, and data from Glassnode shows that over the past 30 In the last few days, HODLers have racked up 93,638 BTC more than they’ve sold. This shows that bitcoiners’ conviction is not shaken at all when it comes to choppy price action, and that they see the period of consolidation as a buying opportunity.
Not only have long-term HODLers racked up net over the past month, but so have miners. Over the past 30 days, miners have accumulated a net position of 5,459 BTC, a bullish development as miners are the only natural sellers in the market, as capital and operational expenses force operations to occasionally liquidate a portion. of their treasures.
With the hash rate lagging far behind the price action over the past year and a global semiconductor shortage occurring simultaneously, expect miners to continue to be net accumulators of BTC as the Profit margins remain significant across the industry.
Another fascinating metric to look at is the Puell Multiple, which measures the dollar value of bitcoin issued to miners relative to its 365-day moving average. The Puell Multiple measures when the market has gone too far, too fast.
Obviously, the market value of newly issued bitcoin increases dramatically in a bull market, and this can be seen not only in the recent surge, but also in the past bull market cycles after the halving. Currently, the Puell multiple is 2.5 after healthy union of 75 days. Compared to previous bull markets, a similar trend occurred around the $ 100 mark in 2012 and the $ 3,000-4,000 level in 2017.
Another promising metric that puts into context the exponential growth that is happening around bitcoin and the Bitcoin network is realized market capitalization. The realized market cap shows the total market cap of bitcoin, but takes into account when each UTXO was last moved in the calculation.
This measurement can be seen as a more reliable way to measure the true economic value of the Bitcoin network. The cap achieved at the time of writing is $ 370 billion, increasing by about $ 250 billion since November. To put this move into context, bitcoin’s realized capitalization at the height of the previous bull market was $ 90 billion. The recent parabolic rise in capitalization achieved can be seen as an immense amount of capital flowing through the network.
A very revealing metric for determining how “overheated” the price of bitcoin is, MVRV is the ratio of market cap to realized cap. Short-term price fluctuations occur in bitcoin when the price is set at the margin, and especially with the increasing prevalence of derivatives and leverage in the ecosystem, total market capitalization may experience growth. explosive when capital inflows and real economic activity remain somewhat subdued. This is not at all what we are seeing and it is a key reason to be optimistic at this time.
The recent pullback in MVRV, or rather the rise in capitalization achieved as market capitalization consolidates, is a very bullish sign and should give investors confidence that this bull market still has some way to go.
The macroeconomic context remains extremely favorable for Bitcoin
One of the main reasons for the surge in interest in Bitcoin over the past 12 months, the macroeconomic backdrop remains extremely favorable, and you shouldn’t expect that to change anytime soon.
Debt in the global economic system is at record levels, and central banks have taken a corner in terms of policy options. The only thing the markets know are the ever-increasing injections of liquidity, into what has become almost a competition between nation-states and their respective central banks as to which one can devalue faster than all the others. .
While it is true that the rate hike is not out of the question, it would be crippling for a global economy that has grown used to negative real rates over the past decade. In a very basic sense, investors should have two distinct intentions when it comes to growing and preserving their capital in this macroeconomic environment:
- How can I protect myself against the risk of degradation / dilution?
- How can I protect myself against counterparty / contagion risk?
The market outcomes that can occur at this point are somewhat binary. Either central banks continue to inject liquidity into financial markets and the risk over everything continues, as debt continues to get cheaper in real terms and discounted valuations of each asset class soar, or they collectively win the punchbowl, credit contracts and markets. witness a deflationary event similar to what was seen in March 2020. While this second possibility may not happen immediately, the reality is that, collectively, the home economy (in the US) and the global economy are far too indebted.
In this deflationary scenario, anything that presents a counterparty risk (any asset in the banking system that is extremely leveraged) is something that you should take with extreme caution. The interdependence of financial markets ensures that contagion spreads quickly, and the default / credit risk of a market player is something that should be of concern to everyone.
Without going too far on this issue, bitcoin is the solution to both of these market outcomes. With Bitcoin, you are protected from the record currency depreciation that occurs in legacy financial markets, but you are also protected from a deflationary scenario in which systematic risk in the banking system does not affect you due to the attributes. network native self-preservation.
Conclusion: stay optimistic
The fundamentals of Bitcoin and the Bitcoin network remain as strong as ever, and in hindsight, the myopia of many leading Bitcoin skeptics will again prove to be sheer folly. The reasons for optimism are greater than ever, and it is to be expected that once bitcoin breaks out of the recent range, the monetary asset will once again be racing as the global FOMO picks up. in a way that has never been seen before.