Bitcoin Price Analysis – Active addresses near all-time highs
The Bitcoin network has far more active addresses than any other blockchain. A large uptick or sustained increase in daily active addresses can be seen as a bullish indicator for market prices as it suggests an increase in on-chain demand.
The Bitcoin (BTC) market cap is currently US$584 billion, with US$22.5 billion traded in the past 24 hours. The current spot price has increased 800% from the March 2020 lows and 231% since October 2020.
The BTC network is secured by the SHA-256 consensus algorithm. Both the network hash rate and network difficulty have repeatedly posted new record highs over the past three years (top chart, below). Average block times are currently around ten minutes (bottom chart, below), even after the recent -16% difficulty adjustment. The next difficulty adjustment will occur in about 5 days with a projected +5.5% change.
Network difficulty adjusts every 2,016 blocks. As the hash rate decreases before a difficulty adjustment, block times increase. As the hash rate increases before a difficulty adjustment, block times decrease. The difficulty adjustment in five days will target a 10-minute block time. Historically, because of continuous increases in hash rate, average network block times have held mostly below the 10-minute target.
Source: BitInfoCharts
Source: BitInfoCharts
After the third block reward halving in early 2020, inflation on the network now stands near 1.80%. Inflation is set to decrease in a stepwise fashion over time. The next block reward halving is estimated for February 2024. The top 100 addresses currently hold 14% of all coins.
Source: @bashco_
Twenty-three new SHA-256 ASICs were released in 2019, with two released by Bitmain in December. Eleven more ASICs were released in 2020, which may explain the continued rise in hash rate throughout the year. Thus far, one new ASIC has been publicly released in 2021. The most profitable miners are currently the Bitmain Antminer S19 Pro, and S19, the MicroBT Whatsminer M30S, and the Bitmain Antminer T19.
Renewable energy sources around the world, including hydroelectric and geothermal power, bring electricity prices for most mining farms to US$0.04 cents/KWh or lower. Currently, most SHA-256 ASICs are profitable at this electricity cost. If electricity prices suddenly rise or if BTC prices drop, more and more ASICs become unprofitable and the hash rate will likely begin to decline. Other network factors that influence mining profitability include; price, block times, difficulty, block reward, and transaction fees.
The Sichuan region in China contains a high concentration of many large mining farms. In early 2020, the region received record rainfall, damaging many of these farms and decreasing the Bitcoin hash rate. Natural events such as this may encourage a larger geographic distribution of farms in the future.
Source: asicminervalue
On the network side, on-chain transactions per day (line, chart below) took a steep dive in late March and November 2020, but have begun increasing over the past few months. Average transaction values in USD (fill, chart below) have increased dramatically over the past few weeks to US$21,000, a new multi-year high. The current record for transactions in a single day was set in December 2017, at 500,000. The current record for average transaction values in USD was set in January 2016, at US$51,000.
Source: CoinMetrics
Unconfirmed transactions have mostly held below 20,000 since August 2019, during peak congestion, and have dropped below 5,000 during off-peak times (chart below). Over the past few months, with increased price volatility, unconfirmed transactions increased to nearly 90,000 during peak times. A decline in hash rate in early 2020 led to an increase in block times, which also contributed to network congestion.
Source: https://jochen-hoenicke.de/queue/#0,6m
The average block size per day (top chart, below) has consistently held above 1.2 MB since late 2019, with blocks on March 24th and June 11th, 2020 holding near 1.4 MB. The block size limit is currently 2-4 MB, depending on the types of transactions being sent, thanks to SegWit activation on August 23rd, 2017 via a user-activated soft fork.
The average transaction fee (line, chart below) is currently US$8.28, despite a growing block size and increased on-chain use since the record high fee of US$62 in late December 2017. Both the lack of zero-fee unconfirmed transactions and increased chain scalability have kept fees substantially lower than late in 2017.
Additionally, transaction batching and the increasing off-chain capabilities of the Lightning Network have decreased on-chain transaction bloat. Transaction batching is most effective for entities with a high amount of on-chain transaction outputs, such as miners and exchanges.
Source: txstats
Source: CoinMetrics
The 30-day Kalichkin network value to on-chain transactions ratio (NVT) has ranged from 50 to 100 since January 2019 (line, chart below). While Kalichkin’s NVT does not account for inflation or the use of off-chain transactions, which would decrease the overall NVT ratio, the metric remains in the upper half of the historic range.
Previous highs in NVT; in February 2011, October 2014, December 2017, October 2018, July 2019, and February 2020, were all followed by bearish price moves. Based on this metric, the probability for a local top in price will increase if another local NVT high is reached. In December 2018, NVT declined to 46 before a price reversal.
Monthly active addresses (MAAs) have increased to nearly one million in August 2020, marking a two-year high (fill, chart below). MAAs grew to 850,000 in July 2019, from a 2019 yearly low of 550,000. MAAs hit an all-time high of 1.096 million in December 2017 and currently sit at 1.07 million.
Daily active addresses (DAAs) surpassed one million three times in 2019, on June 14th, 26th, and 28th. June 2019 was the first-month that DAAs exceeded one million since February 2018. DAAs nearly exceeded 940,000 on April 7th and hit 1.02 million on May 7th, 2019. Last year, DAAs also broke one million on May 7th, June 11th, June 23rd, and most of Q3 and Q4 2020. On December 14th, 2017, and December 30th, 2020, DAAs exceeded 1.20 million.
The Bitcoin network has far more active addresses than any other blockchain. A large uptick or sustained increase in DAAs can be seen as a bullish indicator for market prices as it suggests an increase in on-chain BTC demand. As off-chain transaction facilities increase, daily active addresses may stagnate or decline over time.
Source: CoinMetrics
The market cap divided by the realized cap (MVRV) is another crypto-native fundamental metric used to assess overbought or oversold conditions. Realized cap approximates the value paid for all coins in existence by summing the market value of coins at the time they last moved on the blockchain.
Historically, periods of an MVRV Z-score less than zero have represented oversold conditions, whereas periods of an MVRV Z-score greater than seven have represented overbought conditions. Since 2013, all three MVRV Z-score spikes above seven have coincided with record highs in price. MVRV is currently 5.41, after spiking to -0.20 on March 12th. All previous periods with an MVRV Z-score below zero consolidated for several months before moving into positive territory.
Source: lookintobitcoin
Analyzing the age of unspent transaction outputs (UTXOs), or unspent coins, can also provide some insights into price movements. Spikes in newly moved coins tend to correlate with local tops or bottoms in market values, and can represent euphoria or capitulation. Coins that have not moved recently are represented in cooler colors, whereas coins on the move are represented by warmer colors.
Coins that have not moved in more than five years (dark blue) account for 22% of the circulating supply, or around 4.08 million BTC. The two to three year age band (turquoise), or coins not moved since January 2018 – January 2019, holds the next highest distribution at 13%. Historically, local tops in price have occurred when the one-to-three month band (orange), currently 10.71%, has represented more than 15% of all circulating UTXOs.
Source: intotheblock
Turning to developer activity, Bitcoin Core v0.19.1, v0.20.0, and v0.20.1 were all released in 2020 and provided various bug fixes and performance improvements. Future potential protocol improvements in the pipeline include Schnorr signatures, Taproot, and Tapscript, all of which were merged onto the Bitcoin codebase on October 14th, 2020.
Schnorr signatures and signature aggregation also bring the potential for storage and bandwidth reduction by at least 25%. Taproot and Graftroot improve upon Merkelized Abstract Syntax Trees (MAST) which offers three benefits; smaller transactions, more privacy, and larger smart contracts.
In September 2019, Pieter Wuille of Blockstream also unveiled plans for miniscript, a simplified way to write Bitcoin code. The current version, Script, is complex and difficult to use for those not intensely familiar with the language.
According to Wuille, miniscript allows a user to write some Bitcoin scripts, “in a structured, composable way that allows various kinds of static analysis, generic signing, and compilation of policies.” Miniscript is in the early stages of development and is currently being tested internally at Blockstream.
More than 50 developers have contributed over 1,400 commits in the past year, mostly on the main Github repo. Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher developer activity and interest.
The BTC project on Github has two active repos, “bitcoin” (top chart, shown below) and Bitcoin Improvement Protocols, “BIPs” (bottom chart, shown below).
Source: Github – bitcoin
Source: Github – bitcoin/bips
Global over the counter (OTC) volume, from LocalBitcoins.com, declined from late 2017 to mid-2019, and then declined again from mid-2019 to early 2020. Over the past eight months, global volume has increased to multi-year highs. In August 2020, global notional volume exceeded US$95 million. In May 2019, LocalBitcoins discontinued servicing Iran, likely as a result of U.S sanctions, and in June 2019, the option to pay for BTC in person with cash was disabled.
North America (orange) holds the highest percentage of total notional volume, followed by Sub-Saharan Africa (pink) and Latin America (brown). The Middle East (yellow) and the Australia/New Zealand regions (grey) hold the lowest notional volume, both posted less than US$1.2 million in trade volume over the past week. Notional volumes for both Venezuela and Colombia stand at US$2.9 million. Venezuela’s central bank has also floated plans to hold BTC within its reserve system.
Source: UsefulTulips
Worldwide Google Trends data for the term "bitcoin" increased dramatically from March to June 2019, marking a new yearly high. Over the past few weeks, search interest has increased to multi-year highs, with levels not seen since July 2018. The current all-time high in search interest occurred in early 2018, which also correlated with an all-time high in price, at that time.
The previous increase in search traffic has likely been related to both the sharp increase in price in Q2 as well as mentions from several prominent U.S government officials, including the President of the United States. Throughout the course of 2018, “bitcoin” related searches declined dramatically. Despite the declining interest, the search “what is bitcoin” was the most popular “what is” Google search of 2018.
A slow rise in searches for "bitcoin" preceded the bull run in Q4 2017, likely signaling a large swath of new market participants at that time. However, a 2015 study found a strong correlation between google trends data and BTC price whereas a 2017 study concluded that when U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.
Technical Analysis
As a strong bullish rally continues to manifest after the significant March 12th drop, roadmaps for future market movements can be found on high timeframes using Exponential Moving Averages, Volume Profile Visible Range, Yearly Pivots, divergences, and Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.
Historic price averages can provide a band of most likely price targets around a high and low zone. Using backtesting, various iterations of any high timeframe price average can be used, so long as previous highs can be accurately predicted.
Prices below the moving average can be treated as areas that will likely find support and should be considered oversold conditions. Prices above some multiple of the moving average can be treated as zones more likely to find resistance and should be considered overbought conditions. The two-year moving average currently provides a lower limit of US$9,500. The two-year multiplier currently provides an upper limit of US$47,000.
On the daily chart for the BTC/USD market, the spot price relative to the 50-day Exponential Moving Average (EMA) and 200-day EMA can be used as a litmus test for the trend. In late January, the 50-day EMA crossed above the 200-day EMA, known as a Golden Cross, and was quickly followed by a bearish Death Cross on March 14th. The 50-day and 200-day EMAs are now sitting below the spot price at US$23,300 and US$15,800, respectively, after completing a Golden Cross on May 13th. Both levels will act as support, should a pullback occur.
The Volume Profile of the Visible Range (VPVR) shows a large volume support node at US$9,200 and US$8,200 (horizontal bars, chart below) with relatively little volume support below the current spot price. Additionally, yearly Pivot Points, at US$37,700 and US$46,200 should all act as resistance. The yearly Pivot at US$20,800 and US$12,000 should also act as long term support
The Bitfinex long/short ratio (top panel, chart below) is currently 87% long, with longs and shorts decreasing over the past few weeks. Historically, most periods with significant short interest have only fueled higher prices. Additionally, there are no bullish or bearish divergences on volume or RSI at this time.
Turning to the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
On the daily chart, Cloud metrics are bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above price. The trend will remain bullish so long as the spot price remains above the Cloud. The spot price has now increased by nearly 190% since the bullish TK cross in mid-October. Should a significant pullback occur, the Kijun, at US$25,000, will likely act as significant support.
Lastly, the opening and expiration dates of the Chicago Mercantile Exchange (CME) BTC cash-settled futures contracts, launched in December 2017, have had a significant impact on price. The CME facilitates trades for the largest portion of derivatives contracts in the world. Historically, price volatility tends to increase dramatically near any active contract expiration. All contracts beginning after December 16th, 2019 have closed higher than they have opened. January 29th is the next contract rollover period, suggesting volatility should increase in the week preceding the rollover.
Conclusion
Network hash rate and difficulty have been just as volatile as price over the past few months but both have continued to push all-time highs. The third block reward halving occurred in early 2020, which will very likely continue to squeeze out inefficient miners, should price not continue to rise. Thus far, eleven new ASICs have been released in 2020 with one release in 2021, all of which may help keep the hash rate elevated for many months to come.
Transactions per day dropped dramatically in mid-March but have since returned to previous levels. Monthly active addresses have hit new multi-year highs with daily active addresses surpassing one million in July and August and most of late 2020. NVT and MVRV, which are both inversely related to on-chain activity, suggest decreasing or stagnant on-chain utility relative to market cap growth over the past few weeks.
Technicals for BTC/USD continue to show a strong bullish trend with the current spot price well above both the 200-day EMA and the Cloud. Based on yearly pivots and volume, US$13,500 remains a key support level, along with the 200-day EMA and Kijun, which are now both above US$15,000. Overhead resistance stands at the yearly pivots of US$37,700 and US$46,200.
Historically, legacy markets will also need to stabilize in order for buyers to return to the crypto market. In the months to come, Bitcoin may reach new highs swiftly as quantitative easing and global central bank money printing surge to unparalleled levels.
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