The Bitcoin (BTC) market cap is currently US$197 billion, with US$3.09 billion traded in the past 24 hours. The current Bitcoin price is down 47% from the all-time high established in December 2017, but up over 178% from March 2020 lows.
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 two years (top chart, below). Average block times are currently around ten minutes (bottom chart, below), after a recent +15% difficulty adjustment. The next difficulty adjustment will occur in about six days with a projected +6% change.
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Network difficulty adjusts every 2,016 blocks. As hash rate decreases before a difficulty adjustment, block times increase. As hash rate increases before a difficulty adjustment, block times decrease. The difficulty adjustment in five days will target a 10-minute blocktime. Historically, because of continuous increases in hash rate, average network block times have held mostly below the 10-minute target.
After the third block reward halving in Bitcoin’s history earlier this year, 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.
Twenty-three new SHA-256 ASICs were released in 2019, with two released by Bitmain in December. Five more ASICs have been released so far this year, which may explain the continued rise in hash rate throughout early 2020. Two more ASICs are also set for release in October. 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. Earlier this year, 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.
On the network side, on-chain transactions per day (line, chart below) took a steep dive in late March, but have ranged near 325,000 over the past few weeks. Average transaction values in USD (fill, chart below) have ranged from US$5,000 to US$10,000 over the past year. 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.
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 have increased to nearly 90,000 during peak times. A decline in hash rate earlier this year led to an increase in block times, which also contributed to network congestion.
The average block size per day (top chart, below) has consistently held above 1.2 MB since late last year, with blocks on March 24th and June 11th 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$2.71, 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.
The 30-day Kalichkin network value to on-chain transactions ratio (NVT) has ranged from 50 to 100 since January 2019 (red 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 over the past month, marking a two-year high (green 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.
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. This year, DAAs also broke one million on May 7th, June 11th, June 23rd, and most of July and August. On December 14th, 2017, DAAs exceeded 1.28 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.
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 1.13, 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.
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 22.17% of the circulating supply, or around 4.09 million BTC. The two to three year age band (turquoise), or coins not moved since September 2017 – September 2018, holds the next highest distribution at 13.55%. The one to the three-month band (orange) gained 5% from April 2019 to June 2019, but has fallen in recent months. Historically, local tops in price have occurred when the one-to-three month band, currently 8.38%, has represented more than 15% of all circulating UTXOs.
Turning to developer activity, Bitcoin Core v0.19.1 and v0.20.0 were both released this year and provided various bug fixes and performance improvements. Future potential protocol improvements in the pipeline include Schnorr signatures, Taproot, and Graftroot.
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 3,200 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
In lieu of an ETF in the U.S., the Chicago Mercantile Exchange (CME) launched cash-settled BTC futures in Q4 2017. The institutional product has seen large volumes and open interest over the past year with an all-time high in open interest on May 19th and a new all-time high over the past few months. Bakkt physically-settled and cash-settled BTC futures exchange launched in September 2019 which saw increasing volumes throughout 2019, and increasing volumes and open interest since April. Bakkt and the CME have also launched a BTC options product.
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 six months, global volume has increased to multi-year highs. In August, 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 Venezuela and Colombia stand at US$4.7 million and US$3.0 million, respectively. Venezuela’s central bank has also floated plans to hold BTC within its reserve system.
Worldwide Google Trends data for the term "bitcoin" increased dramatically from March to June 2019, marking a new yearly high. Since June, search interest has dropped but has begun to increase slightly throughout 2020, likely related to the block reward halving event and increase in price.
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.
A bullish recovery attempt has begun to form near the US$10,000 psychological support. Roadmaps for future market movements can be found on high timeframes using 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$7,600. The two-year multiplier currently provides an upper limit of US$24,000.
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 mid May, a Golden Cross occurred, setting the course for the current bullish trend. The 50-day and 200-day EMAs are now sitting near the spot price at US$10,800 and US$9,700, respectively. 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$8,200 (horizontal bars, chart below) with relatively little volume resistance above current price. Additionally, yearly Pivot Points, at US$13,000, US$18,400, and US$23,000 should all act as resistance. The yearly Pivot at US$8,100 should also act as long term support
The Bitfinex long/short ratio (top panel, chart below) is currently 85% long, with longs increasing over the past few weeks and shorts decreasing in the same time period. There is a high likelihood for a price bottom if shorts overtake longs in the coming 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.
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 mixed; the spot price is inside of 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 undecided so long as the spot price remains inside of the Cloud. A Kumo breakout, in either direction, should act as a strong entry signal.
On the weekly chart, Cloud metrics are also mixed; the spot price is inside of the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above price. This marks the first time since 2017 a bullish Kumo twist has occurred and signifies a major trend shift. The previous weekly bullish trend shift led to a 2900% appreciation in price. Based on the Kijun and flat Kumo, strong support sits in the US$8,500 to US$9,000 zone.
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.
In July 2019, the CME saw the highest notional volume ever in a single day for the BTC futures product, exceeding US$1.5 billion. Historically, price volatility tends to increase dramatically near any active contract expiration. The July 1st to December 27th contract yielded an excellent short trade for the entirety of the contract, which is similar to the bi-annual contract of the same time period in 2018. The bi-annual contract that expired on June 26th saw a 23% increase from open to close despite the March 12th drop. September 25th is the next contract rollover period, suggesting volatility should increase in the week preceding the rollover.
Network hash rate and difficulty have been just as volatile as price over the past few months but both are once again near all-time highs. The third block reward halving occurred earlier this year, which will very likely continue to squeeze out inefficient miners. Thus far, five new ASICs have been released this year, 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. NVT and MVRV, which are both inversely related to on-chain activity, suggest decreasing or stagnant on-chain utility relative to market cap in the past few weeks.
Technicals for BTC/USD continue to show a neutral trend with the current spot price above the 200-day EMA but below the daily Cloud. Based on yearly pivots and volume, US$8,100 is a key support level, along with the 200-day EMA at US$9,700. Overhead resistance stands at the previous local highs and the yearly pivot of US$13,000. The best indicator for bullish trend continuation will be a bullish Krumo breakout over the next few weeks.
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.