BTCUSD
BTCUSD
BTC1!
BTCUSD
What’s Bitcoin?
Bitcoin is a decentralized digital currency that operates on a network of computers, eliminating the need for intermediaries or central authorities. It was introduced in 2009 by an anonymous individual or group known as Satoshi Nakamoto, who outlined the concept in a white paper describing a peer-to-peer electronic cash system. Since then, Bitcoin has emerged as the leading and most valuable cryptocurrency globally, with a market capitalization exceeding $580 billion as of October 2023.
A notable characteristic of Bitcoin is its limited supply of 21 million coins, a threshold estimated to be reached around the year 2140. The creation of new bitcoins is regulated through a process called mining, which involves solving complex mathematical problems using specialized hardware and software. Miners compete to discover valid solutions that meet a specific difficulty level, adjusted approximately every two weeks to maintain an average block time of 10 minutes. The miner who successfully finds a valid solution for each block is rewarded with freshly minted bitcoins and transaction fees.
As of October 2023, the Bitcoin network has witnessed the mining of 813,378 blocks, with a current reward of 6.25 bitcoins per block.
Key Insights on Bitcoin's Price:
Recently, the mining of the 19.5 millionth bitcoin increased the circulating supply to 93% of the total. Additionally, a logarithmic regression analysis known as the rainbow chart illustrates the historical path of Bitcoin's price movement. This cyclic behaviour can be attributed to several factors:
- Bitcoin tends to exhibit an overall bullish trend due to its limited supply and the halving of coins entering circulation approximately every four years. Historically, the Bitcoin halving has been a significant catalyst for price movements as it influences the supply-demand balance. The halving reduces the rate of new bitcoins being introduced into circulation while demand typically remains steady or grows over time. This creates a supply shock that often drives the price upward, particularly before and after the halving event.
- Each halving period encompasses the mining of 210,000 blocks and exhibits distinct phases. The bullish phase spans from the first block to the 70,000th block, followed by a bearish phase from the 70,001st block to the 140,000th block, and finally a sideways phase from the 140,001st block to the 210,000th block. As previously mentioned, the halving diminishes the inflation rate of bitcoin and preserves its scarcity.
- Bitcoin holds great influence over the entire cryptocurrency market due to its dominant market capitalization. This dominance follows a cyclical pattern, with the market share falling below 40% during bearish phases (after mining more than 140,000 blocks) and rising to around 70% during bullish phases.
- During each era (between two halving periods), Bitcoin experiences an average drawdown of 80%.
Current Analysis:
We are currently in the third halving era, which commenced on May 11th, 2020, specifically within the equilibrium phase. The intersection of the mining of the 210,000th block and the lows of the logarithmic regression suggests a value of $30,000 USD per bitcoin.
The next Bitcoin halving is expected to take place in April 2024, at block number 840,000. This event will reduce the block reward from 6.25 bitcoins to 3.125 bitcoins, consequently lowering the annual inflation rate from approximately 1.8% to 0.9%. As a halving typically ushers in a bullish phase, it is predicted that the price of bitcoin will surpass $100,000.00 during this era.
Technical Analysis Using the MVRV Indicator:
One of the tools that can help investors and traders assess the value and potential of bitcoin is the MVRV ratio, which stands for market value to realized value. The MVRV ratio compares the current market capitalization of bitcoin (the total value of all coins at their current price) with its realized capitalization (the total value of all coins at their last moved price). The MVRV ratio can indicate whether bitcoin is overvalued or undervalued relative to its historical average cost basis.
The MVRV ratio can also be used to identify periods of extreme market sentiment, such as euphoria or panic. When the MVRV ratio is very high (above 4), it means that bitcoin is trading far above its realized value, implying that most holders are sitting on large unrealized profits and may be tempted to sell. This can signal a market top or a bubble territory. When the MVRV ratio is very low (below 1), it means that bitcoin is trading far below its realized value, implying that most holders are sitting on large unrealized losses and may be reluctant to sell. This can signal a market bottom or a buying opportunity.
As of October 2023, the MVRV ratio of bitcoin is about 2.110, which is slightly above its long-term average of 2. This suggests that bitcoin is fairly valued and not in a danger zone. The MVRV ratio has been trending up since November 9th 2022, when it reached a low of 0.75, indicating a recovery in the market sentiment and the lowest price of the 3rd Halving era. As we are far from the overbought level of 4, this suggests that there is still room for further growth in the price of bitcoin.
(These illustrations are just for educational purposes and are not financial advices).
Sources:
1. trustwallet.com
2. ieeexplore.ieee.org
3. nber.org
4. buybitcoinworldwide.com
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