The Bitcoin network has tremendously solid fundamentals, and Bitcoin Magazine PRO is totally fixated on its market dynamics in light of macroeconomic developments. Bitcoin intends to become the global reserve currency, representing a significant investment opportunity.
We examined seven noteworthy aspects in our year-ahead analysis that we believe investors should be aware of in the upcoming months.
By examining the number of distinct Bitcoin addresses holding at least 0.01, 0.1, and 1 bitcoin, we can gauge investor confidence. This information demonstrates how widely used bitcoin is, with an increasing number of distinct addresses owning at least these sums of bitcoin. Although it is absolutely feasible for a single user to maintain their bitcoin at many addresses, the rise in the number of distinct Bitcoin addresses holding at least 0.01, 0.1, and 1 bitcoin suggests that more people than ever are purchasing bitcoin and keeping it in their own.
The number of bitcoins held by long-term investors has risen to approximately 14 million, which is another encouraging indicator. A threshold of 155 days is used to determine the long-term holder supply, beyond which time it is less probable that coins will be spent. At current prices, it seems unlikely that 72.49% of the bitcoin in circulation will be sold.
A forecast on what the upcoming year will hold for bitcoin. We examine seven potential factors that might affect the price of bitcoin in 2023.
The proportion of bitcoins held by long-term investors reached 72.52% of the total supply.
A sizable portion of bitcoin investors are acquiring virtual currency regardless of its price.
We are hopeful about bitcoin’s development and rate of acceptance due to the rising number of unique addresses holding bitcoin and the considerable quantity of bitcoin owned by long-term investors. The potential for asymmetric returns is demonstrated by a number of factors, including rising global use and demand for bitcoin.
A currency passes through three stages of monetization in that order: store of value, medium of exchange, and unit of account. The measures for long-term holders above show that Bitcoin is presently in its store-of-value phase. Gold, real estate, and stocks are other resources that are widely employed as repositories of value. For a variety of reasons, Bitcoin is a superior store of value than other assets. With a hard-cap limit of 21 million coins, it is more fungible, simpler to access, transfer, and secure, easier to audit, and more finitely scarce than any other asset. These characteristics must persist and win over investors if bitcoin is to take a bigger chunk of other global repositories of wealth.
As readers can see, bitcoin represents a very little portion of the world’s wealth. Should bitcoin displace even 1% of these alternative value-storage options, its market capitalization would reach $5.9 trillion, making each coin worth more than $300,000. From our perspective, these are cautious figures since we predict that the adoption of bitcoin will first occur gradually and then quickly.
A strong rising trend in USD terms can be seen when comparing the total value cleared on the Bitcoin network during the course of its existence with this year’s increased demand for bitcoin transfers. A change-adjusted transfer volume of more over 556 million bitcoin were settled on the Bitcoin network in 2022, an increase of 102% from 2021. The value of the Bitcoin network in terms of USD was slightly shy of $15 trillion in 2022.
As the world transitions towards a deglobalization era, Bitcoin’s resilience to censorship is an incredibly significant trait. We think bitcoin is extremely undervalued with a market worth of around $324 billion. The Bitcoin network transmitted more value in USD terms than ever before despite the price decline.
We can assess the exceptional chance investors have to buy bitcoin at present levels by looking at specific parameters. The realised market capitalization of bitcoin has seen the second-largest decline in its history, falling 18.8% from all-time highs. Although it’s important to consider macroeconomic concerns, we think this is a unique purchasing opportunity.
Bitcoin is currently in the stage of the cycle when it is the least expensive compared to its history. Only at or around the local bottom of bitcoin market cycles has its current market exchange rate fallen below its average cost basis on-chain by about 20%.
For investors hoping to enter the market at a favourable exchange rate, current bitcoin prices are in uncommon terrain. In the past, investing in bitcoin during these moments has resulted in significant long-term gains. With that stated, readers should take into account the possibility that 2023 will likely mark the beginning of a protracted economic slump for bitcoin.
The geopolitical environment will be important to understand as 2023 approaches since macro is what propels economic growth. People all throughout the world are feeling the effects of the central banks’ monetary policy decisions from the previous year. The United States and the European Union are experiencing recessions, China is continuing its dollarization process, and the Bank of Japan increased its target rate for yield curve management. The capital markets are significantly impacted by each of these.
In the world of finance, nothing ever happens in a vacuum. Even if the rise of Bitcoin in 2020 and 2021 was comparable to prior crypto-native market cycles, it was also closely related to the massive influx of liquidity that the financial system saw following COVID. While the infusion of more liquidity was evident in 2020 and 2021, the reduction of liquidity was evident in 2022.
Interestingly, the drop in 2022 was rather mild compared to drawdowns in bitcoin’s past when measured in terms of U.S. Treasury bonds, which we estimate to be bitcoin’s strongest theoretical rival for long-term monetary value.
As written in “The Everything Bubble: Markets At A Crossroads,” “Despite the recent bounce in stocks and bonds, we aren’t convinced that we have seen the worst of the deflationary pressures from the global liquidity cycle.”
Asset values based on discounted cash flows decrease when bond rates continue to rise and remain much higher than in prior years. Although Bitcoin is not reliant on cash flows, this repricing of global rates will undoubtedly have an influence on it. We feel that the third bullet point of the following scenario is now being played out.
The price of bitcoin has been significantly impacted by a number of unfavourable macroeconomic and industrial circumstances, but the measurements of the Bitcoin network itself reveal a different picture. The hash rate and mining difficulty provide an indication of the number of ASICs contributing hashing power to the network and the level of competition in the bitcoin mining market. These figures move together and, despite the price’s sharp decline in 2022, both have essentially just increased.
Bitcoin miners show that they are more optimistic than ever by putting more computers into service and making investments in extended infrastructure. In 2017, when the bitcoin price was last in a comparable range, the network hash rate was just one-fifth of what it is now. In addition to the efficiency increases made to the machines themselves, this indicates a fivefold rise in the number of bitcoin mining machines that are now plugged in. Major expenditures in buildings and data centres to house the equipment have also been made.
After a euphoric climb in 2021, miner revenue fell this year as a result of the hash rate rising as the price of bitcoin dropped. Public miner stock values took the same course, falling even more than the price of bitcoin as the hash rate of the Bitcoin network increased. We examined the overall market capitalisation of publicly traded miners, which has decreased by more than 90% since January 2021, in the report “State Of The Mining Industry: Survival Of The Fittest.”
Because of the rising loan rates and surging energy prices throughout the world described above, we anticipate that more of these businesses will confront difficult circumstances.
Examining the coins’ illiquid supply is one technique to assess the rarity of bitcoin. The amount of bitcoin that an entity spends is a measure of liquidity. Those who never sell have a liquidity value of 0, while those who often purchase and sell bitcoin have a value of 1. This quantification allows for the division of circulating supply into three subgroups: very liquid, liquid, and illiquid supply.
An illiquid supply is one where more than 75% of the bitcoin deposited to an address is held by one or more entities. Entities with less than 25% ownership are considered to have a very liquid supply. Between the two lies the liquid supply. Rafael Schultze-Kraft, co-founder and CTO of Glassnode, created the quantification and study of the illiquid supply.
Getting bitcoin off exchanges began in 2022. More people and organisations moved coins into their personal custody, found other methods of custody outside of exchanges, or sold off all of their bitcoin as a result of each recent significant panic. People race for the exit when centralised institutions and counterparty concerns are blinking red. Some of this behaviour is visible in bitcoin exchange outflows.
The highest yearly outflow of bitcoin in BTC terms occurred in 2022 when 572,118 bitcoin worth $9.6 billion left exchanges. Only 2020, which was influenced by the COVID fall in March of that year, came second in terms of USD. According to current estimates, exchanges own 11.68% of the total supply of bitcoin, down from 16.88% in 2019.
In contrast to what we’re witnessing with variables outside the control of the Bitcoin network, these measurements of a more illiquid supply and historical quantities of bitcoin being taken from exchanges – allegedly being removed from the market — present a different image. Although there are still unsolved macroeconomic problems, bitcoin miners continue to invest in equipment, and on-chain data indicates that bitcoin holders don’t have any immediate plans to sell their bitcoin.