If this is your first time reading a Bitcoin (BTC-USD)(COIN)(OTCQX:GBTC) Value Indicator report, you may want to refer to the original article to get caught up. The long and short of it is that I suggest that we can know something about Bitcoin's market cap by looking at the network fundamentals since they have shown correlation in the past, but this relationship is not guaranteed to be as strong in the future due to changing market dynamics and new technology.
Number of Confirmed Transactions
The total number of confirmed transactions increased by 6,393,536 in July. This gives us a daily average of 206,243.
Data Source: blockchain.com
What's interesting about this to me, is that it represents the fourth straight month of growth in monthly transactions. Look at the chart below, and note that March of 2018 shows the low point of transactions. This growth is modest, but I consider it an important sign of life.
Data Source: blockchain.com
Number of Unique Addresses in Use
The average number of unique addresses in use for the month of July was 438,867. This is a modest gain from June, but still slightly below May.
Data Source: blockchain.com
Network Hash Rate
The average hash rate of the Bitcoin network rose from 37,377,891 TH/s in June to 39,735,959 TH/s in July. The network hash rate predicted a market cap (average) of $97 billion for Bitcoin, compared to $121 billion that we actually saw in July.
This was the closest predictor of the three. I expect this figure to grow more slowly in the coming months, as mining profits have been squeezed by the combination of low fees (due to lower traffic and increased SegWit usage), increased hash power, and lower bitcoin price.
Indicator Name | Unique Addresses | Hash Power | Total Transactions |
Predicted Market Cap | $21,582,080,261.53 | $97,404,671,998.39 | $59,199,570,117.14 |
Actual / Predicted | 5.63x | 1.25x | 2.05x |
Metric Signal | Overbought | Overbought | Overbought |
Data Source: Blockchain.info
Overbought.
Combining all three signals into a single chart gives us this.
Data Source: blockchain.com
Because this chart is now covering eight years, I thought it would be nice to present one that shows just the last two years so it's a bit easier to see where we are now. Have a look.
Data Source: blockchain.com
As you can see, the Bitcoin market cap has been over all three predictors since June of 2017. This signal that the market was overheated (the fact the the actual market cap is higher than all three models predicts) came a full six months before the absolute peak in market cap.
As I've said in the past, upgrades to the Bitcoin network are a necessary prerequisite for the next wave of growth. Since the two biggest updates happening now are SegWit (still not fully implemented by the community) and the Lightning network (still in very early stages), that is where we turn our attention now.
Lightning Network | # of Channels | Total BTC |
June High | 8.9k | 28.996 |
July High | 10.99k | 118.949 |
Data Source: Grafana - Lightning Network
Wow, incredible growth in the lightning network over the last 30 days!
Image Source: Grafana
Segregated Witness | Percent of Transactions Using SegWit |
June High | 39.6% |
July High | 40.3% |
Data Source: Grafana - SegWit
Segwit peak usage was up a fraction as well, but I had higher hopes for this figure.
Image Source: Grafana
I've seen a lot of news articles making the rounds, speculating about the approval of a Bitcoin ETF. The one that seemed to kick it off was this one from Zerohedge. Since then, we had the (COIN) ETF denied, but there are many others still in play.
I don't know if the suspicions are true, but I have a feeling that with so much money on the line, approval of the ETF will most likely leak out before it happens. Here's how I see the impact playing out.
Investors should be aware that an ETF could also make it easier for market manipulators to cash in on their futures contracts manipulation, as a combination of direct ownership of Bitcoin coupled with ETF ownership could allow for new attack vectors.
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Network activity was mostly positive, as the number of transactions increased for the fourth straight month, and mining hash rate reached new all time highs. Unique addresses gained modestly, but seems to be lagging the other indicators.
Based on the data from last month, the Bitcoin Value Indicator is suggesting that Bitcoin is still overbought. Segwit usage ticked up a fraction, but the Lightning Network increased in channels and value by a massive amount.
ETF approval will be a game changer, and I expect this info to leak out before any official announcement. This will create temporary shifts in valuation models and other cryptocurrencies will try to follow suit.
Check out my marketplace, Crypto Blue Chips launching on September 1st!
Cheers,
Hans
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Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.