Disclaimer: Your capital is at risk. This is not investment advice.
ByteTree Market Health Update; Issue 19
Bitcoin’s fair value is nudging $7,000; a level not seen since the autumn.
This isn’t part of ByteTree’s Network Demand indicator, because fair value is more aligned with risk management than the overall outlook. However, readers should note that price trends towards the fair value in the medium term.
Bitcoin was trading in excess of 70% premium last month and now trades below fair value, which makes it a less risky investment than it was a month ago.
It is not all sunshine and roses though for bitcoin. The network transaction value $, which is a measure of the network’s economic output, fell by 25% last week to $12 billion. What’s key about that is that short term network velocity, the speed coins move through the economy, has dropped below 600%. It’s only one week’s data, and so we shouldn’t be too concerned, but if velocity stays this low for a sustained period, this rally will come to an abrupt halt. Avid readers will recall that the network demand strategy requires a 12-week velocity above 600% to be long-term bullish. This number remains at a healthy 631%.
My current focus is on the 5 week NVT-BT, which can be found under the valuation tab in the ByteTree terminal. If that goes above 10, I’ll be running for the hills. But since it’s only 6.5, time is on our side. The key point is for the recent bull market signal to work, the network needs to grow. Bitcoin is a growth asset.
Not everyone agrees. The dopes in the room think halving creates value. BCH halves in 8 days, BSV in 9 days and the real bitcoin in 43 days. Halving reduces the new supply which negatively impacts miners’ revenues; a point Satoshi had already considered. If it’s too hard to mine, the difficulty comes down, just as it did last week. This doesn’t have to be bearish because the value doesn’t lie in the hash rate, but the network. At ByteTree we expect halving to be a damp squib as it is a technical issue, and in the long run, prices are set by fundamentals. That is exactly why bitcoin fell earlier this month. It has simply returned to its fundamental fair value.