Disclaimer: Your capital is at risk. This is not investment advice.
ByteTree Market Health Update; Issue 20
Bitcoin continues its recovery this week and currently trades at $7,400. Bitcoin has gained in excess of 13% over the past week, swiftly returning and surpassing the ByteTree Fair Value of $7,089.
According to the Crypto Fear & Greed Index, the market continues to reflect “Extreme fear”, however, the network shows a different story.
With network activity picking up through the year and surging from the 12th March lows, the short-term outlook is positive. Add to this the ‘hype’ which was (prior to the COVID shock) around the upcoming bitcoin halving, which is likely to return as the day approaches, 35 days from now, and there is even more reason to be bullish. For those interested in alt-coins, Bitcoin Cash and BSV have their halvings tomorrow and the following day respectively and are seeing short term out-performance of bitcoin today in anticipation of this.
While the economic output and velocity on the bitcoin network are strong, we are keeping a close eye on fees, which have fallen sharply over the prior week. This fall is partly attributable to network operations as opposed to a drop in demand. When the price fell sharply in March, a number of bitcoin miners became unprofitable and ceased to support the network, causing a drop in transaction throughput. As output fell, congestion increased and subsequently fees rose. When the difficulty rate recovered last week, output increased again and the rate that new blocks were produced increased. This is apparent in the on-chain table below, where output rose by 8.6% to 6.3 block per hour versus last week’s 5.8 per hour. This dynamic is a significant contributor to the relative decline in fees, but not the entire story. We will continue to monitor fees in the coming weeks as an indication of the increasing or falling demand for space in Bitcoin’s ledger.