Bitcoin on-chain deep dive: BTC falls below the global electrical cost

The Federal Reserve is barred from speaking ahead of next week’s Fed announcement. Investors continue to ponder US rate cuts in 2023 and he said 2024. There have been aggressive rate cuts this week.

The main objective of Jerome Powell and the Fed is to contain inflation and tighten fiscal conditions. But since mid-October, financial conditions have eased and equities have risen as bond yields fell and credit spreads tightened to reverse to multi-decade levels. The spread between the 10-year yield and his 2-year yield has approached a new wide of -84bps.

December 9’s PPI data fell short of expectations, and the real test for the US Treasury market follows next week’s CPI report. The Fed rate hike could change depending on the outcome of the consumer price index. Currently, there is a 75% chance that a 50bps rate hike will give the Fed Funds rates between 4.25% and 4.50%.

Bitcoin difficulty adjusted to 7.32% on the morning of December 6th. This was the largest negative adjustment since July 2021 and the largest negative adjustment since July 2021. This is a result of China’s ban on Bitcoin last summer, which caused miners to be unplugged and hashes his rate plummeted to his 84EH/s. .

The drop in mining difficulty has brought a sense of relief to the faces of miners, but this relief may be short-lived as hashrates have already begun to return to levels around 250EH/s.

Since the ban in China last summer, both mining difficulty and hashrate have tripled in total, indicating Bitcoin’s long-term security is stronger than ever.

A model created by Charles Edwards (Capriole Investments) in The Bitcoin Electricity and Production Cost Model that identifies how much it costs to produce one Bitcoin.

This model provides a large lower bound for Bitcoin’s price in bear markets, and there are only four periods in Bitcoin’s history when the price has fallen below the global Bitcoin electricity price.

The most recent time bitcoin price fell through the model was covid and now during the ftx collapse the price is below the global bitcoin electricity price around $16.9k for most of November and again fell.

A similar model devised by Hans Hague modeled the idea of ​​a difficulty regression model. By creating a log-logarithmic regression model on difficulty and market capitalization, this model calculates the total cost to generate his one bitcoin.

The production cost of 1 Bitcoin is currently $18,872, higher than the current Bitcoin price. Bitcoin price fell below regression models during his FTX collapse on Nov. 15, putting Bitcoin deep in its value zone for the first time since the 2019-20 bear market.

The Accumulation Trend Score is a metric that reflects the relative size of entities that are actively accumulating coins on-chain with respect to their BTC holdings. The cumulative trend score scale represents both the size of an entity’s balance (participation score) and the amount of new coins acquired/sold in the last month (balance change score).

Cumulative trend scores close to 1 indicate that the larger entities (or most of the network) are accumulating as a whole, while values ​​close to 0 indicate that they are scattered or not accumulating. . This provides insight into market participants’ balance size and last month’s accumulation behavior.

Highlighted below are examples of bitcoin capitulations occurring while bitcoin investors were accumulating, the FTX crash that sent bitcoin down to $15.5k, the Luna crash, covid , and the same amount of accumulation that emerged at the bottom of the 2018 bear market. market.

Accumulation propensity score by cohort has a breakdown by each cohort that shows the level of accumulation and distribution for the entire 2022, and currently shows accumulation from all cohorts for more than one month that has not occurred in 2022. We are in a critical period. Investors confirm its value.

The macro environment and general sentiment have removed a lot of risk from the market. This is evident in Bitcoin derivatives.

Bitcoin open interest on Binance is now back to July levels. Futures Open Interest is the sum of funds allocated to open futures contracts. Over 35,000 BTC have been unwound since December 5th. This equates him to $595 million. This is a reduction in his OI of approximately 30%.

The less leverage the system has, the better. This can be quantified by the futures estimated leverage ratio (ELR). ELR is defined as the ratio of the futures contract open interest to the corresponding exchange balance. ELR decreased from a peak of 0.41 to 0.3. However, at the beginning of 2022 it will be at the 0.2 level and still have a lot of leverage built into the ecosystem.

Implied volatility is the market’s expectation of volatility. Given the price of the option, we can solve for the expected volatility of the underlying asset. Formally, implied volatility (IV) is one standard deviation range of the expected movement of an asset price over a year.

Viewing the At-The-Money (ATM) IV over time gives a normalized view of the expected volatility. This often goes up and down depending on realized volatility and market sentiment. This metric shows the ATM implied volatility for option contracts expiring one week from today.

Similar to June’s Luna crash, Bitcoin’s implied volatility has fallen following FTX implosion and year-to-date lows.

Stablecoin Supply Ratio (SSR) is the ratio of Bitcoin supply to stablecoin supply expressed in BTC or: Bitcoin Market Cap / Stablecoin Market Cap. Supply includes USDT, TUSD, We use USDC, USDP, GUSD, DAI, SAI, and BUSD stablecoins.

If the SSR is low, the current stablecoin supply has more “buying power” to buy BTC. This is a proxy for the supply and demand mechanism between BTC and USD.

The current ratio is 2.34, the lowest since 2018, while the SSR was 6 in January 2022. The ratio tends to decline as the purchasing power of stablecoins continues to rise.

The change in the net position of the buy power of the exchange supports this, but this chart shows the buy shift power of the stablecoin over a 30-day period on the exchange. Consider the 30-day change in major stablecoin supply on exchanges (USDT, USDC, BUSD, and DAI) and subtract his USD-denominated 30-day change in BTC and ETH flows.

A positive value indicates a more significant or increased amount of USD stablecoins flowing into the exchange compared to BTC + ETH over the past 30 days. This generally suggests higher purchasing power in stablecoins available on exchanges compared to the two main assets.

Over the past two years, the purchasing power of stablecoins has only increased by more than 7 billion in stablecoin purchasing power, heading towards the highest value last seen since the beginning of the year.