State of Coin: Bring on inflation
State of Coin: Week ending 10/08/2021
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In our Friday articles, we take a deep dive into the current state of Bitcoin. We previously published a series debunking the FUD surrounding Bitcoin - you can find those links at the bottom of this article. Every Friday we will continue to publish brief State of the Coin newsletters to keep subscribers up to date on BTC with both on-chain analytics and off-chain news from the Bitcoin industry. For full disclosure, Brandon and Daniel are strong believers in Bitcoin and both have allocated portions of their portfolios to BTC (HODL baby).
Let’s take a look at the State of the Coin
A look off chain:
Bitcoin as legal tender in Brazil: According to recent statements by Aureo Ribeiro, a federal deputy of Brazil, BTC may soon become legal tender in the country. Ribeiro stated that Bill 2.303/15, which regulates cryptocurrencies, might approve the legal use of the asset, similar to El Salvador. Welcome to the party Brazil.
El Salvador fires up the volcanode: Speaking of El Salvador, President Nayib Bukele recently took to Twitter to announce that they’re taking initial steps toward harvesting geothermal energy from volcanoes to mine bitcoin - you read that right, volcanos! Volcano derived geothermal energy accounts for ~22% of the country’s energy supply and provides a renewable source of energy to power BTC miners. So long “boiling oceans” FUD.
Coinbase crypto heist: Following months of investigation, popular crypto exchange Coinbase confirmed that ~6,000 user accounts were hacked between March and May of this year. The hackers apparently took advantage of a flaw in Coinbase’s SMS text-based 2 Factor Authentication (2FA) protocol to gain access to user accounts. These accounts were drained and all assets were transferred to wallets not associated with Coinbase.
Compound gives away free tokens, then threatens to dox users: Last week, a bug in Compound’s code led to a large disbursement of COMP tokens to user wallets that were actually intended for long-term liquidity mining rewards. Compound CEO Robert Leshner took to Twitter and threatened to report and doxx the accidental recipients of these tokens. Good on him for later admitting it was a bone-headed move, but still...it shouldn’t even cross your mind to say - and definitely not do - something like this. You can’t promote DeFi by reporting your users to an agency within a centralized system for receiving tokens from your own dev flaw.
Choice celebrates Uptober with a referral code feature: Choice by Kingdom Trust - an IRA platform that allows you to hold tax-advantaged Bitcoin in retirement accounts - announced this week that they have added a referral code feature for current users. Don’t let your friends miss out on stacking tax-efficient sats - sign up now and refer them to Choice!
We’re always looking for guest writers! If you or someone you know would like to be featured on State of the Coin as a contributor, let us know! You can email us at greencandleit@gmail.com or DM us on Twitter (@Greencandleit)!
A look on chain:
Let’s take a look at on-chain data from Glassnode!
Price update: Uptober starts with a BANG! On Friday October 1st price shot up, eventually breaching $50k USD early Tuesday morning, and is now hovering in the $53-55k range. We are now 514 days post halving with the halving high (and all time high) having occurred at 337 days. In halving cycles 1 and 2, highs occurred at 371 and 525 days, respectively (shown as vertical dashed lines on the chart below). In the last week, price is up 23.5%; in the last month, it is up 14.7%; in the last year, BTC price is up 405%.
S2F Model Update: We currently remain well below the stock-to-flow model. In fact, the model has price on October 7 at $108,822 USD, leaving us roughly $55k away from predicted price. Downward deviation from the model could mean that the model is incorrect. However, it could also indicate that BTC is currently undervalued. In the previous two cycles, the model tended to accurately predict cycle-end price points. If this is the case in the current cycle, be prepared to see 6-digit pricing. Remember, BTC is a long term investment, not a “get rich quick” vehicle. To learn more about the S2F model, check out this article by PlanB.
SOPR: The Spent Output Profit Ratio (SOPR) is computed by dividing the realized value (in USD) divided by the value at creation (USD) of a spent output. Or more simply: price sold / price paid. Values greater than 1 indicate that coins are being sold for profit (typically bullish) and values less than 1 indicate coins are being sold at a loss (typically bearish). We saw a small spike in SOPR on Tuesday/Wednesday following the 50k breach, but it wasn’t nearly to the extent that we saw in late July when price jumped from 29k to 40k over a ten day period. Not many people are selling, but those who are are doing so for profit.
Inflation Hedge Report: Yesterday we published a Twitter thread detailing BTC’s performance against market index funds and gold. BTC’s 5-year return is massive compared to common index funds tracking U.S. and global markets:
We also showed that daily BTC price has become uncorrelated these index funds YTD and is now negatively correlated with gold:
Finally, we showed that over the last 5 years BTC is positively related to the Consumer Price Index, a common economic marker of inflation in the U.S. In other words, as inflation worsens, BTC value rises:
The key takeaways: BTC value rises as inflation worsens, is now negatively correlated with gold prices, and is becoming uncorrelated from the markets. All of these signal that BTC has become a strong hedge against inflation. With inflationary trends likely to continue, it has never been a better time to buy BTC.
BTC Meme of the Week! What would the BTC community do without memes? Every week on State of the Coin, we feature our favorite meme of the previous week. If you create or see a meme that you like and want us to consider featuring it, tag us on Twitter or instagram (both @Greencandleit)! Dave Chappelle - one of the greatest to ever do it - released a new special this week on Netflix. So here’s a Chappelle-BTC meme we came across from @BTCGandalf this week:
New to Bitcoin and looking to learn more? Check out our introductory series:
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Happy Friday everyone - get after it this weekend!
Brandon and Dan
Disclosure: The authors of this writing hold positions in cryptocurrency mentioned in this article. That cryptocurrency is Bitcoin. The article was written by Daniel Kuhman and Brandon Keys, and it expresses the author's own opinions. They are not receiving compensation for it. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock or cryptocurrency. None of the authors of this article are not financial advisors. We encourage all readers to do further research and do your own due diligence before making any investments.