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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 Day in El Salvador: In June, El Salvador’s parliament made history by passing a three page bill to make Bitcoin legal tender. Three months later, on Tuesday September 7th, El Salvador became the first nation state to officially recognize Bitcoin as legal tender. Many in the community commemorated the event by smash purchasing $30 worth of Bitcoin. The country’s government has purchased ~400 BTC and will likely continue to add coins in the future. They have also established a $150-million Bitcoin fund to facilitate conversions from BTC to USD.
Ukraine joins the crypto party: On Wednesday September 8th, Ukraine joined a growing list of countries to legalize and regulate cryptocurrencies. Until now, crypto trading existed in a legal “grey area” in the country, with crypto exchanges under close scrutiny by government agencies. The law - which was set in motion in 2020 - passed the Ukrainian Parliament with a nearly unanimous vote and will now be sent to the desk of President Volodymyr Zelenskyy.
DDOS attacks a bit too coincidental: Just as El Salvador’s Bitcoin Day was unfolding, multiple major crypto exchanges stopped responding to user requests, including Coinbase, Strike, SwanBitcoin, and Bitfinex. Some are speculating that the exchanges were simultaneously hit with DDoS (Distributed Denial of Service) attacks. A compiled thread on the attacks can be found here.
A look on chain:
Let’s take a look at on-chain data from Glassnode!
Price update: Price remained steadily over $50k for ~3 days before “crashing” to ~$46k, where we currently stand. We are 486 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).
S2F Model Update: We currently remain well below the stock-to-flow model. In fact, the model has price on September 10th (today) at $109,481 USD, leaving us roughly $63k 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.
What’s with the crash? According to analysis by Will Clemente of Blockware Market Intelligence, Tuesday’s crash was likely caused by over-leverage in the futures market. According to Will, “ yesterday’s sell-off can be attributed to a cascade of leveraged long liquidations in the futures market. In total there were $3.22B of long liquidations (non Bitcoin-specific) across all exchanges.” To read more about this, check out Blockware’s newsletter here.
Was leverage the only thing flushed out? When price drops dramatically, it’s often useful to look at who is selling coins. A look at spent output age bands tells us that coins over 6 months old are not being spent - the strong hands continue to HODL while newbies in the market seem to scare easily and sell off when prices drop. If you’re in BTC for the long haul - and in my opinion, you should be - these data are in your favor. Strong hands scoop up cheap coins that the weak hands dropped (DISCLAIMER: as always, this is not financial advice).
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). SOPR had been hovering above 1 consistently for several weeks, but dipped slightly under 1 following Tuesday’s price drop. We’d like to see SOPR bounce back and hover just above 1. We got the initial bounce back, but time will tell whether we remain above 1.
Hash Rate returning: Hash rate continues to recover nicely following the most recent mining crackdown by the communist party of China. To restate last week’s newsletter (and the week before): this demonstrates the resiliency of the BTC network. Below, we’ve plotted a shaded area to represent the mean +/- 1 standard deviation in hash rate from the 3 months prior to the ban. Current hash rates have re-entered this range, signaling a return to pre-ban rates.
We’re 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)!
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)!
New to Bitcoin and looking to learn more? Check out our introductory series, where we walk through common misconceptions about the world’s leading cryptocurrency!
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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. Brandon and Daniel are not financial advisors. We encourage all readers to do further research and do your own due diligence before making any investments.