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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:
Robinhood Testing New Crypto Features: On Monday Bloomberg reported that popular trading/investing app Robinhood is testing crypto wallet and transfer features. This is big news for users who currently hold crypto assets on the platform, as the new features would likely allow them to transfer the assets directly to an external wallet rather than selling and rebuying. This is likely a top priority for Robinhood, as more than half of all transaction-based revenues in Q2 came from crypto trading and a large percentage of their user base trades crypto assets.
Twitter-BTC Integration to Begin Roll Out: On Thursday Twitter announced its roll out of BTC Tipping features for Apple iOS users. Twitter began developing the Tip feature in May as a way for creators to earn money through the platform. Until now, users could tip using fiat through CashApp and PayPal, but the integration of Strike will allow tips to be given in BTC. This is likely the first of many BTC-based integrations for Twitter, whose CEO Jack Dorsey is extremely bullish on Bitcoin.
More Tomfoolery from the Central Banks: Over the last several days high-ranking members of the U.S. Federal Reserve - the central bank of the United States - have come under criticism for holding assets that the Fed themselves were purchasing throughout the pandemic. Fed Chairman Jerome Powell, for example, owned $1.5 million in municipal bonds like the ones the U.S. central bank purchased in 2020. How this isn’t considered insider trading is beyond our comprehension. In our opinion, this story should have been massive, but we’ll leave you to figure out why most of the mainstream media stayed relatively quiet about it.
Feature of the Week
Every week, we reach out to members of the Bitcoin community to see where they stand on BTC and to ask what they’ve been up to lately. This week we’re happy to share a quick word from @BTCGandalf:
I’d like to cover two topics today that I’ve spent some time thinking about this last week:
1. Dollar Cost Averaging (DCA) vs “smash buying” bitcoin
2. Developments in the bitcoin mining business financing and how those might affect bitcoin price in the longer run.
Up until recently, I was a big believer in “smash buying” bitcoin. If you’re not familiar with this term, it refers to buying bitcoin with all fiat available at a given point in time. This usually means purchases are larger and less frequent. At the beginning of this bull run, this strategy would have worked very well as we seemed to be going “up only.” Why would you wait to buy later when you know the price is going to be higher than it is today? Sadly, if the last few months have taught newcomers to bitcoin anything, it is that “up only” is not how the price always moves in the short run. In the current market environment, a “smash buy” strategy may lead to you thinking about short-term price movements too much as you try to time the bottom of a trend. No one wants to make a large purchase only to see the price dip 20% in the following days. The FOMO is real when you have spent all your fiat buying at 48K and the price falls to 40K just days after. I was experiencing this myself recently when I came across a great Tweet by Friar Hass who is an advocate for DCA. Reading his Tweets in combination with experiencing current market dynamics have made me change my strategy from “smash buying” to DCA. Now, I don’t have to spend any time and energy thinking about whether the price is going to move up or down after I buy. If the price falls, DCA ensures I get some more bitcoin at a cheaper price. If the price rises, that’s also great as the DCA has ensured I also bought when the price was lower. The time and emotional energy I no longer spend thinking about short-term price movements, I can now channel towards other things. Plus, I have increased the frequency of the pleasure that we all feel every time we increase our bitcoin stack and the FOMO from missing dips is gone. The strategy also involves lowering your time preference, which I have found helps with living with less stress. With the different buying options available today, you can DCA daily or even hourly in some cases. You can’t beat the feeling of stacking sats every hour of every day.
Moving on to the bitcoin mining businesses. Mike Alfred’s recent podcast appearance on We Study Billionaires with Preston Pysh highlighted something that Michael Saylor has also mentioned before: bitcoin miners are becoming institutional-size HODLers of bitcoin. Just a few years ago, miners would have to sell most of the bitcoin they mined to cover operational costs and CapEx. Replacing obsolete miners and/or expanding operations are capital intensive activities and the selling of bitcoin by miners brings with it notable sell pressure to the spot BTC market. With bitcoin gaining legitimacy as an asset, related businesses have been able to gain improved access to capital markets including by going public. Being a public company opens doors for cheap borrowing as we’ve seen with MicroStrategy. For bitcoin miners, these new sources of capital mean that they are no longer in a position where they must sell bitcoin to cover operational costs and CapEx. They can now sell equity or borrow from capital markets instead. Mike highlights that Marathon and Hut8 have both have a strategy to HODL bitcoin. They do not sell. I won’t get into too much detail on the numbers here, but we are talking about tens of thousands of bitcoin being HODLed by just these two miners over the next half decade. This is bullish for bitcoin.
Be sure to follow @BTCGandalf on Twitter to stay up to date with everything he’s doing!
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: This week saw prices drop to levels not seen since early August. After briefly dropping to ~$40k, we’ve hovered between $42-44k for several days. It would be great to see support built in the mid-40k range. We are now 501 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 24th at $110,036 USD, leaving us roughly $66k 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). SOPR had been hovering above 1 consistently for several weeks, but dipped slightly under 1 following the last two price drops. Following both drops, SOPR bounced back over 1, but we’d like to see it hover just above 1 for a prolonged period of time. In general, SOPR suggests that, even when price drops, traders are not selling at large losses.
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)! Last week, a statue of Bitcoin creator Satoshi Nakamoto was revealed in Budapest, Hungary. It was too cool for us not to include - we’ll go back to funny memes next week.
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.