Only a few days until Bitcoin is halved for the third time, various analysts, companies and investors have looked at Satoshi’s coin. Some have it as “the engine that drives prices to the moon“And even referred to the event as”the gasoline of the next upward trend“”
The truth is that even with thousands of charts and forecasts (some short-term even a few realistic) Hardly anyone knows what can really happen when the halving is overIn addition, a forecast of what will happen in terms of price is limited to simple speculations, as it is unlikely, if not impossible, to determine demand based on a decrease in future supply. In all this euphoria, we wanted to give you a break at Cointelegraph and decided to analyze the latest movements in the Bitcoin network See if the dynamics of these past two months matches network growth. In theory, price growth should be linked to network growth in the same direction, which is why prices continue to rise.
It may sound trite, but there is a truth when Mr. Buffett said that We have to be fearful when others are greedy, and greedy when everyone else is fearful. The reality is that we have seen over time how high expectations are for major events In the end, they mean nothing and are limited to small price movements on Bitcoin or, what is worse, massive sales.
The average value per transaction (VPT) has not increased
During the various bullish and bearish cycles of Bitcoin The average value per transaction of the network always corresponded to the price level. This is because the VPT is calculated first by adding the USD value of the transmitted native units (Satoshis) between the number of transmissions. This means that with rising prices, the USD amount within Bitcoin should (theoretically) increase. This determines that the network is being used more and therefore increasing.
Throughout 2017, when there was the cryptocurrency boom, Bitcoin prices rose 2,400% in just one yearThis price increase, which rose from $ 700 in the first few days of January to almost $ 20,000 by the end of the year, had a huge impact on the money traded on the blockchain, so much so that the VPT saw an increase of 1,500% from $ 2,000 per transaction to nearly $ 32,000 per transaction, the highest point in history.
During the bull run of the first half of 2019, when prices rose from $ 3,800 to $ 14,000 (270%), the average transaction value also increased from $ 4,200 to $ 15,000. an average increase of 260%.
Since Black Thursday, when prices have dropped 50%, the average carried over has had a similar sentiment, falling in almost the same ratio from $ 7,000 to $ 5,000. Even with a price recovery of 120%, the VPT hardly increased, which indicates that there are no peer-to-peer transactions in the network.
Read on: China’s largest mining sector is waiting for new Bitcoin buyers to arrive
NVT relationship is through the roof
The ratio of the value of the network in transactions is a metric that is commonly used to determine whether a crypto asset is overvalued or undervalued based on the network’s current currency. This metric is very similar to the price-benefit ratio used today for stocks. The NVT suggests that prices will be inflated (overvalued) if market capitalization exceeds (by far) the value traded therein, which assumes that prices will increase due to speculation rather than a real increase in network usage. If market capitalization grew exponentially compared to the money circulating in the network, it would be tantamount to saying that a company is worth more than it produces and benefits, which is unsustainable.
Although NTV does not take inflation or off-network transactions into account, one fact is certain, throughout Bitcoin’s history This metric is pretty well related to local funds and price caps. At this point, the ratio of the network’s value based on its transactions is in an overvalued state, ie its market capitalization does not support what is being tracked on the network. This does not necessarily mean that prices will drop immediately, but serves as a warning for find that prices are likely to rise due to speculation rather than organic.
The volumes dance in a different bar
As I have mentioned repeatedly Volume is an important part of a trend because retailers can examine price health. In theory, both upward and downward movements should be accompanied by sustained volume growth, since individuals should support the movement by further negotiating the specific price transfer. Since Bitcoin’s recovery from the low of $ 3,800, volume (mostly weekly) has decreased.
If we take more care and analyze the volumes of the past few days between the major exchanges, we will find that out The volume only exploded when Bitcoin exceeded $ 7,300 and traded over $ 9,000. All of this trade peak appeared to be lost a few days later when volumes returned to a level below the level seen before the increase.
Read on: The top 5 countries are currently desperately looking for “bitcoin halving”
Past halving proves the opposite
In a Twitter thread clarifying some false rumors about the halving, he emphasized that halving the reward is an event that takes place every 4 years and while it is waiting fairly within the community, its main impact on the network and not on the price, so we could say that the direct impact of halving is on the blockchain and indirectly on the price. With that in mind and some other somewhat more technical details, we found that Once the reduction is done, the network goes through a period of time that I’ve called “blockchain digestion,” and it’s a process that takes between 4 and 5 weeks in which Bitcoin basically regulates itself. During this period, prices did only two things: they lateralize or otherwise fall between 5 and 30%. After this time The network returns to its normal values (more hash, more difficulty) and prices gradually recover as soon as the lack of supply is felt.
Fear Of Missing Out (FOMO) is a term used by many traders to specify the fear of not taking advantage of a major move or a highly anticipated eventIn short, it is the modern manifestation of the fear of exclusion. For the past two months, almost all the important news and companies have turned to halving the new Bitcoin solution. We have seen everything from reverse counters on exchanges like Binance to emails that Bittrex sent to its users to encourage them to buy Bitcoin before halving (it reminds me very much when CNBC taught you How to Buy Ripple for USD 3) as if prices were on that day should grow like never before.
The reality is that the technical halving does not bring anything unexpectedor at least nothing new. When the network reaches its 630,000 block (more or less by May 12), the amount of reward per block will increase from 12.5 BTC to 6.25 BTC. In the case of Bitcoin, the halving will certainly have an immediate impact and a significant economic impact on people whose companies rely on mining. However, I don’t see any other significant effects from this. Even if it sounds boring, the only real change is a number in the code. Then I think What happens when the counter reaches zero? What happens when people find that the network is no longer growing, not scalable, and even (in the early stages of halving) less decentralized? Prices are likely to fall due to sales by people with too many expectations or little patience, similar to Bakkt last year.