As can be seen, the fundamentals of the Bitcoin network are very strong and require close attention to market dynamics based on macroeconomic trends. Bitcoin aims to become the world's reserve currency, which is an investment opportunity that should not be taken lightly.
This article will analyze 7 prominent factors that investors should pay attention to in the coming months.
A committed Bitcoin investor
Investor confidence can be seen by looking at the number of unique Bitcoin addresses holding at least 0.01, 0.1, and 1 BTC. This data suggests that Bitcoin is becoming more accepted as more addresses hold Bitcoin in each of the above categories. While it is entirely possible for individual users to hold their Bitcoin in multiple addresses, the increase in unique Bitcoin addresses holding at least 0.01, 0.1, and 1 BTC suggests that more users than ever are buying Bitcoin and managing their own.
LTH owns 72.52% of the total BTC supply in circulation.
Regardless of price action, a large number of Bitcoin investors are accumulating digital assets. In a December 2022 interview with “Going Digital,” market research director Dylan LeClair said:
“People around the world are buying this asset, and a large and growing group is resisting the price increases.”
With a growing number of unique addresses holding Bitcoin and long-term investors holding large amounts of Bitcoin, Bitcoin's progress and adoption are extremely bullish. As global demand for Bitcoin grows and adoption increases, many changes indicate the potential for asymmetric returns.
Total Available Market
In the process of monetization, a currency goes through three stages in sequence: store of value, medium of exchange, and book of account. Bitcoin is currently in the store of value stage. Other assets commonly used as a store of value include real estate, gold, and stocks. Bitcoin is a more ideal store of value for several reasons: it is more liquid, easier to obtain, transport, and secure, easier to audit, and more scarce than any other monetary, finite asset. The hard cap is 21 million coins. In order for Bitcoin to gain a larger market share among other global stores of value, these characteristics need to remain intact and prove themselves in the eyes of investors.
As you can see, Bitcoin represents only a small fraction of global wealth. If Bitcoin captured even 1% of the market share from other stores of value, the market cap would be $5.9 trillion, bringing the Bitcoin price to over $300,000 per unit. These are “conservative” numbers because it is estimated that Bitcoin adoption will occur gradually and slowly before suddenly changing.
Transfer volume
Considering the amount of value that the Bitcoin network has left over its entire history, there is a clear upward trend in the dollar value as demand for Bitcoin transfers has soared this year. In 2022, the Bitcoin network processed conversion-adjusted transfers of 556 million Bitcoins, up 102% from 2021. In U.S. dollar terms, the Bitcoin network is worth nearly $15 trillion in 2022.
As the world moves into an era of deglobalization, Bitcoin’s censorship resistance is a very cool feature. With a market cap of just $324 billion, it’s clear that Bitcoin is severely undervalued. Despite the price drop, the Bitcoin network is moving more USD value than ever before.
A rare opportunity for Bitcoin price
Certain metrics allow us to analyze the unique opportunity for investors to buy Bitcoin at these prices. Bitcoin’s realized market capitalization is down 18.8% from its all-time high, the second-largest drop in history. While macroeconomic factors need to be kept in mind, this is still a rare buying opportunity.
Throughout its history, Bitcoin is in the lowest price phase of its cycle. Its current market rate is about 20% below the average on-chain cost, which only occurs at or near local bottoms in Bitcoin's market cycles.
Bitcoin’s current price is at a rare level for investors looking to get in on the dip. Historically, buying Bitcoin during times like these has produced huge returns in the long run. That being said, we should consider the fact that 2023 could very well be Bitcoin’s first long-term recession.
Macroeconomic environment
As we head into 2023, it is critical to understand the state of the geopolitical landscape, as macroeconomics is the driver of economic growth. People around the world are experiencing the lagged effects of monetary policy decisions made by central banks last year. The U.S. and Europe are in recession, China is de-dollarizing, and the Bank of Japan is raising its target interest rate to control the yield curve. All of this has had a significant impact on capital markets.
If financial markets are isolated from the world, nothing will happen. Bitcoin’s rise in 2020 and 2021 — while similar to previous cryptocurrency market cycles — is closely related to the explosion of liquidity around the post-COVID financial system. 2020 and 2021 were characterized by massive liquidity inflows, while 2022 was characterized by liquidity washouts.
Interestingly, when Bitcoin is priced against U.S. Treasuries (believed to be Bitcoin’s biggest theoretical competitor in terms of monetary value in the long run), a year-over-year contraction may be in sight. Compared to Bitcoin’s historical withdrawals, 2022 has been pretty flat.
Although stock and bond prices have been rising recently, this may not be the worst deflationary pressure from the global liquidity cycle. When talking about sovereign debt bubbles, it is important to understand what a sharp re-rating of global yields means for asset prices. With bond yields still much higher than in recent years, asset valuations based on discounted cash flows will fall. Bitcoin is not dependent on cash flows, but will certainly be affected by this global re-rating of yields.
Twitter user Dylan LeClair shared:
“A large liquidity crisis occurs when a credit crunch and asset sell-offs cause borrowers to lose credit.
Central banks were forced to step in to stop the deflationary spiral, while providing record liquidity injections to suppress yields and reflate the system.”
The most recent CPI data released by the United States showed that inflation ended 2022 mildly, with the consumer price index in December recording the largest single-month drop since the beginning of the epidemic.
The consumer price index, which measures the cost of a basket of goods and services, fell 0.1% this month, in line with Dow Jones estimates. That would have been the biggest monthly drop since April 2020.
Even with the decline, the overall CPI was still 6.5% higher than a year ago, indicating the continued burden that rising living costs are taking on American households. However, it was the smallest annual increase since October 2021.
Bitcoin Mining and Infrastructure
While many sectors are underperforming and worrisome macro factors are weighing down the price of Bitcoin, a look at the Bitcoin network’s own metrics tells a different story. Hashrate and mining difficulty indicate how many ASICs are adding hashrate to the network and how competitive Bitcoin mining is. These numbers move in lockstep, and both will mostly only rise in 2022 despite the significant price decline.
By using more machines and investing in scalable infrastructure, Bitcoin miners are showing they are more bullish than ever. The last time Bitcoin prices were in a similar range was in 2017, when the network’s hash rate was just one-fifth of its current level. That means there are five times more Bitcoin miners in operation and the machines themselves are more efficient, not to mention massive investments in facilities and data centers to store the equipment.
As hash rates rise and Bitcoin prices fall, miner revenues have plummeted this year following a sharp rise in 2021. Public stock valuations of mining companies are also doomed, with valuations falling even more than Bitcoin prices, while the Bitcoin network's hash rate continues to increase. The report shows that the total market value of public miners has shrunk by more than 90% since January 2021.
Many of these companies are likely to face upcoming difficulties due to the aforementioned surge in energy prices and global interest rates.
On January 8, Bitcoin Magazine reported that the Bitcoin hash rate hit an all-time high of 361.2 EH/s at block height 770,709 on January 6. The record is equivalent to 0.3611999 zettahash per second (ZH/s) or about 361.2 million hashes per second.
At the same time, Bitcoin mining difficulty also reached a new peak of 37.73 trillion hashes at a block height of 772,128.
Increased scarcity
One way to analyze Bitcoin scarcity is to look at the illiquid money supply. Liquidity is quantified as the degree to which an object spends its Bitcoin. A person who never sells Bitcoin has a liquidity value of 0, while a person who always buys and sells Bitcoin has a liquidity value of 1. Using this quantification, the circulating supply can be divided into three categories: highly liquid, liquid accounts, and illiquid.
Illiquid supply is defined as entities holding more than 75% of all Bitcoin deposited into addresses. Liquid supply is defined as entities holding less than 25%. Liquid supply will be somewhere in the middle. This illiquid supply analysis and quantification was developed by Rafael Schultze-Kraft, co-founder and CTO of Glassnode.
2022 has been marked as the year Bitcoin leaves exchanges. All recent crashes have prompted many individuals and institutions to move funds into their own vaults, look for custody solutions outside of exchanges, or sell all of their Bitcoin. When concentrated institutional risk and counterparties flash red, people rush to exit, characterized by Bitcoin outflows from exchanges.
In 2022, 572,118 Bitcoins worth $9.6 billion left exchanges, marking the largest annual Bitcoin outflow in BTC history. In dollar terms, it is second only to 2020, where the COVID event was the trigger in March of that year. It is estimated that 11.68% of Bitcoin's supply is currently on exchanges, down from 16.88% in 2019.
The illiquidity supply data combined with historical Bitcoin withdrawals from exchanges paints a completely different picture than what we see of factors that are beyond the reach of the network. Bitcoin. Despite some unanswered questions from a macroeconomic perspective, Bitcoin miners continue to invest in equipment, and on-chain data suggests Bitcoin holders have no intention of abandoning their Bitcoin so early.
in conclusion
The various factors detailed above paint a picture of why we are bullish on Bitcoin in the long term in 2023. The Bitcoin network continues to generate a new block approximately every 10 minutes. Many miners continue to invest in infrastructure by making ends meet, and LTH, as shown by on-chain data, remains steadfast in their convictions.
As Bitcoin becomes increasingly scarce, the supply side of this equation is fixed, while demand is likely to grow. Bitcoin investors can stay ahead of the demand curve by averaging in when prices are lower. It is important for investors to take the time to understand how Bitcoin works to fully understand what they are investing in. Bitcoin is the first finitely scarce and digitally derived profitable asset. Everyone should understand how to deposit and withdraw Bitcoin on an exchange on their own. Despite the negative news cycle and bearish Bitcoin prices, the bullish belief in the long-term value proposition remains unwavering.