A new report titled “Valuing Bitcoin” came out of Grayscale, the largest cryptocurrency fund traded on Wall Street. In conclusion, the study authors argue that the current structure of the cryptocurrency market is very similar to that of the period in early 2016, before the big upward movement began.
They predict that demand for bitcoin will increase significantly, as the current monetary climate has created the need for a monetary value with the characteristic of scarcity. The report states that easing monetary policy is an addiction that is difficult to abandon. When the Fed tried to cut its balance sheet in 2018, the market responded annoyed, dropping the S&P 500 index about 20% in just three months.
Long-term VS short term
Grayscale analysts say that currencies that have not moved for one to three years are owned by long-term investors. Those who have moved in the last 90 days assume they belong to short-term speculators. The increase in cryptocurrencies that are held by long-term investors – relative to short-term ones – is a clear sign of a rise.
Another measurement of the total value of all bitcoin is calculated by taking the price of each bitcoin based on its own latest move in the chain. For example, currencies that were last moved in 2012 contribute much less to overall market capitalization, as they were less expensive than currencies that moved in 2020. This method has the advantage of allowing analysts to take out the currencies that are most likely lost.
For many, this is the most accurate value of bitcoin’s capitalization, because it takes into account the latest price of all currencies traded, not just the most recent ones. This calculation has historically functioned as a support zone. If the classic valuation method finds the capitalization underneath, bitcoin is considered oversold.
Daily Active Addresses (DAA) is a measure of the total number of unique addresses participating in a bitcoin transaction on a given day. It does not include all users, but it reveals an opinion on the network’s development and is indicative of the increased adoption of bitcoin. The graph below shows that DAA is at its highest level since 2017.
Near the highest level of all time is the number of unique bitcoin addresses held by over 1,000 bitcoin (about $12 million). Here to clarify that users can have multiple addresses. Therefore, an individual can own multiple wallets.
The electricity consumption of the grid can be used to calculate the cost of production per bitcoin. Mining is nothing more than a process of converting electricity into currencies. It, therefore, makes sense that the price of currencies tends to fluctuate around the cost of production.
The cost is significant because it gives us indications of the profitability of producers, a crucial contribution to the calculation of the value of bitcoin. As its price rises, profitability tends to increase, prompting miners to spend more energy. On the contrary, when profitability decreases, some miners, unable to remain competitive, are forced to sell their bitcoins and download the switches or even give up the activity for good.