Tag #Cryptocurrency

‘Realised Cap’ is closing in on $100 billion, giving us another way of assessing bitcoin price developments in the medium-term future.

In this report, we’re going to take a look at the longer-term picture for bitcoin. In particular, we’ll look at what’s been going on with the Realised Cap metric, which we’ve looked at before and which can help give a sense of whether BTC is under- or over-valued. 

Realised Cap – recap

We’re used to talking about the price and market cap of bitcoin, but those figures don’t mean a lot in isolation. What matters is the price people paid for those coins in comparison to the current price. Look at it this way: when we hit a new all-time high, no one who ever bought and held coins is taking a loss.

This is what Realised Cap is for. The measure was devised by the CoinMetrics team, and it looks at the price of BTC for every UTXO – in other words, how much coins cost when they were last moved. It’s not perfect, because people move coins all the time without selling them, but it’s much better than simple market cap, which doesn’t take into account factors like lost coins. You can see it as ‘an indicator of the sum of levels where groups of long-term, legit, buyer-hodlers entered into their Bitcoin positions, with local and immediate emotions and manias stripped out,’ say Adaptive Capital analysts Murad Madmudov and David Puell.

Where are we now?

As you can see from the chart, Realised Cap is gradually going up all the time. In a bull run, it goes almost vertical on the log chart. Where it gets really interesting, though, is comparing Realised and Simple market cap.

Right now, Realised Cap is around $100 billion – an all-time high. But that’s nowhere near the simple market cap of Bitcoin. In fact, prices would need to correct to around $5,000 before the average holder was in the red. So the average bitcoin holder is currently sitting on a 200% profit. 

At historic bubble peaks, that has been more like 400-500%. (Mahmudov and Puell put the ‘sell’ indicator factor at 3.7.) However, this doesn’t mean a predicted top around $20,000 again. Remember, Realised Cap is rising all the time. 

And this is one of the reasons why lengthy corrections within a bull market are important. They enable Realised Cap to rise to meet price, just like a moving average support line rising towards price in a consolidation period. What’s happening here is that coins are changing hands at a profit (on average) and so Realised Cap is increasing. It’s part of the churn that calms the market’s exuberance and allows the bull to run further.

The history of Realised Cap also confirms that this bull run, if it’s anything like previous ones, has a long way to go. At some point, price will dip below it, which is a clear buy signal. But we could be years off that.

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Statistically, one or other Satoshi Nakamotos was always likely to live near a prominent cypherpunk.

In the first part of this article, we looked at the unlikely coincidence that Dorian Satoshi Nakamoto – the man unfairly and inaccurately outed as Bitcoin’s creator by Newsweek – lived just a mile away from Hal Finney, a man who was involved in Bitcoin’s origins.

The theory goes that this can’t be a coincidence. Instead, one assumption is the cypherpunks who created Bitcoin chose Dorian as a kind of mascot, for one reason or another. But maybe there’s another explanation. And maybe it’s as simple as this:

Cypherpunk City

The cypherpunk movement started in California and has kept its roots there. Back in 1992 a group of twenty or thirty mathematicians and computer scientists met to discuss some of the most pressing and concerning developments in the advance of communications technology, including privacy. Timothy C. May, author of the Crypto Anarchist Manifesto, lived in Corralitos, California. Eric Hughes, a mathematician from the University of California, Berkeley was there. So was John Gilmore, a computer scientist and (later) an internet activist. There were, and are, lots of cypherpunks in the Bay Area of California. A population of around 8 million is packed into 7,000 square miles. If the Bay Area was a perfect circle, it would be less than 100 miles across.

The point is, there are lots of cypherpunks within a fairly small area. Now, what are the odds that someone with the same name as Bitcoin’s creator – or not quite the same – lived close to one or other of them?

‘Nakamoto’ isn’t a super common name, like Smith. But it’s not exactly rare, either. According to different directories, there are probably a hundred in California alone, and quite possibly more. One site suggests there are a total of three Satoshi Nakamotos living in the US. Odds on there are more, since these are just the ones recorded in those directories, and in some cases, middle names may have been omitted. 

Here’s how the math stacks up. California has 12% of the US population but a third of the nation’s 15 million Asians. So even if there really were only three Satoshi Nakamotos in the US, statistically there’s more than a 50% chance that at least one of them would live in California. And since one quarter of the Bay Area’s population are Asian, you might reasonably expect to find a Satoshi Nakamoto living there – especially if you looked for Nakamotos with a middle name of Satoshi, too. And if you live in the Bay Area, there’s a very good chance you live near a cypherpunk – within a few miles at most, and probably a lot closer.

Statistically, it’s not particularly unlikely that Dorian Nakamoto lived near a cypherpunk like Hal Finney. But let’s not let that get in the way of a good conspiracy theory.

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Dorian Satoshi Nakamoto, the man who definitely wasn’t Bitcoin’s creator, lived just a mile away from someone who could have been. Coincidence?

Hal Finney was a giant in the Bitcoin scene. He was a prominent cypherpunk who worked on landmark privacy projects, including PGP and anonymous remailers. He was one of just a handful of people to reply positively to Satoshi Nakamoto’s early posts on the Cryptography Mailing list, announcing his ideas about a truly peer-to-peer electronic currency; most members simply dismissed it without much thought. He corresponded with Satoshi, helped him refine the idea, mined a few bitcoins and then drifted away from the project. He came back later, in 2010, sharing ideas on the bitcointalk forum. By this stage, he was suffering from Lou Gehrig’s disease, and died in 2015.

Could Hal have actually been Satoshi? It sounds possible: he’s one of very few people in the world with the right background, interests and expertise. However, it seems unlikely. He was actually less involved than most people assume. And apart from anything else, Hal specifically said he wasn’t Satoshi. You can read his thoughts about Bitcoin and Satoshi on bitcointalk:

When Satoshi announced Bitcoin on the cryptography mailing list, he got a skeptical reception at best. Cryptographers have seen too many grand schemes by clueless noobs. They tend to have a knee jerk reaction.

I was more positive. I had long been interested in cryptographic payment schemes. Plus I was lucky enough to meet and extensively correspond with both Wei Dai and Nick Szabo, generally acknowledged to have created ideas that would be realized with Bitcoin. I had made an attempt to create my own proof of work based currency, called RPOW. So I found Bitcoin fascinating.

When Satoshi announced the first release of the software, I grabbed it right away. I think I was the first person besides Satoshi to run bitcoin. I mined block 70-something, and I was the recipient of the first bitcoin transaction, when Satoshi sent ten coins to me as a test. I carried on an email conversation with Satoshi over the next few days, mostly me reporting bugs and him fixing them.

Today, Satoshi’s true identity has become a mystery. But at the time, I thought I was dealing with a young man of Japanese ancestry who was very smart and sincere. I’ve had the good fortune to know many brilliant people over the course of my life, so I recognize the signs.

After a few days, bitcoin was running pretty stably, so I left it running. Those were the days when difficulty was 1, and you could find blocks with a CPU, not even a GPU. I mined several blocks over the next days. But I turned it off because it made my computer run hot, and the fan noise bothered me. In retrospect, I wish I had kept it up longer, but on the other hand I was extraordinarily lucky to be there at the beginning. It’s one of those glass half full half empty things.

The next I heard of Bitcoin was late 2010, when I was surprised to find that it was not only still going, bitcoins actually had monetary value. I dusted off my old wallet, and was relieved to discover that my bitcoins were still there. As the price climbed up to real money, I transferred the coins into an offline wallet, where hopefully they’ll be worth something to my heirs.

So what about Dorian?

Hal had a reputation for honesty and integrity, and we have to assume he wasn’t lying – or laying an elaborate trail of false evidence to put people off the fact he was Satoshi. But there’s another curious twist to this tale.

Back in 2014, Newsweek outed a man called Dorian Satoshi Nakamoto as the creator of Bitcoin. Dorian was an unemployed 64-year-old Japanese-American engineer. Leah McGrath Goodman, who had (poorly) researched and written the article, based much of her belief on the fact that he had the right name. The rest was fanciful or ridiculous – like this: ‘[Dorian’s wife] Mitchell suspects Nakamoto’s initial interest in creating a digital currency that could be used anywhere in the world may have stemmed from his frustration with bank fees and high exchange rates when he was sending international wires to England to buy model trains. “He would always complain about that,” she says.’

The story unravelled fast, and Goodman was left looking stupid to say the least. But there was one bizarre coincidence. Dorian lived just two blocks away from Hal Finney. Finney had been involved at the start of Bitcoin. Was that really a coincidence?

CoinTelegraph made much of the fact it was not. ‘A man with such a unique name living so close? I don’t think so.’ A reddit post made an intriguing argument: ‘I think he [Dorian] is the real person after whom the Satoshi persona was named. The coincidence of having a Satoshi Nakamoto living 2 blocks away from Hal Finney’s home is just too improbable to be ignored. Hal and his cypherpunk counterparts intended for this old friendly retired man whose house had been foreclosed by banksters to be the symbolic figure behind the financial renaissance on behalf of all the victims of the modern financial system. Satoshi is Dorian and I think it’s just fine that way.’

It does sound too improbable to be a coincidence. In the second part of this article, though, we’ll explore that idea further – because the reality is, there’s actually a pretty good explanation.

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The bank warns the dollar’s dominance could be coming to an end, and to prepare accordingly. 

JP Morgan has urged its international high net-worth clients to reduce their exposure to the dollar in favour of gold and international currencies. 

The investment bank did not recommend them to buy bitcoin, but the wider effect could be the same. The bank’s CEO, Jamie Dimon, is famous in cryptocurrency circles for denouncing Bitcoin as a scam and then going on to launch JPM Coin. Now, Dimon is inadvertently doing his bit for the crypto world again by warning that the days of the dollar’s dominance may be coming to an end.

The portfolios of its high net-worth clients are exposed to the dollar to the tune of around 80%. The bank’s analysts suggest cutting that by up to half, down to just 40%, replacing it with gold, Chinese renminbi, euros, Swiss franc and even the British pound.

‘The US dollar has been the world’s dominant reserve currency for almost a century,’ the bank’s strategist Craig Cohen wrote. ‘However, we believe the dollar could lose its status as the world’s dominant currency… due to structural reasons as well as cyclical impediments.’

Various currencies have been in the news recently, competing to see which can do worst. China’s Yuan is at a ten-year low, prompting President Trump to renew his accusations of currency manipulation, and urge the Fed to drop interest rates and devalue the dollar in turn. The stock markets have reacted with a sharp ‘correction’ to the trade wars. Meanwhile the British pound has been trading at close to a long-term low in the face of mounting fears of a no-deal Brexit.

Gold, on the other hand, recently hit a six-year high, and bitcoin appears to be correlating well with its own bull run. Max Keiser suggested that confidence in centralised institutions and fiat was at a multi-decade low. 

There is a growing narrative and awareness that the established authorities don’t have the answers, and that putting some money in an uncorrelated and independent asset class could be a very good idea. JP Morgan gave their take on that; the wider market will decide what it means for bitcoin.

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Bitcoin is known as ‘Digital Gold’ due to its scarcity and high value. It’s the safe haven and reserve currency of the crypto world. What about other cryptos, though…?

Bitcoin: Digital Gold. It’s the original form of digital wealth. A store of value that crypto traders seek in times of uncertainty. The ultimate scarce digital asset: don’t be without it.

Litecoin: Digital Silver. Still a scarce asset, though not so scarce as digital gold. It’s more volatile, just like physical silver. It’s more useful as a transactional currency than a store of value, but it has good network effect and isn’t going out of fashion. Totally manipulated, of course.

Ethereum: Digital Plutonium. Really cool. Powerful when handled carefully. Nuclear-scale disaster if you don’t know what you’re doing. Make sure you store it safely. Some wallets are like leaky reactor cores. Yes, Parity. I’m looking at you.

Ripple: Digital Chromium. Shiny shiny shiny!! Look at this, it must be super valuable! I’m so smart for buying a ton of it while it’s so cheap!! Shiny!! Wait, what? There’s 144,633 trillion more tons of this stuff in the ground? Dammit.

BCash: Digital Lead. It’s vaguely shiny, but rather dull. Isn’t worth much, though even lead has its value. But it is rather toxic and frankly you could do a lot better. A bag of this can feel heavy.

Libra: Digital Iron. Utilitarian. Serves a purpose, gets the job done. Useful for making weapons to beat the US government with, though you’d better believe they’re going to beat you back. Nothing particularly special or different, there’s going to be a lot of it, but it’s handy as far as it goes.

Tether: Digital rust. Seems so good, strong, useful. But then you realise that what was once so good is a flaking pile of dirty crap.

BSV: Digital Turds. You can gold plate a turd but it’s still a turd. Just like real turds, there will always be people who have a nasty fascination with digital turds and can’t help playing with them. But they still stink and normal people will avoid them like the plague they are.

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It’s the weekend once again, so here is our regular round up of news, market analysis and Inferno-style fun:

• The perma-bull sees $100k per bitcoin in the medium-term future.
  Max Keiser – BTC could go to $15k this week
• There have been big moves on the market with a rise above $12k – and Max Keiser predicting $15k this week.
  Inferno Tuesday market report
• Reduced block rewards for Litecoin miners raise questions for hashrate and price – with implications for Bitcoin’s own halvening next year.
  Litecoin halvening – what next?
• Bitcoin now represents a proportion of overall crypto market cap not seen for two and a half years.
  Bitcoin Dominance at 70%, could hit 80%
  
• TL;DR bump, bump, bumping on the ceiling.
  Friday Inferno market update
• When Sam-I-am persists in pestering a grumpy grouch to buy a bag of alts, the grouch turns abusive and violent – teaching us all that we should buy and hold only bitcoin!
  Green alts and ham

That’s all! We’ll be back next week with more of the same.

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When Sam-I-am persists in pestering a grumpy grouch to buy a bag of alts, the grouch turns abusive and violent – teaching us all that we should buy and hold only bitcoin!

I am Sam

Sam I am

Do you like green eggs and ham?

I do not like green eggs and ham

I do not like them, Sam I am

Then… would you like to buy my alts?

They’re nice and tasty with some salt.

I’m already salty, Sam. 

Your altcoin shilling is a scam.

I’ve bought enough of all your alts,

The fact I have them is your fault!

Hmmm. But how about some XRP?

It’s oversold as it can be!

Sam. I do not want your XRP,

It’s going to crash as you can see.

And I already have a ton

Of worthless alts and that is one!

Well how about some Bitcoin Cash?

Some EOS, TRON, IOTA, DASH?

I know your bags are heavy, sir,

But take whichever you prefer!

Sam. I have them all (no BTC).

My bags are heavy as can be.

In fact you are the very reason.

You told me it would be alts season!

Ah yes, the alts will soon explode!

Back the truck up! Buy a load!

Don’t miss the train, it’s leaving soon.

And we’ll be going to the moon!

Your altcoins suck, you stupid clown

The only road they’re on is down.

And every time they try to climb,

Bitcoin spikes another time!

The perfect time to buy more cheap!

I really think you’d love a heap. 

I’ll do a deal on Doge or BAT

What would you say to one like that?

I think I have a better plan,

For where to put your altcoins, Sam.

Now turn around; this might feel wrong:

I’ll shove them back where they belong!

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TL;DR bump, bump, bumping on the ceiling.

Bitcoin is keeping traders on the edge of their seats, flipping from bullish to bearish and back repeatedly over the course of recent days. 

We have a collection of resistance factors in play in the same area, and bitcoin has now risen to meet these, backed off, and risen again several times. A strong move higher at the beginning of last week ran out of steam in the $12k area.

Firstly, there is the down-sloping resistance line that joins the year high of $13,880 with the next, lower high and then the more recent lower high. Then there’s the 23% fib level just below $12,400. Lastly, the $12k level is already an established support/resistance zone going back to 2017.

Bitcoin has ranged in the zone immediately above $11,500 all week now, with the bottom of that area marked by the 38% fib. RSI readings on the shorter-term timeframes have cooled off. While the daily is still high, it remains below 70. 

In summary, it’s on a knife edge. Bitcoin could go either way, and traders are waiting for the signal they need to take their position. Whichever happens, when it does go one way or the other, it’s likely to go hard.

There are reasons to be short-to-medium term bullish. Bitcoin Dominance continues to trend upwards, almost touching 70. The crypto world as a whole is expecting more from bitcoin and positioning accordingly. Meanwhile the key moving averages are slowly moving upwards, with the 50-day MA just under $11,000. These will act as further support as they rise.

But with bitcoin, you can never discount the wildcard, and there has been lots of stop-loss hunting going on, as suggested by the fast moves within a relatively narrow range. Bots programmed to push the market around to margin-call other traders have been at work, pending the breakout up or down. It’s quite possible we’ll see another major fakeout or shakeout – a big move up or down, followed by an opposite and even larger move. 

But this correction phase has now lasted over 6 weeks. We can expect resolution soon. $8,000 or $13,000–$14,000 is on the cards soon (and if you believe Max Keiser, $15k).

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Bitcoin now represents a proportion of overall crypto market cap not seen for two and a half years.

The bitcoin rally that started in April caught almost everyone off-guard. And while many of the community have experienced previous parabolic rallies, this one is different.

This time, all eyes are on BTC, right from day 1. In the past, the alts have often been dragged along for the ride – some gaining significantly in BTC terms, even as BTC gains in USD terms. The result has been a kind of leveraged increase. 

Take 2017, for example. A look at the Bitcoin Dominance chart shows what happened. The alts rally essentially had three stages. In the first, which started in March 2017, Bitcoin lost market share. Alts gained in BTC terms, going from around 15% of the market to over 60% just three months later. In the same period, bitcoin tripled in price from around $1,000 to $3,000. That’s (roughly) a 10x increase for alts.

Then there was a correction phase for the alts in BTC terms, as bitcoin’s rise accelerated. Over the next six months, Bitcoin Dominance rose back to 60%, as the #1 currency went into a parabolic rise. And then the final phase. Bitcoin topped out at $20k and money rushed into underpriced alts. By January 2018, Dominance was down to 33% as a result.

It’s been trending upwards ever since, the alts atrophying market share back to Bitcoin. And when bitcoin went parabolic earlier this year, it gained in Dominance too, just like in the second phase of the previous bull market.

Right now, Dominance stands at almost 70%. There’s no sign of it stopping yet, either. The direction of movement is very clear, and until the market has some sense that bitcoin’s long-term rise is ending, there’s no reason for money to go back into alts. Max Keiser has suggested that Dominance could hit 80% – close to its long term level, before the alts explosion of 2017. That would mean yet more pain for the alts, many of which are down at BTC lows, even if bitcoin’s rise has meant they maintain or gain dollar value.

The alts aren’t dead, like Keiser says, but many are on life support. It could be a long time, if ever, before they reach their all-time highs. Bitcoin is the king, and until it shows signs of stopping, that’s where the attention is. Given this rally is just a few months old, it could be a while to go yet.

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Reduced block rewards for Litecoin miners raise questions for hashrate and price – with implications for Bitcoin’s own halvening next year.

Litecoin hit a major milestone earlier this week, with its third halving. Block rewards fell from 25 LTC to 12.5 LTC. Like Bitcoin, Litecoin halvings happen every four years, so the next one will take place in 2023. 

Litecoin is worth watching because it often signals what Bitcoin will do. It’s not exactly the same as Bitcoin, of course. But Litecoin is a large, well-established proof-of-work network, with a large trading community and high liquidity. So it’s a reasonable way of gauging Bitcoin’s future moves.

Litecoin has a total supply of 84 million LTC – four times the supply of Bitcoin. 63 million, or around three-quarters of these, have now been mined. With 12.5 new LTC being created every 2.5 minutes, that’s 2.6 million new LTC per year, or a little over 4%.

Litecoin and Bitcoin

Since block rewards are cut in half, it’s reasonable to expect some smaller miners to turn off their rigs – it becomes uneconomical to mine unless the price rises to compensate for the reduced supply. Just after the halving, Litecoin creator Charlie Lee tweeted,’Since the halving, 12 blocks have been found in 17 minutes. Seems like miners have not shut off their hashrate at all. Instead, we are mining at a rate of a block every 1.4 minutes on average, which is much faster than the expected 2.5 minutes. Litecoin network is healthy!’

It’s still early days, but can we gain a picture of what’s happening right now? And whether the same might occur for Bitcoin at its own Halvening in May 2020?

Firstly, price spiked around the halving itself, before dropping sharply. Overall, though, LTC is up over 200% in USD this year, even if it’s down in BTC terms.

Hashrate does seem to be holding steady. It’s still a little early to know for sure, but it appears that most miners have factored in the change. No doubt some will go offline in the coming weeks, but for now, little seems to have changed.

All of this suggests that miners and traders have been planning well in advance. The reduction in block rewards was priced in over a period of around 6 months. 

If we see the same for Bitcoin – if – then that looks like a major Christmas rally could be on the cards, and the network will remain strong post-halving.

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