21metrics weekly: Price Discovery
Bitcoin Surges to a New ATH
This week represents a historical moment, as bitcoin's spot price surged above 72 000 US dollars, meaning the highest valuation ever. After bypassing the previous all-time high of 2021, bitcoin is now entering uncharted waters.
Andreas Steno Larsen analyzed the market on Monday and pointed toward the US liquidity surge, showing no signs of stopping. According to Larsen, factors like the UK's embrace of crypto, strong inflows into spot bitcoin ETFs, and Ethereum's upgrade fuel unstoppable bullish momentum in the industry. Larsen also sees quantitative easing positively impacting the digital asset market.
Source: Steno Research
From a purely technical perspective, bitcoin's recent surge above the $72K level detaches it from the 2021 cycle's resistance zone, and represents a new paradigm in the cryptocurrency's history. Bitcoin's ascent from the technical inflection point of early 2023 towards the price discovery cycle of 2024 has been impressive.
Sources: Timo Oinonen, CryptoQuant
Has Retail Entered the Market Yet?
The newly launched repertoire of eleven spot bitcoin ETFs has clearly dominated the market in early 2024, and emphasized the institutional side of bitcoin. Despite of the recent institutional appetite, in historical context bitcoin has been heavily influenced by retail buyers.
Compared to the 2017 cycle, the market doesn't show clear signs of retail FOMO (fear of missing out) yet, however Google Trends data shows an elevated interest compared to the bearish year of 2022.
The 1000 percent performance of Solana (SOL) last year shows early signs of a developing altseason. Somewhat surprisingly Solana seems to be seriously challenging Ethereum as the de facto DeFi platform of the future, facilitating the launch of new tokens and NFTs.
Source: nsquaredcrypto
Michael Saylor in Accumulation Mode, Again
Profiled as one of the leading Bitcoin institutions, MicroStrategy (MSTR) announced on Monday that it has increased its balance sheet by 12 000 new bitcoins. These recent acquisitions expand the company's balance sheet to 205 000 units.
In the rapidly growing spot ETF market, BlackRock's iShares Bitcoin Trust (IBIT) now holds 215 626 bitcoins, overtaking MicroStrategy's balance sheet. MicroStrategy, known as the unofficial bitcoin ETF, may need to defend its position amid the crossfire of new investment products.
MicroStrategy employs a dollar-cost averaging (DCA) strategy in its purchases, but cyclically weights its buying program. When spot prices sharply declined in 2022, the company's purchases were modest at 8109 bitcoins, while in 2023, acquisitions rose to 56 650 units. On an annual basis, the growth of MSTR's buying program from 2022 to 2023 was an impressive 599 percent.
Source: 21metrics
Previously, Preston Pysh has viewed MicroStrategy's buying program as a speculative attack against the dollar. The company's loan arrangements ultimately rely on unlimited fiat currency, which is borrowed for the purchase program of a limited supply asset class (i.e., bitcoin). Scaled up, this model implies the weakening of the dollar as bitcoin continuously strengthens.
Pysh has likened the buying program to George Soros's famous attack against the Bank of England (BoE), where he shorted the pound (GBP) by nearly a billion units. The BoE central bank was believed to be close to collapse at that time.
Source: Libertariman
MicroStrategy's MSTR stock is up 155,28 percent year-to-date, and 683,13% over the past 12 months. The company currently has 16 968 130 shares, indicating a $873,25 bitcoin value per share. As MSTR is currently trading at $1484,23, the premium per share is at 69,97 percent.
The Escalating ETF Market
While bitcoin's halving, approaching within 38 days, represents a supply shock, the spot ETF market effectively acts as a demand shock to the asset class. Bitwise's data indicates 881 new bitcoins produced by miners on Monday (11.3), while spot ETFs purchased 14 706 bitcoins. This setting tells about an almost seventeen fold bitcoin demand compared with the daily supply.
Source: Bitwise
BlackRock's iShares Bitcoin Trust (IBIT) continues to maintain its dominant position, increasing its bitcoin balance sheet to 215 626 units. Closely trailing the IBIT, Fidelity's Wise Origin Bitcoin Trust (FBTC) now holds a total of 128 526 bitcoins.
The spot ETF sector is heating up rapidly, and it's considered to be one of the key value drivers behind bitcoin's parabolic climb. At the same time, the competition between ETF issuers is escalating, indicated by VanEck's recent zero management fee policy.
VanEck will drop the fee until 31.3.2025, unless the exchange-traded fund reaches $1,5 billion in assets under management (AUM) before that date. If assets surpass $1,5 billion before then, the company will charge a 0,2% fee, which is what it has been charging until the change.
Source: 21metrics
Modeling Bitcoin with Power Law and S2F
Developed by Harold Christopher Burger and Giovanni Santostasi, bitcoin's power law model has recently gained massive attention. It essentially is a predictive model developed to forecast bitcoin's price trajectory.
Unlike the ordinary linear models, the power law forecasts bitcoin's long-term price appreciation on a log scale, meaning that both price and time scale exponentially along its Y-axis and X-axis.
The power law model forecasts a 100 000 USD valuation level for bitcoin by the end of 2024, and a $142 000 level by the end of 2025, which both represent reasonable spot price targets.
Source: BitBo
A rival model to the power law, bitcoin's famous stock to flow (S2F) model, measures the asset's scarcity, as the stock refers to the total number of bitcoins in circulation, while the flow represents the new supply entering the market through mining.
Bitcoin's stock-to-flow ratio has historically increased over time due to its predetermined issuance schedule, particularly after each halving event. This gradual reduction in the rate of new supply has been correlated with significant price increases in the past.
The stock to flow model forecasts a 340 000 USD valuation level for bitcoin by the end of 2024, and almost a $1,3M level by the end of 2025. While the model is approximate, these price predictions seem somewhat unrealistic.
Source: PlanB
While there's a clear dichotomy between the power law and stock to flow models, they can be seen to complement each other. The stock to flow mirrors bitcoin's scarcity, while the power law gives a more plausible spot price forecast.
El Salvador to Lure Bitcoiners and Institutions with Zero Tax Policy
El Salvador, the nation led by Nayib Bukele, has eliminated income tax on money coming into the country from abroad. The country's congress recently reformed the tax law for international investments and money transfers, dropping the rate from 30% to 0%.
El Salvador is determined to become one of the global "crypto hubs" that offer bitcoiners and institutions generous benefits. In Europe, the Swiss city of Lugano is profiling itself as a crypto hub, with bitcoin, USDT, and LVGA payments allowed alongside its area. Additionally, Lugano is building a 100 million Swiss Franc (CHF) investment pool to fund fintech-related ventures.
