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Bitcoin Price Analysis - Miners squeezed by dropping prices

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Bitcoin (BTC) is a decentralized digital currency released by Satoshi Nakamoto in 2009. The market cap is currently US$130 billion, with US$4.57 billion traded in the past 24 hours. The current spot price is down 64% from the all-time high established in December 2017.

On-chain metrics have decreased around 4% over the past week, with average transaction values down nearly 7%. Miner revenue and the number of Bitcoin created have increased 12%, reflecting an increase in hash rate since the previous difficulty adjustment.

The BTC network is secured by the SHA-256 consensus algorithm. Both the network hash rate and network difficulty had posted record highs week over week since late-June. This consistent increase was likely due to both new ASICs being manufactured as well as relatively cheap electricity available in China and elsewhere in the world enabling older ASICs to become profitable. As BTC spot prices began to decline, the hash rate increases slowed slightly, leading to a temporary and volatile hash rate plateau.

Average block times are currently just under 10 minutes, with an estimated +2.5% difficulty change at the next adjustment. Network difficulty adjusts up to +/-25% every 2,016 blocks. As hash rate decreases before a difficulty adjustment, block times increase. As hash rate increases before a difficulty adjustment, block times decrease.

BTC inflation stands at 3.84% and is set to decrease in a stepwise fashion over time. The next block reward halving is estimated to be 155 days from now, around May 2020, when annual inflation will decrease to 1.80%. As miners add hash rate to the network, and maintain a block time less than 10 minutes, the estimated time until the next halving will continue to slowly decrease.

Source: BitInfoCharts

Twenty-three new SHA-256 ASICs have been released thus far this year, with two released by Bitmain this month. The most profitable miners are currently the; Bitmain Antminer S17+, ASICminer 8 Nano Pro, MicroBT Whatsminer M20S, and Bitmain Antminer S17e.

Renewable energy sources around the world, including hydroelectric and geothermal power, bring electricity prices for most mining farms to US$0.04 cents/KWh or lower. Excluding the MicroBT Whatsminer M3 and M3X, and the Bitmain Antminer S3, S5, S7, and V9, all ASICs are currently profitable at this electricity price point. If electricity prices suddenly rise in areas with large mining farms, the hash rate may continue to drop in line with BTC price, as more and more ASICs become unprofitable.

Source: asicminervalue

Overt ASICBoost use continues to post record highs, and currently accounts for 61% of all blocks mined. This competitive mining advantage will continue to squeeze out miners who do not leverage the software efficiency increase. Overt ASICBoost has no detrimental effects on the network and makes mining more profitable by lowering energy use. Other network factors that influence mining profitability include; price, block times, difficulty, block reward, and transaction fees.


On the network side, both the on-chain transactions per day (line, chart below) and average transaction value in USD (fill, chart below) have risen significantly since April 2018 and February 2019, respectively. The current record for transactions in a single day was set in December 2017, at 500,000. The current record for average transaction values in USD was set on July 24th, at US$51,000.

Since July, both of these metrics have continued to decline, with transactions per day currently near 310,000 and the average transaction value at nearly US$9,000. Unconfirmed transactions have been mostly been held below 20,000 since August, during peak congestion, and have dropped below 5,000 during off-peak times (not shown).

Source: CoinMetrics

The number of transactions using SegWit breached 60% for the first time since the upgrade was implemented, and currently accounts for over 50% of network traffic. This significant increase was largely due to Veriblock (VBK) implementing SegWit. VBK currently accounts for 5.8% of all on-chain transactions. Binance, the biggest exchange by users and trading volume, has yet to adopt SegWit addresses.

Segwit, or BIP141, activated on August 23rd, 2017 via a user-activated soft fork. The change allows individual transactions to occupy less block space than a non-SegWit transaction, and provides an effective block size limit of roughly 2.2MB. Although both non-SegWit and SegWit transactions can be sent over the network, SegWit users pay less in accumulated fees to achieve the same number of transactions.


The average block size (fill, chart below) increased substantially from April 2018 to June 29th, due to both an increase in on-chain activity as well as VBK, which secures other blockchains through the Proof of Proof consensus mechanism. Since June 29th, the average block size has dropped from nearly 2 MB to 1.47 MB.

The average transaction fee (line, chart below) is currently US$0.53, despite a growing block size and increased on-chain use since the record high fee of US$62 in late December 2017. Both the lack of zero-fee unconfirmed transactions and increased scalability have kept fees substantially lower than late in 2017.

Additionally, transaction batching and the increasing off-chain capabilities of Lightning Network have decreased on-chain transaction bloat. Transaction batching is most effective for entities with a high amount of on-chain transaction outputs, such as miners and exchanges.

Source: CoinMetrics

The 30-day Kalichkin network value to on-chain transactions ratio (NVT) decreased from July to late-October and is currently 71 (line, chart below). While Kalichkin's NVT does not account for inflation or the use of off-chain transactions, which would decrease the overall NVT ratio, the metric remains in the upper-third of the historic range.

The three previous highs in NVT, in February 2011, October 2014, and October 2018, were all followed by bearish price moves. Based on this metric, the probability for a local top in price will increase if another local NVT high is reached. In December 2018, NVT bottomed out at 46 before a price reversal.

Monthly active addresses (MAAs) also increased substantially, from January to mid-July (fill, chart below). MAAs grew to 850,000, from a yearly low of 550,000, and are currently around 711,000. Daily active addresses (DAAs) surpassed one million on June 14th, 26th, and 28th. June was the first-month that DAAs exceeded one million since February 2018. On December 14th, 2017, DAAs exceeded 1.28 million.

The Bitcoin network has far more active addresses than any other blockchain. A large uptick or sustained increase in DAAs should be seen as a bullish indicator for market prices as it suggests an increase in on-chain BTC demand. As off-chain transaction facilities increase, daily active addresses may stagnate or decline over time.

Source: CoinMetrics

The market cap divided by the realized cap (MVRV) is another crypto-native fundamental metric used to asses overbought or oversold conditions. Realized cap approximates the value paid for all coins in existence by summing the market value of coins at the time they last moved on the blockchain.

Historically, periods of an MVRV less than one have represented oversold conditions, whereas periods of an MVRV greater than 3.5 have represented overbought conditions. Of the MVRV levels above four since January 2013, all three have coincided with record highs in price. Currently, MVRV is 1.31 and falling, suggesting the possibility of a bullish bias.

Source: CoinMetrics

Analyzing the age of unspent transaction outputs (UTXOs), or unspent coins, can also provide some insights into price movements. Spikes in newly moved coins tend to correlate with local tops or bottoms in market values, and can represent euphoria or capitulation. Coins which have not moved recently are represented in cooler colors wheres as coins on the move are represented by warmer colors.

Coins that have not moved in more than five years (dark blue) account for 21.62% of the circulating supply, or 3.91 million BTC. The six to twelve month age band (yellow), or coins not moved since March 2019 - November 2018, holds the next highest distribution at 14.09%. The one to the three-month band (orange) had gained 5% since April 2019, but has fallen in recent months. Historically, local tops in price have occurred when the one to three-month band, currently 8%, has represented more than 15% of all circulating UTXOs.


Turning to developer activity, Bitcoin Core version 0.18.1 was released on August 9th and provided various bug fixes and performance improvements. Future potential protocol improvements in the pipeline include Schnorr signatures, Taproot, and Graftroot.

Schnorr signatures and signature aggregation also bring the potential for storage and bandwidth reduction by at least 25%. Taproot and Graftroot improve upon Merkelized Abstract Syntax Trees (MAST) which offers three benefits; smaller transactions, more privacy, and larger smart contracts.

Earlier this year, Pieter Wuille of Blockstream also unveiled plans for miniscript, a simplified way to write Bitcoin code. The current version, Script, is complex and difficult to use for those not intensely familiar with the language.

According to Wuille, miniscript allows a user to write “[some] Bitcoin scripts in a structured, composable way that allows various kinds of static analysis, generic signing, and compilation of policies.” Miniscript is in the early stages of development and is currently being tested internally at Blockstream.

More than 170 developers have contributed nearly 2,000 commits in the past year, mostly on the main repo. Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher developer activity and interest.

The BTC project on Github has two active repos, “bitcoin” (top chart, shown below) and Bitcoin Improvement Protocols, “BIPs” (bottom chart, shown below).

Source: Github - bitcoin

Source: Github - bitcoin bips

BTC exchange-traded volume over the past 24 hours has been dominated by Tether (USDT) trading, with the United States Dollar (USD) markets representing 5% of total volume. Tether is a stable coin with a soft peg to the USD. Stablecoins in general currently represent well over 80% of all reported volume over the past 24 hours.

Earlier this year, VanEck-SolidX once again withdrew its BTC ETF proposal from the Securities and Exchange Commission (SEC) review process. All previous ETF proposals thus far have been rejected by the U.S regulator. So far this year, the SEC has delayed decisions on all active BTC ETF applications. However, there are already several BTC ETNs available, from various jurisdictions across the globe, which are seeing increasing volumes.

In place of a traditional ETF, VanEck-SolidX introduced a limited version of a BTC ETF, made available to qualified institutional buyers. The 144a product currently has US$464,000 under management. The Bakkt physically-settled BTC futures exchange launched on September 23rd and has seen increasing volumes over the past two months. Bakkt and the Chicago Mercantile Exchange (CME) will both likely also have a BTC options product released by Q1 2020.

Global over the counter (OTC) volume, from, finished 2018 on a high but has declined since July as BTC spot prices have decreased. Global notional volume has held near or above US$50 million since the beginning of the year. In late May, LocalBitcoins discontinued servicing Iran, likely as a result of U.S sanctions and on June 1st, the service disabled paying for BTC with in-person cash trades.

Latin America (brown) holds the highest percentage of total notional volume, followed by Eastern Europe (orange). The Middle East (yellow) and the Australia/New Zealand regions (grey) hold the lowest notional volume, both posted less than US$1 million in trade volume over the past week. Notional volumes for Venezuela and Columbia stand at US$5.0 million and US$2.3 million, respectively. Venezuela’s central bank recently announced plans to hold BTC within its reserve system.

Source: UsefulTulips

Worldwide Google Trends data for the term "bitcoin" increased dramatically from March to June this year, marking a new yearly high. Since June, search interest has continued to drop, now falling to yearly lows.

The previous increase in search traffic has likely been related to both the sharp increase in price in Q2 as well as mentions from several prominent U.S government officials, including the President of the United States. Throughout the course of 2018, “bitcoin” related searches declined dramatically. Despite the declining interest, the search “what is bitcoin” was the most popular “what is” Google search of 2018.

A slow rise in searches for "bitcoin" preceded the bull run in Q4 2017, likely signaling a large swath of new market participants at that time. However, a 2015 study found a strong correlation between google trends data and BTC price whereas a 2017 study concluded that when U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.

Technical Analysis

On the daily chart for the BTC/USD market, the spot price relative to the 50-day Exponential Moving Average (EMA) and 200-day EMA can be used as a litmus test for the trend. From mid-September until October 26th, the spot price remained below the 50-day EMA. These key EMAs have now crossed bearishly. The 50-day EMA is currently at US$8,000 and 200-day EMA is currently at US$8,500, both should now act as resistance.

Volume Profile of the Visible Range (VPVR) also shows large volume nodes at US$6,500 and US$8,200, which should both also act as support (horizontal bars, chart below). VPVR shows relatively little resistance above the current price level. Additionally, yearly Pivot Points, at US$8,150 and US$13,000, should both now act as support and resistance. If the spot price breaches the nearest resistance Pivot Point, the next historic resistance zone is US$22,000.

The Bitfinex long/short ratio (top panel, chart below) is currently 86% long, with longs increasing significantly over the past month and shorts continuing to decrease since September. A significant price movement downwards will result in an exaggerated move further, as the long positions will begin to unwind. This is known as a “long squeeze.” There are no RSI or volume divergences at this time.

A high timeframe Pitch Fork (PF) with anchor points in January, July, and August 2015 shows price reaching the upper resistance limit of US$14,000 in late June and then returning to the median line (yellow). Throughout any given trend price returns to the median line several times.

The previous price break above the PF resistance led to a run toward the current record high at nearly US$20,000. The lower bound of the PF stands at US$7,000 and represents the last support before significant bearish momentum. This PF also projects a near-term price target of US$12,500 and a long-term price target of US$20,000 by July 2020.

Turning to the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

On the daily chart, Cloud metrics are bearish; price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below Cloud and above the current spot price. The trend will remain bearish so long as the current spot price remains below the Cloud. However, the spot price has pushed far beyond the Kijun and continues to flatten, suggesting the possibility of near-term mean reversion.

Lastly, the opening and expiration dates of the Chicago Mercantile Exchange (CME) BTC cash-settled futures contracts, launched in December 2017, have had a significant impact on price. The CME facilitates trades for the largest portion of derivatives contracts in the world.

In July, the CME saw the highest notional volume ever in a single day for the BTC futures product, exceeding US$1.5 billion. Historically, price volatility tends to increase dramatically near any active contract expiration, as was again the case leading into September 27th. The July 1st to December 27th contract has yielded an excellent short trade thus far, which is similar to the bi-annual contract last year.


Network mining fundamentals have continued to soften over the past month, as several older ASIC miners have become unprofitable at the current difficulty and price levels. However, if mining profitability increases, miners will likely continue to add hash rate over the long term. If BTC prices drop, the hash rate is more likely to stagnate or decline.

Transactions per day and daily active addresses have decreased from local highs over the past few months. Both NVT and MVRV, which are inversely related to on-chain activity, have also begun decreasing over the past few weeks, confirming strengthening on-chain use relative to the Bitcoin market cap.

Technicals suggest an active bear market with a high potential for mean reversion in the near future. Price is below the daily 200-EMA and below the Cloud, consistent with a bear market. However, price’s distance from the 200-EMA and the Kijun suggests a near-term target of US$8,400. If price establishes lower lows, further bearish momentum is likely before a mean reversion.



Josh Olszewicz, Khareem Sudlow