Investors Turn to Fundamentals as GBTC Plunges to a 9% Discount

Bitcoin’s blockchain data is our linchpin as it reports the vibrancy of blockchain activity. It has always been the case that a growing network has coincided with a rising bitcoin price and vice versa. That said, the past few months have seen another force dominate events.

Bitcoin fund demand versus miner selling pressure

Source: Bloomberg; ByteTree Asset Management. 30-day change in all known Bitcoin-only funds holdings in BTC less sales from miners since 2016.

The Grayscale discount widens

Source: Bloomberg. Grayscale Bitcoin Trust with net asset value. Lower chart premium/discount to net asset value past year.

On-chain transaction value (TV$)

Over the years, the price of Bitcoin and the TV$ have remained close. This deviated in late 2020, with price and TV$ becoming disjointed. TV$ recently touched $90bn in a single week, which is the highest level on record. This has turned down to $53bn at the time of writing.

Source: ByteTree Asset Management. Total on-chain transaction value and the Bitcoin price past year.

Bitcoin Fair Value

TV$ is closely linked to price, and so we can calibrate the two in order to estimate the fair value for Bitcoin. That means a historical best fit is calculated to better understand the link. At ByteTree, we use the past two years of historic data, which ensures the relationship is regularly refreshed. The link between TV$ and price today is not quite the same as it was in 2013, but it is surprisingly close.

Source: ByteTree Asset Management. Fair value and the Bitcoin price past year.

The Bitcoin Premium

Just as GBTC has a premium or discount in relation to intrinsic or net asset value, the same method is used to measure the gap between the Bitcoin price and ByteTree’s fair value. That is currently showing an 80% premium, which is the highest reading since this rally began in October.

Source: ByteTree Asset Management. Fair value and the Bitcoin price past year.

Velocity

We have recently seen velocity fall to low levels. This records the number of times a typical bitcoin circulates within the network each year. The current reading of 285% is extremely low by historic standards.

Source: ByteTree Asset Management. Bitcoin network velocity past year.

Fees

The network fees have also risen significantly since October, from $5m to over $50m a week, boosting the average transaction fee to $7. This high transaction cost shows, once again, how excessive fees choke off network demand. Velocity, shown above, has fallen as fees have risen. This is repeated every cycle.

Source: ByteTree Asset Management. Fair value and the Bitcoin price past year.

To avoid the pain, check the chain

Like many Bitcoin enthusiasts, I look at these charts every day of my life. Sometimes they aren’t saying much, but sometimes the answers leap off the page. That is how I see things today. The price is significantly ahead of events, and the levels of activity are turning down.

Applied data for digital asset investors. ByteTree provides real-time data, fundamentals, technical and deep blockchain market analysis for Bitcoin, and more.

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