ByteTree Market Health Update; Issue 44

Bitcoin still quacks like tech

Source: Bloomberg. Bitcoin, S&P equal weight (old world proxy) and NY FANG+ (new world proxy) 2020 year to date rebased to $100.

Bitcoin and the small caps

Source: Bloomberg. As described since 2015.

Altcoins are not a store of value

Source: Bloomberg. As described since 2018.

Monero bucks the trend

Source: TradingView. Monero since 2017.

ByteBox

“Thanks for getting the data back up and running — very interesting now that it has been [re-]scrubbed. If the other set of data was too bullish, do you think these values are too bearish or ‘just right’?”

Ironically, it doesn’t matter very much whether the absolute level of “spend” is right or wrong, provided the changes are consistent with economic activity. If we record $100, when it is actually $1,000, that’s fine as long as our $200 meets the blockchain’s $2,000. It is the consistency that is most important. That said, the new numbers are around 15% lower than the pre-August readings as we have stripped out more change than previously. No one knows what ‘just right’ looks like because you have to make assumptions. But we are confident that our new spend data is much closer than ever before.

Why not go short in a bear market?

The aim of the network demand strategy is to identify, and therefore avoid, financially devastating bear markets. The strategy, therefore, reduces risk, while also boosting returns by preventing losses. The Bitcoin long side is so profitable over time that I’m not sure you need to milk out the short side as well. Clearly, you could go short if you wanted to, but that is an entirely different proposition which increases risk when our aim is to reduce risk in this strategy.

Bitcoin is most volatile when you want to short it

Source: Bloomberg. Bitcoin and 360 days realised volatility since 2013.

Professional short sellers struggle

Source: Bloomberg. HFR Short-Bias Index 2005 to present.

“[ByteTree is] underrated and is an enormously helpful resource — thank you for freely sharing”

Thank you for saying so. It probably won’t always be free, but certainly parts of it will be. The data is designed around economic demand as opposed to intellectual curiosity, and the smarter investors recognise that.

When will crypto become part of the formal financial system?

Central banks will embrace stable coins relatively soon. Although the current insurers aren’t angels, the mechanism is far superior to the current system (SWIFT etc.). I believe this technological step forward will develop relatively quickly, with the established commercial or central banks becoming the issuers.

Network Demand Model

The score remains 4 out of 6, with velocity and short-term spend giving bearish signals. A material weakening of traffic seems unlikely, but the tide is going out slowly, and the next shoe to drop will be short-term fees. Fees have already fallen from $10m per week to $5m, but that is still technically “healthy” and appears to have stabilised. If fees drop another 20% or so, then that will reflect longer-term network contraction and ByteTree models will turn bearish.

Fees stabilising

Source: ByteTree. Fees and average fees over the past quarter.

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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