BITCOIN UPDATE II
As my previous post pointed out (www.russell-clark.com/p/bitcoin-update) - short interest in bitcoin has mainly been squeezed out, and further appreciation would need to be driven by value creation. Since the last update at the beginning of the month, there has been no increase in turnover in bitcoin.
Short interest in bitcoin, like meme stocks GME and AMC has also fallen dramatically, and we have seen all bitcoin, GME and AMC all lag the Nasdaq in recent months. As the last note pointed out, short squeeze potential has been greatly diminished. However, there is also a destabilisation in the relationship of bitcoin to and the two largest stablecoins, Tether and USD Coin. Stablecoins act as a gateway for investors from fiat to crypto investing. While a little hard to see in the graph below, the market cap of tether and USD Coin began to rise in late 2020, BEFORE bitcoin rallied 500%. I think this is a sign of rising liquidity in the cryptocurrencies, which is bullish. On that basis, with tether market cap rising to new all time highs in recent months, current weakness in bitcoin is a buying opportunity.
However, when we look at volume traded in tether and USD coin (again from coinmarketcap.com) we find that volume has collapsed in bitcoin, to levels seen at much lower bitcoin price.
If bitcoin is a speculative asset - then the combination of falling volume in both bitcoin and stablecoins, and the lack of short interest is a very bad combination. If bitcoin generates its value from being a distributed network, and value grows with adoption, then none of the above is important at all. I don’t know which is correct, but I am fascinated in what happens from here. Interesting times.
Have updated the post to include USDC volume with Tether - makes no difference to conclusion
Hi Russell,
I watched something the other day that I found interesting - a valuation model that Raoul Pal developed that appears to work not only for BTC but also for other crypto assets. It's a metcalfe's law analysis that suggests that value grows along with adoption so long as people are actually transacting. He explains it & shows the charts in this vid at 13:40-16:00: https://www.youtube.com/watch?v=OAA33NL3mBk&list=PL33zxjMywve1AS0EDTNHHUt0pi9PZHF5C&index=37
Being a lawyer, it's not within my skillset to analyse this properly, but from what I understand, as long as adoption continues, the price should continue to rise over time (makes sense). However, not sure what happens when network adoption starts to plateau and/or transacted value on the BTC network stops growing (for example if transactions move to lower cost solutions like the layer 2 lightning network). Some have suggested that at the adoption saturation point the price just plateaus.
I would be interested in your thoughts on Raoul's model (appreciating though that your time is valuable and your focus is probably more on other things...).
With thanks
MK