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Crypto Report - Bitcoin metrics bullish but keep stops tight

As we have reported to members, Bitcoin and other alt-currencies such as the precious metals have had actionable entry points since earlier this year. Governments have also been buying gold at record levels. Concerns of global fallout from devaluating fiat currencies is at the forefront of this buying. In consequence, the current uptrend could persist though remains a higher risk play for less conservative investors as there remains considerable resistance around the 32k level. We also have the possibility of sticky inflation which the Federal Reserve has said would keep interest rates elevated for a prolonged period. Markets tend to grind in sloppy sideways patterns or trend lower during periods of low liquidity. With the sharp yield curve inversion between the 2y and 10y Treasurys, it is only a matter of time before recession hits.

But for now, bullish Bitcoin metrics remain intact. First, the number of Bitcoin addresses with a non-zero balance continues to hit new highs. The same goes for larger addresses with up to 10 BTC. This is in keeping with the exponential rate of global adoption as many use it for numerous reasons such as to move funds to relatives in third world countries, convert their plummeting local currency into a more stable fiat, move offshore more than the amount allowed by their respective government, or as a lifeboat investment seeing as the devaluation of all fiat currencies has accelerated over the past few years.

One important upgrade to Bitcoin is Taproot which batches multiple signatures and transactions together, making it easier and faster to verify transactions on Bitcoin's network. The Taproot upgrade enables smart contracts which opens the door to decentralized finance (DeFi) for the top cryptocurrency. 

Working alongside Taproot, Ordinals also help with privacy by allowing users to combine multiple transactions into one, making it harder for anyone to trace the individual transactions. This is especially important for people who want to keep their financial transactions private and avoid being targeted by hackers or thieves.

Additionally, Taproot and Ordinals help to reduce the transaction fees associated with Bitcoin transactions, which can be quite high at times. By making transactions more efficient and streamlined, Taproot and Ordinals help to reduce the amount of processing power and time needed to process each transaction, which ultimately leads to lower fees for users.

Ordinals also enables the creation of NFTs for Bitcoin by attaching data to an individual Satoshi on the base Bitcoin blockchain. Ordinals use an arbitrary but logical ordering system called ordinal theory to give each individual Bitcoin satoshi a unique number. They then become non-fungible. They work without changes to the Bitcoin protocol, don’t require any extra layers, and are backward compatible with the network.

Overall, the use cases of Bitcoin's Taproot and Ordinals are focused on making the network more secure, private, and efficient for users while also enabling the creation of smart contracts and NFTs.

Another metric showing that Bitcoin put in at least a temporary bottom is the Puell Multiple which is a metric used to gauge the relative value of Bitcoin, based on the average miner's revenue and the size of the Bitcoin network. To understand the Bitcoin Puell Multiple, it's important to know that miners are the people who process Bitcoin transactions and add new blocks to the Bitcoin blockchain. They receive a reward in the form of new Bitcoins for their work, which is then sold on the market to cover their operating expenses and generate profits.

The Puell Multiple takes the ratio of the daily issuance of Bitcoins (the amount of new Bitcoins that are created and given to miners each day) to the 365-day moving average of the daily issuance. This gives an idea of how much revenue miners are generating compared to the historical average, with a higher multiple indicating that miners are earning more Bitcoin than usual. Technologies such as Ordinals provide another way for miners to profit. 

Historically, when the Puell Multiple is high, it has been a sign that Bitcoin is overvalued and may experience a price correction, as miners may be incentivized to sell more of their Bitcoins on the market. On the other hand, when the Puell Multiple is low, it can be seen as a sign of undervaluation, with miners potentially holding onto more of their Bitcoin earnings and reducing the selling pressure on the market.

When the multiple is in the green zone, Bitcoin has historically been near major lows. 

Bitcoin's Lightning Network is a layer-2 solution on the Bitcoin blockchain. Layer-2 solutions are a key component for scalability in blockchains. The Lightning Network provides the following advantages over the native Bitcoin blockchain.

  • Scalability
  • Speed
  • Micropayment support
  • Low energy requirements.

With major companies such as Strike which is taking aim at Visa and Mastercard by way of its use of Lightning Network, the capacity of Lightning Network should reach new highs.

All that said, Bitcoin has never been through a typical recession. In fact, from late 2008 up until 2022, the Federal Reserve followed by global central banks were adding to M2 money supply, with brief periods of contraction such as in 2018 which created a major bear market in cryptocurrencies. 2022 was the first time we saw a prolonged contraction in M2.

Bitcoin therefore remains a risk-on trade that remains susceptible to economic contractions and tight money conditions so always keep your stops intact.

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This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2024 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.
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