Forbes: Wondering what's next for Bitcoin? Focus on these 5 indicators

Coming out of a three-year bear market, bitcoin has been one of the best-performing assets this year. Compared to other macro assets, Bitcoin has outperformed its peers in traditional financial markets. Earlier this year, prominent hedge fund manager Paul Tudor Jones of Tudor Investment Corporation made a high-profile announcementBitcoin is 'that fastest horse' in the current macro environment, and Bitcoin has played its part, breaking $17,000 so far this week, up 148%.

Bitcoin price action is erratic when viewed on short time frame charts as speculative demand drives price volatility (highly leveraged derivatives enable short-term speculation). However, looking at a longer time frame, it is clear that Bitcoin has outperformed since its inception and its long-term uptrend remains intact.

At the end of the day, the basics of it are,The price of Bitcoin is a function of supply and demand. Bitcoin's public blockchain can present data that can be analyzed and publicly viewed. While it is difficult to predict Bitcoin’s short-term price action, on-chain and off-chain indicators can provide clues about larger trends and the asset’s position in the current market cycle.

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1. Exchange bitcoin balance

The vast majority of trading activity takes place on exchanges, where ecstatic traders and speculators place cryptocurrencies in a convenient location for rapid price swings and market movements.

As shown below,

As shown below,Over the past few months, Bitcoin has flooded exchanges at the fastest pace in its history.secondary title

2. Focus on Bitcoin allocated by large companies

Michael Saylor, CEO of software firm MicroStrategy, made waves across the cryptocurrency industry by announcing that his firm had completed $425 million in bitcoin purchases this summer.

Others such as Square followed suit with a $50 million investment, roughly 1% of the company's total assets.Earnings in public companies tend to have a long long-term lifespan, and the accumulation of bitcoins on a company's balance sheet further reduces the available supply.

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3. Google Search Interest

Not surprisingly, as Bitcoin peaked at $20,000 in late 2017, Google searches for the term "bitcoin" skyrocketed. Notably, Google searches are only 10% of their 2017 peak, even though Bitcoin is approaching the same price threshold. This suggests that retail investors are not driving Bitcoin's current price action, but institutional investment is leading the rally.

Such lackluster Google search interest may indicate thatsecondary title

4. Futures perpetual swap funding rate

First proposed by BitMEX and quickly embraced by the wider community of cryptocurrency traders, perpetual swaps are derivative contracts, similar to futures contracts, but without an expiration or settlement date.These contracts are unique to the cryptocurrency space and offer unparalleled leverage, up to 100x on some exchanges.Extreme leverage can lead to wild volatility in the short term, as traders who make mistakes can liquidate their positions and be forced to buy or sell assets inappropriately, increasing the magnitude of price swings.

The perpetual swap financing rate balances the demand for the contract between buyers and sellers so that its price matches the underlying asset, which is what one party to the transaction must pay to its counterparty. If the funding rate is positive, the trader who is long (expecting the price of Bitcoin to increase) will pay the trader who is short (expecting the price of Bitcoin to decrease); if it is negative, the trader who is short will pay the long.

Sustained positive funding ratios suggest that most leveraged traders are long trades, the market may be overextended, and any sharp price downside could lead to forced liquidations and huge downside sell-offs.

In the post-March Bitcoin bull market of this year, the perpetual swap funding rate has only remained slightly positive, currently around 0.005%. This shows that long-short leveraged traders are quite balanced, and the current move is that there is demand to buy spot Bitcoin.secondary title

5. Effective supply of BTC

As shown below,

As shown below,Bitcoin's one-year effective supply has been on a downward trend since early 2018. The current one-year effective supply is 38%, and the two-year effective supply is 56%. This means that more than 60% of the available supply has not moved in the past year, and more than 40% of the supply has not moved in the past two years.

Despite Bitcoin’s volatility, Bitcoin holders are refusing to sell, and the trend appears to be continuing.The original text comes from the English version of Forbes, compiled by Blockchain Knight, the English copyright belongs to the original author, please contact the compiler for Chinese reprint.

The original text comes from the English version of Forbes, compiled by Blockchain Knight, the English copyright belongs to the original author, please contact the compiler for Chinese reprint.