What is the difference between this bull market and 2017? Nine charts to find out
After days of gains, Bitcoin is already very close to the all-time high of $20,000 set in December 2017, which is entirely possible to make us believe that it may return to highs in the next few weeks.
This time around, ICOs are being conducted with little fanfare, and retail investor interest, measured by Google keyword searches, is well below year highs.
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Addresses with a balance of $10 or more
The image below represents addresses that currently own Bitcoin.
The graph, which shows the number of addresses with assets worth $10 or more in bitcoin, is well above levels seen in late 2017, suggesting that bitcoin's supply is becoming increasingly fragmented.
Of course, an address on the chain does not necessarily correspond to a person.
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Open interest in CME Bitcoin futures
Futures open interest refers to the total value of open interest that has not yet been settled.
CME's bitcoin futures product is a liquid bitcoin product on the world's largest derivatives exchange. CME Group is a strictly regulated U.S. registered exchange under the auspices of the Commodity Futures Trading Commission.
Looking at the value of CME Group’s Bitcoin product open positions, there has been a substantial increase since June this year.
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Paid-in Capital Index
Paid-in capital is an alternative to market capitalization designed to take into account the realities of Bitcoin changing hands.
It is priced based on the last time a bitcoin moved on the chain, and because the bitcoin ledger is transparent, we can account for each coin.
The total value of realized transactions today is $129 billion, well above its peak of $90 billion in early 2018. This suggests that Bitcoin has greater liquidity and investors are in no rush to sell.
In late 2017/early 2018, unit prices were higher (Coin Metrics reference rate lists the highest closing price at 00:00 UTC, which was $19,640 on December 16, 2017), but the supply at these scarcity levels decreased. It simply cannot sustain because investors have a cost base well below that threshold and are eager for early profits.
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Bitcoin Options Open Interest
Open interest in an options contract adds up to the value of outstanding options that have not been exercised. While that number is still low in absolute terms, the nascent options market tells us one thing.
The graph above shows that Bitcoin miners now have access to more sophisticated financial products to hedge their exposure, allowing miners to focus on running their operations efficiently.
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Bitcoin Priced Against Other National Currencies
Investors typically track bitcoin's performance in U.S. dollars, but the truth is, much of the world is expressed in its own currency.
Inflationary currencies are a reality for a large portion of the world's population. Bitcoin exchanges in Turkey have seen a huge boost this year as the lira has endured a protracted slide in exchange rates. Currently, Turkey is the 12th most popular country for Bitcoin transactions.
Since 2017, bitcoin trading in local currencies has hit new highs in many countries, including the Argentine peso, Russian ruble, Venezuelan bolivar, Brazilian real, Colombian peso, Lebanese pound, Sudanese pound, and more. These countries alone account for 523 million people.
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Bitcoin held by Grayscale
The number of units held by asset manager Grayscale is a key indicator of Bitcoin enthusiasm. At present, Grayscale has exceeded 500,000 BTC holdings, making GBTC the most popular financial version of Bitcoin.
GBTC is a trust product traded on the OTCQX market. It takes six months for newly created shares to mature, so there is usually a price difference between the market value of the stock and the net asset value (NAV), and the current premium has reached about 17%.
If $100 were deployed to GBTC, then only $83 worth of Bitcoin exposure would be gained.
The huge growth of GBTC in 2020 proves that there is a group of allocators happy to get lower exposure to Bitcoin, even if the exposure is inefficient, investors who are older and less crypto-accepting, still remain strong on the asset interest of.
Based on the above six indicators in this article, the current encryption market is more mature than the previous round of bull market in 2017. Financialization, higher surveillance, more order, and more restraint are strong evidence of higher capital efficiency and greater liquidity.
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Stablecoins float freely
Many friends now think about the current rally of Bitcoin, and believe that stable coins like Tether are somehow responsible for the price.
In general, only individuals with experience in issuing and redeeming stablecoins, as well as in allocating capital in the crypto-asset space, should be considered reliable sources on this matter. Otherwise, it is difficult to understand the dynamics that are happening.
Some recent scholars, including Viswanath-Natraj and Lyons, have found no causal relationship between Tether issuance and Bitcoin price using broader sampling periods. Complementary research by Wang Chun Wei confirms the lack of correlation between Tether issuance and Bitcoin returns.
Real-world experience bears this out: From February 2018 to July 2019, Bitcoin was virtually flat (starting and ending at $11,000), while the supply of stablecoins increased from $2.3 billion to $11.5 billion Dollar.
If the creation of stablecoins has somehow driven the price of Bitcoin, why has the supply of stablecoins increased by 400% while the price of Bitcoin has not changed?
The truth is that the issuance of Tether and other stablecoins (today, the supply of non-Tether stablecoins exceeds $5 billion) should not be understood as purchases or capital inflows, but rather as asset swaps.
Stablecoins are issued when entities with fiat assets on their balance sheets want liquidity in cryptocurrencies. They just convert commercial bank dollars into the same tokenized representation.
Companies that have stablecoin-denominated balance sheets or hold stablecoins as working capital, including market makers, proprietary trading firms, exchanges, venture capital firms, and generally, any business operating in the crypto industry that has a cryptocurrency Valuation expenses.
After the mid-March 2020 crash, many companies shifted their balance sheets from commercial bank dollars to tokenized dollars circulating on public blockchains to be more flexible the next time a similar opportunity arises.
Still, the growth of stablecoins is a positive for Bitcoin, not because of the intrigue surrounding unsecured issuance, but because it means a vastly improved liquidity environment.
Stablecoins create a liquidity pool of stable value without volatility and become the primary trading pair and settlement asset, replacing Bitcoin's former role in that function.
And the evolution of bitcoin as a product, from a reserve asset on exchanges, to a stand-alone monetary asset favored by hedge fund managers and commodity traders.
Finally, capital that exists in tokenized fiat formats tends to enter the cryptocurrency industry. This is because crypto assets are fundamentally more convenient, more global and less burdensome than traditional payment and settlement rails.
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Silvergate's fixed-point network
Another key piece of undervalued financial market infrastructure are banks like Silvergate that serve the crypto industry.
In 2017, especially in the primitive days of the crypto industry, banking relationships are extremely difficult to establish, and only the largest and most credible crypto companies can acquire banking operations.
Today, there are several banks in the US actively servicing crypto businesses: mainly Silvergate, Signature, and Metropolitan.
Additionally, two new entities (Avanti Bank and Kraken Financial) have received charters under Wyoming’s special purpose depository legislation, meaning they qualify for access to the Federal Reserve (while also managing crypto assets on behalf of clients) .
In short, the banking environment, which has long been a serious challenge for crypto businesses, has improved dramatically.
With its publicly traded status, Silvergate's impressive appeal is translucent. One of the flagship of the bank's internal settlement products, the Silvergate Transaction Network (SEN), enables Silvergate's customers to settle with each other.
As the chart above shows, in the third quarter of 2020, SEN processed a whopping $36 billion in transactions.
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Crypto-native credit growth
Another underappreciated story is the widespread use of credit in cryptocurrencies native currencies today.
Like the other phenomena mentioned here, professional intermediaries in the lending space simply did not exist at the end of 2017. Credit allows market makers, arbitrage firms and hedge funds active in liquid markets to be more capital efficient.
The fragmented liquidity environment of the crypto industry means these firms must lock up liquidity on many exchanges simultaneously.
This can make some strategies very expensive from a capital standpoint, which is where credit providers like Genesis and BlockFi come in.
Embedding credit into the crypto industry has had nice practical effects, with tighter spreads and price misalignment between exchanges becoming less common.
Alternatively, any business that uses bitcoin or stablecoins to denominate expenses can benefit from credit facilities.
There are many graphs that can be used to describe the growth of credit, and Genesis, the largest lender, focuses on the loan portfolio of institutions, which is instructive.
To sum up, through the analysis of these nine major indicators and charts, compared with 2017, today's market environment can be seen to be significantly improved.
While the market infrastructure alone is not enough to fuel enthusiasm around Bitcoin, it represents a conduit for capital inflows.
Growth in the money supply is the fundamental catalyst for renewed interest in newer assets like Bitcoin, especially among more serious macro allocators.
Global macro hedge funds and commodity traders are revisiting Bitcoin, not a surge in interest from retail investors.
These are the macroeconomic drivers driving the revival of the crypto industry. This time, Bitcoin is ready.
