Cryptocurrency market trend and investment strategy analysis
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| BITCOIN'S HIGHLIGHTS
On June 9, Bitcoin ushered in a bright moment when El Salvador’s Congress passed a bill making Bitcoin legal tender in the country. El Salvador could become a prime example of the benefits of Bitcoin adoption.
El Salvador is located in Central America. About one-third of Salvadoran families receive remittances from abroad. Salvadorans receive a large amount of remittances in U.S. dollars every year, and the U.S. dollar remittances received rank among the top ten in the world. Currently, money transfers are typically sent through money transfer services such as Western Union. These traditional money transfers carry fees of up to 20% and take days or even weeks to settle.
The Lightning Network utilizes off-chain payment channels and is Bitcoin's Layer 2 scalability solution. If usage in El Salvador continues to grow, the Lightning Network is expected to help scale bitcoin payments and remittances.
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(Figure) Development Status of Lightning Network Main Network
While Strike and other similar services improve the bitcoin remittance process, El Salvador’s bitcoin bill also makes it easier for people receiving remittances within the country — the bill allows taxes and all other liabilities to be paid in bitcoin; bitcoin It would also be excluded from capital gains tax as it would be considered a currency. In a country where 70 percent of the population is unbanked, bitcoin could serve as a means of basic personal banking.
The bill also requires all businesses to accept bitcoin as a valid form of payment. For businesses that do not want to hold bitcoins, a trust needs to be established with a Salvadoran bank to provide an instant means of converting bitcoins into dollars. To that end, the government of El Salvador will set up a $150 million fund to exchange for bitcoin.
The US dollar has been the main form of currency in El Salvador since 2001. While the dollar helps bring some stability, it also effectively outsources El Salvador's monetary policy to the United States. In the long run, monetary policy in the United States cannot be predicted, but Bitcoin can.
Fiat currencies around the world are currently threatened by inflation, but Bitcoin has an annual inflation rate of less than 2% and will continue to decline over time. The number of bitcoin mining rewards is halved every four years until it reaches its maximum supply of 21 million. This predictability and transparency could help El Salvador and potentially other countries rebuild their economies based on Bitcoin.
There are roughly 18.4 million addresses currently holding at least 0.001 BTC — an impressive statistic for a hypersovereign currency, but it’s still only a tiny fraction of the world’s population. As El Salvador begins to adopt Bitcoin on a larger scale, more challenges and opportunities will undoubtedly arise. If the experiment in El Salvador goes well, it could be a tipping point for the mass adoption of Bitcoin globally.
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| A brief analysis of indicators on the chain
In the past week, Bitcoin active addresses fell by 0.7% from last week, and Ethereum usage dropped more, with daily active addresses dropping by 11.1%. Bitcoin and Ethereum mining revenues fell more than 10% in a week as transaction fees continued to drop. Despite the overall decline in activity, Bitcoin’s adjusted transfer value increased by 23.8% to a daily average of $10.1 billion, while Ethereum’s adjusted transfer value of $9.4 billion was down 4.1% from last week.
The Bitcoin BinaryCDD indicator can reflect when long-term holders are cashing out or staying dormant. When the number of days of BTC being cashed out is greater than the long-term average, the BinaryCDD indicator will be close to 1 (long-term currency holders have a large number of cashouts); otherwise, the indicator will be close to 0 (long-term currency holders are holding nothing). Throughout June, the indicator fell to close to 0, returning to the level in June 2020, which shows that very few long-term currency holders choose to sell at this price.
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| DeFi Vs Ethereum
Finally, let’s take a look at the comparison of investment returns between DeFi and Ethereum. The following figure shows the returns of four common strategies in the circle (January 1, 2021-June 16, 2021):
A. Buy and hold ETH with a yield of 298%.
B. Buy and hold DeFiPulse Index (DeFi Index), which is a basket of blue-chip DeFi tokens (the index composition is shown in the figure below), with a yield of 182%.
C. Liquidity mining (SUSHI-WETH) on Sushiswap, with a yield of 326%.
D. Perform stablecoin liquidity mining on YearnFinance, with a yield of 9.5%.
