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- A bear market is not all doom
- There is work for the institutional investor
- Untapped opportunities waiting to be grabbed by investors
In Q2, BTC values surged to an all-time high of $64,888.99 before tanking and ending the quarter at $35,046.22. As a result, both Long and short term crypto is officially in the bear market.
Any tanking of price attracts cynics in droves and the savvy, wealthy day traders are suddenly silent and into a shell. However, a bear market is not all doom, and there is work for the institutional investor. Investors who are convinced in the intrinsic values of bitcoin, ether (ETH, -0.94%) and other cryptocurrencies use tools and metrics in the bear market to gauge market sentiment and chart the long-term investment strategy.
Many untapped opportunities in the crypto markets
One of the metrics is the MVRV or Market Value to Realized Value which is still to hit historic highs. It implies that there are many untapped opportunities in the crypto markets on which the investors can capitalize. Another metric, the Pull Multiple, which is the ratio between total dollar values of bitcoin mined in a single day with its 365-day moving average, fell to its one year low recently. It signals an undervaluation of BTC and a potential weakening of bearish market momentum.
The price discussion has also thrown up a strange fact: ether’s price increased 20% in Q2, while bitcoin shed 40%.
Since CoinDesk’s Ether Price Index (ETX) existed in 2016, only four times has the two assets recorded mixed quarters. However, the deviation did not alter the 90-day correlations of daily log returns for BTC and ETH, which remained strong and unfazed, trending around 0.75 throughout the quarter.
China vs Bitcoin
In the past quarter, China has come down heavily upon bitcoin mining. As a result, a lot was said about the possible migration of miners from the east to the west. However, it seems that the migration has started, and the miners are moving to locations with a favourable political climate for the spread and diversification of cryptocurrency trade.
The Northern China districts of Qinghai, Inner Mongolia, Yunnan and Sichuan had become bitcoin mining hubs, and miners had flocked to these locations lured by the dirt-cheap electricity produced from bountiful coal reserves present locally. However, later in a broader crackdown on Bitcoin and cryptocurrency, the Chinese government first forbade Banks and financial institutions from dealing in cryptocurrency. It was followed by a social media ban on cryptocurrency groups, and finally, a total shutdown of all mining activities was enforced.
Following the crackdown, the Bitcoin Hashrate, a measure of how much computational power miners are expending, fell sharply. The regulatory crackdown in May and June forced many Chinese mining pools to either shut down or scale back operations. In Q2, the hash rate touched 200 million terahashes per second, and when the quarter ended, it fell to just below 90 millions
The hash rate will rise again when the miners shift their operations from China to other locations. However, the question remains: where will the miners relocate? Will they take their heavy rigs and proceed to favourable areas in the U.S. like Texas or Maryland? Or will they move to neighbouring Kazakhstan or Mongolia, or even Eastern Europe? However, the place where these miners end up will have a bearing on bitcoin mining’s energy mix and will be an essential narrative to keep watching in the months ahead.
Bitcoin is more than a boomer coin.
Market Volatility and the crackdown by different countries aside, Bitcoin fundamentals have proved to be robust, and it will clear the lousy patch it is currently going through. A technological upgrade to Bitcoin known as Taproot, a bundle of three upgrades aimed at improving network security, privacy, and scalability, has been approved by miners. Taproot is officially locked in for activation this November
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
