Bitcoin Price Analysis (Elon Musk Edition): Part One

On-chain Analytics Feb 12, 2021

Before even climbing into this Bitcoin price analysis, its worth mentioning the obvious - and that's Elon Musk's announcement that Tesla has sunk $1.5 billion into Bitcoin, with the prospect of accepting Bitcoin for their vehicles at some point in the future (although this came with no guarantee).

Unfortunately, it appears that the benefit may not be complete shenanigans for those in the crypto space as, once again, there's a non-zero chance that the regulatory backlash these statements and actions by fellows like Elon Musk may provoke will ultimately hurt the end user in crypto more so than it will ever impact Mr. Musk or his associates.

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Fibonacci Calculator

Before we get to the charts, the first thing that we're going to look at is the Fibonacci Calculator, which can be found on mypivots.com (curious little website with a ton of investment gems on there).

Using $42k as the previous high and $20k as the "low" for this session, let's check out the results that it gave us:

It would be fair to say that its on the money by assuming $47.5k as the next point of resistance / support (this is where the price is currently hanging at the time of writing), with a potential overhead resistance at $50.4k.

Beyond that, there is an overhead resistance at $52.5k, $55.6k and $58.5k (if we're to dig into the minutiae of this thing).

$50k feels like a good overhead resistance point when factoring in the overhead psychological resistance of $50k itself. Sometimes these "psychological resistance" points are a bit overblown in popular media (especially in CoinDesk or CoinTelegraph), but in this case, $50k is definitely a point of significance.

Bitcoin On-Chain Metrics

Concerns about Bitcoin's overall health as a protocol have been issued by Librehash for years. While much of it has went ignored, this still doesn't impact the reality of the situation - which is that Bitcoin's on-chain metrics are suffering at the time of writing.

Transaction Fees Are Sky-High

The transaction fees for Bitcoin are sky high at the time of writing. According to Bitinfocharts, the average transaction fee is hovering around $28/transaction at the time of writing:

In attempting to make more sense out of these metrics, we find the following:

The above tells us the following things:

  1. Block Size: This is well below the maximum block size per block that can be mined by miners on the protocol. With an average fee of $28/TX, and over 100,000 transactions pending in the Bitaps mempool, there certainly shouldn't be any shortage of viable transactions for miners to include in the next block. For reference, there is no additional time penalty incurred by miners that decide to include more / less transactions in a given block template for Bitcoin (i.e., including 100 transactions will not result in faster hash operations than 1,000 transactions, if we assume the same miner & mining equipment).
  2. Blocks Last 24H: This total stands at 136 at the time of writing, which falls 8 short of the 144 that are to be expected over a 24h period (when considering the 10-minute block time target, equaling 6 blocks an hour, or 144 blocks every day [24*6=144]).
  3. Fee in Reward: This tells us the total reward amount that can be attributed to fees. To be clear, the "reward" amount is the block subsidy (6.25 bitcoins) + total sum of all the fees attached to transactions for a given block.

'Fee in Reward' Trend

If we look at the data from Bitinfocharts (or any other credible source for this information since it can be corroborated via the chain itself), we'll see an increasing 'fee in reward' percentage dating back to the beginning of this year.

Below is the 'Fee in Reward' on January 1st, 2021:

As we can see above, it was just below 5% on that date.

The next chart, however, shows us the sharp increase in that 'fee in reward' percentage in the weeks following that initial read:

At the time of writing, Bitcoin's 'Fee in Reward' percentage is hovering just under 19%.

This makes for a total increase of almost 14% in a little over a month thus far of 2021. We've already conducted research into why this may be (hint: miner manipulation using the 'opt-in RBF' feature for Bitcoin). But, per usual, this warning sign was also summarily ignored by the broader cryptocurrency community for understandable reasons when considering Bitcoin's recent price action.

Hash Rate Has Plummeted Recently

Surprisingly, despite the gains in Bitcoin's price, the overall hash rate for Bitcoin has plummeted over the last few days (virtually ever since Elon's initial announcement that Tesla would be plopping >$1.5 billion of investment into Bitcoin).

The website, 'fork.lol' is a great source of reference for this, as they provide information on the chain's estimated Exahash/s (using a rolling 12-H moving average).

Below is what Eh/s estimate was for February 4th, 2021:

As we can see from the chart above, the estimates were hovering around 200+ Eh/s for Bitcoin on February 4th, 2021.

However if we fast forward in time, we can see that this estimate dropped all the way down to as low as 120 Eh/s at one point in time (amount to a -40% drop in under a week):

Curious on whether miners were 'coin hopping' again (i.e., moving over to another SHA256 mined coin as a substitute for Bitcoin when profitability drops), we took a quick look at Bitcoin Cash and Bitcoin SV to test our hypothesis.

But it turns out that the data for those latter two projects show the same enigmatic decline in hash rate for each one.

Chinese New Year

The only remaining culprit to explain the enigmatic decline in hash rate (all around) would be Chinese New Year, which began on February 11th, 2021 (and will end on February 26th, 2021).

After examining the signer of the most recent block winners for Bitcoin (through Bitaps among other sources; miners typically sign their winning blocks by including additional arbitrary data in the block header that identifies the mining farm that successfully discovered the block in question).

This is effective even in instances where the block explorer will report the block winner as being "unknown" (see below):

The two unknown blocks above were most likely found by 'SBI Holdings' (Japanese firm) and 'Bitdeer', respectively.

A cursory Google search yields information for us about either one:

That aside, the announcement of impending closures for certain facets of Bitmain's operations for its subsidiaries and their parent (in various jurisdictions) explicitly during the period of the Chinese New Year lends credence to the idea that this holiday may be the reason for the lowered / decreased hash rate for Bitcoin and its SHA256 sister coins (Bitcoin Cash and Bitcoin SV).

With that in mind, it should be interesting to see if there is any palpable impact on the price of Bitcoin.

Miners Are Still More Than Capable of Dealing With the Adjustment

At the time of writing, there has still been significant fluctuation in the overall hash rate being exerted on Bitcoin and its sister coins (Bitcoin Cash and Bitcoin SV).

In fact, there is enough power in reserve for most miners that they are able to far exceed the protocol's established adjusted difficulty with relative ease in what appear to be pre-determined spurts.

This is exemplified well in the hash rate calculator for fork.lol, which shows the fluctuating (estimated) hash rate for Bitcoin, using a 3-hour rolling moving average:

As we can see in the chart above, just over the last 24 hours alone, there has been a +16% spike in the hash rate.

But most of that spike has come in the past 3 hours (comparing the 3-hour rolling moving average to the recorded M.A. at the H12 mark).

Such spurts lead to phenomena like the following where we can observe 6 blocks being found in 30-minutes (versus the targeted hour):

Which heavily implies that even with the reduced hashrate (if there is any palpable reduction in the hash rate), the network still has no trouble exerting greater hash rate if necessary.

Which underlies an important fact that seems to be missed in many scholarly studies that analyze Bitcoin's on-chain health - and that's that the hashrate that we see at any given point in time may be far below the maximum hash rate that miners are able to expend.

Tags

cryptomedication

Happy to serve and help wherever I'm needed in the blockchain space. #Education #EthicalContent #BringingLibretotheForefront

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