Hate It or Love It, Bitcoin Is Here Forever
Bitcoin's heartbeat and blockchain become stronger every year. In 2022, it's the rise of relative transfer volume. And it shows us bitcoin is joining the financial blood flow of our world.
Dear readers,
Bitcoin contains within itself a dichotomy—on the one hand, proponents religiously preach the advantages of a currency without political risk. Ironically, many of these proponents come from countries without the risk of imminent currency collapse. The same people who tout the societal benefits are also seeking 100x returns on their investment.
This begs the question, can a person both exalt the humanities component of bitcoin while chasing huge profits? Could it be that this dichotomy is the reason behind the demonstrative love shown for bitcoin by millions across the continents? Yes, I believe it is. We love bitcoin because it allows us to simultaneously exhibit our care for the planet and channel our inner entrepreneur.
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But then, how can we care for the planet by loving a virtual commodity entirely dependent on energy consumption to function? It is precisely and solely because bitcoin’s lack of centralization makes it an empowerment tool that other cryptocurrencies can only dream of. Bitcoin mining and energy consumption protects this dynamic.
Take a look at Ethereum, for example. It approaches a transition away from mining as its validation mechanism, relinquishing any vestige of being an “open” monetary network. I even saw that some ETH transactions were being blocked due to connections with mixing services, showing that even the wallet infrastructure in Ethereum is highly susceptible to censorship and politicization.
Bitcoin is apolitical money, but I’ve heard many people assume that bitcoin will eventually come under the thumb of governments due to the inevitability of Big Brother controlling our lives. I categorically reject this, and I’ll take it one step further: bitcoin has obfuscated certain elements from the governmental and banking apparatus to the point that it has eliminated their ability to ever stop the cultural phenomenon that is decentralized, apolitical money. We are nearing escape velocity.
Does this mean the IRS will ignore realized capital gains on bitcoin investment? No. Will the US Congress stop trying to pass legislation that taints bitcoin’s legal status? Probably not. But we can’t be absolute in our thinking—Elizabeth Warren and the SEC can dance around the issue all they want, even with waves of political support from across the spectrum, but that doesn’t mean that I, you, and the millions of bitcoin proponents across the country will descend to a sleeping position on the train tracks. We love bitcoin, and that love, no matter from where the motivation emanates, has fundamentally changed our species’ relationship with money, labor, savings, banks, and central banks. And this cultural phenomenon we speak of is never going away.
Relative Transfer Volume
The openness of bitcoin’s blockchain lets us parse the data in a trillion different ways. I’m learning new metrics every day—many of them interesting but mostly useless in terms of alpha generation. But this one, brought to my attention by the on-chain data provider Glassnode, was something I had to share with readers. It’s called Relative Transfer Volume, and what we’re looking at here is the percentage of on-chain volume that exceeds $10 million per transaction:
In other words, as bitcoin moves on the blockchain (not on exchanges), how large is each transaction? How many of these transactions are large versus small? For example, if $1 billion moved today on bitcoin’s blockchain, how much of that money moved in chunks at least $10 million in size? This metric is telling us that over 60% of on-chain volume is happening in $10 million clips. This tells me that bitcoin’s blockchain is starting to see real economic activity, potentially cross-border, outside of hand-to-hand retail transactions or remittances, which would all be in the sub-$10,000 range. It means that bitcoin is finally starting to see transactions that would have otherwise used the bank wire system of central banks, legacy banks, and fax machines.
The aggregate on-chain volume hasn’t shown any significant record-breaking activity this year, but that can be overlooked if we try to extract information out of Glassnode’s Relative Transfer Volume metric. As the data provider labels this chart, “institutional-sized capital dominates on-chain volume.” I agree. Here is the chart in its full glory:
As institutions enter the game, not to buy and hold, but to transfer economic value across the world, this tells me something very important and lasting—bitcoin is now part of the world’s financial infrastructure past the point of no return. This means that bitcoin’s cyclicality, in all its volatile glory, should lead to another bull market considering we’ve been in a bear market. Wax on, wax off, wax on again. I did some math last night to give you a bull market projection.
Bitcoin price analysis and projection
My working theory is that we are still experiencing bitcoin cyclicality but slightly accelerated as the market matures. Dislocations, or deviations materially away from the TBL Fair Value Ratio of ~2, will be shorter in nature going forward than they were previously. The twin peaks of near-$70k in early and late 2021 had me thinking the four-year cycle was dead, but with another 75% decline in 2022, I had to alter my thinking.
Allow me to share the full thought experiment. I stretched the truth a little here due to my evolving theory. Instead of using November 2021 as the ATH, I am using April’s level as November’s didn’t materially exceed the April high. Also, I am using the pandemic low of 2020 as the bottom of the previous bear market instead of the 2019 actual low, because the 2019 recovery price action was essentially wiped out by the pandemic. Moving these two dates around led me to this “accelerated cycle” thesis:
From all-time high (ATH) to ATH:
November 2013 to December 2017 - 49 months
December 2017 to April 2021 - 41 months
83% of the time from peak to peak (a shorter cycle)
From ATH to bottom of bear market:
December 2017 to March 2020 - 28 months
April 2021 to June 2022 - 14 months
50% of the time from peak to bottom (a shorter cycle)
From ATH to fully recover losses (for example, how long did it take to cross back over $20k after the 2017 peak of near-$20k):
November 2013 to April 2017 (when it actually broke out) - 41 months
December 2017 to December 2020 - 36 months
88% of the time from peak to full recovery (a shorter cycle)
The balance of my calculation contains a few assumptions, but assuming the slightly accelerated cycle thesis is on the mark, I believe that we will be either fully recovered or charging towards a new ATH by November 2023. While this is still over a year away, I believe a bitcoin price of well over $100,000 is achievable by this date.
And that is my prediction. I believe that by November 2023, the bitcoin price will be at least $70,000. It might feel like a long time to recover those mid-2021 exuberant purchases, but it’ll be worth the wait. After all, love affairs like the one humanity is experiencing with bitcoin don’t come around very often.
Until next time,
Nik
This post was sponsored by Voltage, provider of enterprise-grade Bitcoin infrastructure.