Bitcoin (BTC) and hyper-inflationary beginnings

We are heading for a serious economic crisis. Few seem to be preparing for it if bitcoin’s sluggishness is to be believed. And yet, the great reset (hyperinflation) has shifted into high gear since the invasion of Ukraine.

Weekly report summary In chain the GlassNode

First of all, remember that we cannot predict the future from old past price curves. Only fundamental analysis can tell whether to go “long” or “short” on anything.

analysis In chain is not a crystal ball either, even if some information is good to take. In this edition, GlassNode looked at these metrics:

  • Activity In chain
  • the Hash rate
  • The amount of BTC showing a latent loss or gain

The activity In chain is an expression combining several metrics such as the use of block space (1MB), the number of transactions per person or the transaction fees that increase when the blocks are filled, and vice versa.

Overall, GN feels it is “difficult to find many observations suggesting that the number of bitcoin users is growing strongly”.

The curve of the number of people making transactions remains in an area (red channel) typical of bear markets for BTC/USD. That said, GN notes that “the current active entity count of 296,000/day is at the upper end of this channel, and that a sustained upward expansion would be constructive.”

Bitcoin: Number of active entities
Orange curve: average over two weeks of the number of people who made a transaction in chain

GN notes, however, that the bottom of the number of active entities and transactions continues to rise, proof that the bitcoin network is still on the rise.

The other flagship metric of On-chain activity is low BTC block fill which results in very low transaction fees. No wonder since the number of payments has doubled in the space of a year on the Lightning Network.

Everything is therefore going according to plan and the drop in transaction fees should no longer be seen as a harbinger of a decline in BTC.

In another register, GN underlines that the miners remain very enthusiastic in view of the hash rate which breaks records. “Each block currently requires to generate 122 zettahash “, can we read in the report. “That would be equivalent to all 7.938 billion people on earth each guessing a chop SHA256, 15,500 billion times, every 10 minutes”.

” The hash rate estimated is between 190 and 215 Exahash per second. This is around 20% more than the previous record set just before the ban on BTC mining in China,” GlassNode also notes.

Minors are clearly bullishwhich is not a surprise given that their income (in dollars) is “150% higher than immediately after the last reduce by half (May 2020)”. “Miners earn approximately $207 per Exahash they provide to secure the bitcoin network”.

[Il faut trois heures pour qu’un seul S19 pro génère un exahash, pour mettre les choses en perspective]

Bitcoin: Mining Difficulty
Bitcoin hashrate

Last interesting metric of the report: latent gains and losses. The following chart shows the number of BTC that was bought at a price above the current price.

Pink curve: percentage of addresses in profit
Green curve: percentage of entities in profit (an entity can control several addresses)
Blue curve: percentage of BTC in profit

We can see that we have seen worse. 70-75% of BTC is currently showing a latent gain. We are at levels that could suggest favorable conditions for the quiet start of a bull market.

Supply of Bitcoin, entities and addresses in profit
Percentage of BTC in profit (between 70% and 75% of BTC is currently in the green)

But as GlassNode points out, the rebounds are for the moment above all an opportunity to take profits, hence the recent aborted breakaway and the concomitant air pocket. The compelling influx of new users to fuel demand is not there yet.

Do we really have to wait for the next one? reduce by halfor will double-digit inflation eventually convince those who are still hesitating?

Inflation, NASDAQ, Bitcoin

Prices continue to climb in the US, up 8.5% year-over-year. We are at the highest for 40 years. At this rate, prices will have increased by 50% within four years.

Obviously, this 8.5% is very far from the mark. How can this be, when gasoline is at an all-time high, up 48% over one year? Without rents and real estate which appear to be up by more than 20%.

It is very simple. Just play on the average basket of goods taken into account in the calculation. For example, transport expenditure weighs only 3.9% in the basket. Which is suspicious when you know that according to the Consumer Expenditure Surveytransportation is actually the average American’s second biggest expense.

Countless accounting tricks allow us to take the bladders for lanterns. The most emblematic being the “quality” effect. For example, the more efficient the computer processors, the lower the price of computers in the imaginary world of calculating inflation.

Inflation is actually at 12% if we use the 1990s methodology. Or even 17% with the 1980s methodology:

Real inflation in the United States
The real inflation figures in the United States (in annual percentage)

The only asset that can protect against inflation is a liquid asset available in absolutely limited quantities. The only one that ticks both of these boxes is bitcoin. And not gold which is slow and will increase in quantity as the price rises since miners will be incentivized to dig deeper.

The same is true for the shares of the big technological monopolies such as Microsoft, Apple, Google, etc. It is true that the NASDAQ appreciates a lot, but again, the number of Apple or Google shares is not limited. For example, there were 640 million Tesla shares in 2010 compared to 1.1 billion shares today…

Speaking of NASDAQ, its correlation to bitcoin is very close, which makes sense given that stocks of large multinational corporations are indeed liquid and desirable assets. HOWEVER, do not believe that bitcoin should follow the NASDAQ if the latter dives.

But that’s what could happen soon. The world is heading straight for a replay of 2008, when the price per barrel was at $150 and Fed rates were on their way to 5%.

At the time, the stock market had fallen by more than 50% in 18 months. On the contrary, gold will appreciate by almost 200% between June 2007 and June 2011. It will be necessary to wait until 2022 for the S&P to gain 200%…

The economy ended up picking up thanks to the US Shale oil revolution. Except that this unexpected oil windfall has probably already passed its peak, not to mention the fact that Russia is slowly turning off the tap.

OPEC told the European Union on Monday that current and future sanctions against Russia could create one of the worst oil shocks on record and that it would be impossible to replace Russian volumes.

Vladimir Putin, visiting Belarusian cosmodrome, says sanctions will cause inflation ” incredible “ :

“If our partners worsen the situation in finance, insurance, transport, including shipping, then the situation will also deteriorate for them. Food shortages or unbelievably high prices in world markets will lead to famines in regions around the world. It is inevitable, and the next step will be a new wave of migration, including to Western countries. »

All this to say that we are sleepwalking towards a crisis worse than that of 2008, and that this time there will be no “Shale oil revolution” to restart the machine. As BlackRock’s CIO recently stated: “A new world order is coming for the stock markets”…

A stock market crash is upon us and only technological or essential stocks will be able to do well. We are entering an era of decline. The economy is above all a matter of physical flows, which the decline suffered by fossil fuels will necessarily constrain, whether we like it or not.

Growth is not a matter of envy or “we just have to”. It depends on the availability of physical resources, foremost among which is oil, on which 95% of global transport depends.

Inflation is looking terrible, and it would be a big mistake to speculate bitcoin down on the belief that it has an unbreakable link with NASDAQ. The BTC of 2022 is the gold of 2008 and the monetary system of the 21st century.

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Nicolas Teterel

Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic, and libertarian prisms.

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