I tend to think that bitcoin has no fundamentals other than the fixed supply and it is all about charts. It turns out there is a bit more to it than that because of something called the hash factor. According to this hash factor bitcoin is cheap and this is why the price is hanging in there around $20,000 and may be poised to rocket higher (see below on where the price is now).
At this point I was going to explain what the hash rate is but having studied it I realise we don’t have enough wet towels to wrap around our burning brows to go there. This is serious overheated brain territory best left to men with giant foreheads and powers of concentration unimaginable to lesser mortals.
Bitcoin and the hash factor
I have read a whole article on this subject and I am totally baffled so I am going to leap straight to the conclusions.
“Today we are seeing the second lowest reading for the Bitcoin Yardstick in all of Bitcoin’s history. This means that on a relative basis, Bitcoin is extraordinarily cheap given the amount of energy being used on what is the most powerful computer network in the world.
The Bitcoin Yardstick measures the ratio of Bitcoin market cap to hash rate — two fundamental metrics which, when compared to one another, offer key price insights.”Cryptoglobe. 2 November 2022
There is another barometer according to which bitcoin is historically cheap
Notably, the percentage of coins held for at least a year has risen from nearly 54pc on Oct. 28, 2021, to a record high of 66pc on Oct. 28, 2022, data shows.
As of Oct. 31, the old coins comprise nearly 78pc of the Bitcoin supply in circulation versus younger coins’ 22pc, thus reducing the likelihood of intense sell-offs while forming a potential market bottom.CoinTelegraph, 2 November 2022
It turns out that bitcoin is in a similar limbo land to Apple and Tesla where the fundamentals point up but the chart is undecided and threatening a major breakdown. For holders, it is squeaky bum time; for the rest of us it is time to watch and wait bearing in mind predictions from sources such as ARK funds group founder, Cathy Wood, that bitcoin could go to $1m, one day.
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Bitcoin on the charts
I am fed up with continually advising subscribers to do nothing but that is the message I am getting. Bitcoin fundamentals may look promising but as we have found time and again in the stock market fundamentals mean nothing in the face of a chart breakdown. We want our investments to be 3G (great growth, great story, great chart). At the moment that last requirement is not being met. That was then; this is now. I show below what the bitcoin chart looks like presently ahead of another halving process, due in 2024.
Apropos of that I found this quote when bitcoin was around $24,000.
If the pattern held throughout the halving cycles is anything to go by, this could suggest that a bullish transition has now taken place in the market and a rally similar to the April 2019 rally might have begun.Bitcoinist, around 17 March 2023
I should have published this alert when I wrote it with bitcoin around $20,000; apologies for not doing that but better late than never. Sadly I wrote it, waited for something, I don’t know what, and then forgot all about it until noticing it in the drafts just now. The above chart is potentially very bullish. If we look back to the past after every red bitcoin’s candlesticks turn green and a significant move follows. In order to buy bitcoin you need a Coinbase account or something like it.
Crypto platform, Coinbase, outperforms Bitcoin up and down
An interesting alternative is to buy shares in Coinbase which is now a quoted company.
Since the low point in January 2023 Coinbase shares are up 162pc. This compares with bitcoin itself which bottomed out at around $15,400 in November 2022 and is up 82.8pc since then. Coinbase has roughly doubled the move in bitcoin. This relationship may not hold in future but does suggest that buying Coinbase shares is a good option for bitcoin bulls.
Coinbase has a promising looking chart and with 24 months of trading since the IPO we can just begin to calculate Coppock which is negative 140 putting the shares in buying zone territory. Comparing the chart to the bitcoin chart since Coinbase was floated they do look remarkably similar. Coinbase can be bought with five times leverage in an IG CFD account or a spread betting account (where any significant gains are tax free).
This may sound like a speculative thing to do but it means that you can gain good exposure to bitcoin for a small initial investment and then, if the price goes up, you can build that position out of profits by investing your increased equity (times five) in more Coinbase shares. This is exactly what I do all the time. It’s wild but can be the most amazing fun.
What does Coinbase do?
Coinbase is building the cryptoeconomy – a more fair, accessible, efficient, and transparent financial system enabled by crypto. The company started in 2012 with the radical idea that anyone, anywhere, should be able to easily and securely send and receive Bitcoin. Today, Coinbase offers a trusted and easy-to-use platform for accessing the broader cryptoeconomy.Coinbase web site
Coinbase is going through a similar cost cutting strategy seen at other young and fast-growing technology companies.
When Coinbase went public, our goal was to operate at roughly breakeven across crypto cycles, but the market has changed, and so we’re evolving along with that. We’re now evolving the business with a goal to generate adjusted EBITDA in all market conditions.
In January, we further reduced head count by 20pc. This follows the head count reduction of 18pc we did last year in June. We’ve also worked hard to reduce the amount of dilution we’re taking from stock-based compensation and adjusted our compensation policy across a number of dimensions. Our total dilution since going public in April of 2021 has been about 5pc.
These changes will ensure that we continue to manage dilution going forward. Now, parting ways with colleagues and changes to compensation are never easy, but I think this is helping us be a more efficient company as a result, and it positions us to better weather this downturn with a very healthy balance sheet and continue investing in the future so we can be the global leader in the crypto space. I was also really glad to see that our subscription and services revenue grew 53pc year over year to $792m in 2022. This was a major downturn in crypto, of course, from 2021 to 2022.Q4 2022, 21 February 2023
Unsurprisingly the company is positive on the outlook for cryptocurrencies.
So the Bitcoin price in January of 2023 is up 80pc compared to the average price in 2020. The number of software developers who work in crypto has doubled since 2020, and that’s a great predictor, I think, of where the future is going. The number of major brands who’ve started integrating Web3 and NFT technology is totally different, Starbucks, Adidas, Nike, Coca-Cola and social media platforms like Instagram, Twitter and Reddit. These are all integrating crypto services into their products, and customers who use those things are going to need a wallet, a crypto wallet. That’s where Coinbase comes in.
We even come a long way on the regulatory side. Outside the U.S., just about every major financial hub is vying to be the leader in Web3. We’ve seen a comprehensive crypto legislation get passed in the EU with MiCA.
Even the U.K., Hong Kong, Japan, Brazil are all making very positive steps toward comprehensive crypto legislation. And I think we’ll even get that in the U.S. eventually. So in short, we remain incredibly bullish on this technology, in this industry.
We’re operating more efficiently at this new size. We believe that we will be in a net beneficiary of increased regulatory clarity. And of course, ultimately, we’ve got to keep driving the utility of crypto, improving our products, driving more and more use cases so that 1 billion or more people can benefit from this technology, and we can increase economic freedom in the worldQ4 2022, 21 February 2023
Coinbase is a premium product and that is usually the best place to be.
So we do generate most of our transaction revenue today from our retail customer base.
They are trusting our products because they are safe and easy to use, and we’re giving them an integrated platform to engage with a range of crypto assets and activities. So you can stake, you can participate and you can spend your crypto on a Coinbase card. You can do many different things. And we believe this is a premium product that our customers are willing to pay for.
But we also have from our subscription product, Coinbase One, where users can trade without fees. So we are definitely experimenting with different monetization models and different ways to offer our services to our customers. As we said before, over the long term, we believe fees will compress due to commoditization, but we have yet to see that in crypto. And we think that after coming to 2022, there is more value placed on a trusted platform, our regulated compliant approach, and people are willing to pay for that premium offering.Q4 2022, 21 February 2023
Bitcoin v Coinbase
Bitcoin and Ether are always scary investments but looking at the chart, and the Ether chart looks broadly similar to that for bitcoin, these people talking about bitcoin at $1m could be right, why not. Whoever thought when the price was $1 that almost exactly a decade later it would be $28,000 plus having been as high as $68,958. My feeling is that if bitcoin can top $100,000 (hasn’t happened yet, I know) anything is possible so buying a stake or buying some Coinbase is like an insurance against that happening.
Bitcoin. Buy @ $28,124
Ether. Buy @ $1,784
Coinbase Global. COIN. Buy @ $83