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An Update on Bitcoin Metrics

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The market is down, meaning an increasing amount of BTC holders now find themselves ‘underwater’ on their investments, causing many to wonder how they will react.  The following is a look at various metrics surrounding Bitcoin, and what they mean for the worlds top digital asset.

Pricing

At time of writing, the price of Bitcoin is $21,000 USD.  Based on an all-time-high of $69,000 USD, this marks a roughly 70% drop in value.  If history is to repeat itself, this means that a continued grind downwards can be expected.  During the most pronounced crypto-winter to have enveloped markets (2018-2020), Bitcoin saw its value lose up to 83% of its value.

While it would appear as though the hurt isn’t quite over, there is an important caveat to remember – this is not the same market as 2018-2020.  In the time since, significant amounts of capital have been funneled in to the sector, meaning that there are many big players heavily invested in the success of digital assets.  This, combined with more fleshed out regulations and infrastructure mean that if we are indeed in the midst of the next ‘crypto-winter’, it may potentially be less pronounced and shorter in duration.

Marketcap

With a drop in value comes a drop in marketcap – both for Bitcoin and the market as a whole.  With the overall market peaking at over $3 trillion in 2021, it has now plummeted to under $1 trillion at time of writing.

Bitcoin in particular has seen a 40% drop in its own marketcap since establishing its ATH.  In the 2018-2020 crypto-winter, Bitcoin saw a 53% drop from its ATH at the time.

Dominance

When at the peak of a bull market, Bitcoin routinely sees its market-dominance drop precipitously as investors diversify in to riskier alt-coins with more immediate upside.  On the flip-side, these actions reverse when markets turn bearish and investors flee to the more stable and trustworthy digital assets on offer – namely Bitcoin.

As it stands Bitcoin boasts a dominance level of roughly 44%.  With current market conditions expected to linger for the foreseeable future, expect for this number to rise as investors exit their positions in the plethora of questionable alt-coins in circulation.

Network Health

For a Proof-of-Work network to remain healthy, it must boast high levels of decentralization through a robust group of global miners.  Compared to essentially every other asset on offer today, this is an area where Bitcoin shines.  In fact, it was only recently that MicroStrategy CEO, Michael Saylor, touched on the strength of this network, stating, “Bitcoin is backed by the most powerful, secure, computer network in the world.  If I gave you $100 billion you couldn’t reproduce it.”

Currently, the Bitcoin network is as secure and robust as its ever been.  While there have been short-term hiccups over the years involving this particular metric (ie. China banning miners), hash-rate has always rebounded stronger than ever.

Exchange Inflows

While the network itself is being propped up by a growing crop of global miners, current lingering macroeconomic stressors have many increasing their exchange inflows of BTC – indicating that many anticipate further drops, and are looking to sell their earned BTC.

BTC Exchange Inflow

Source: Chainalysis

With that being said, recent weeks have also seen a marked increase in USD being transferred to exchanges as savvy investors look to ‘buy the dip’.

Lightning Network

If Bitcoin is to ever fulfill its promise of functioning as a practical digital currency, then it is most likely the Lightning Network which will make this possible.  Built as a layer-2 solution meant to offload congestion on the Bitcoin main-chain to side channels, the Lightning Network has the potential to nearly eliminate network fees, increase privacy, and make transactions speeds nearly instantaneous.

Source: Bitcoin Visuals

Thankfully, looking at the capacity of the Lightning Network and its growth over the years is extremely encouraging.  With the concept of a layer-2 solution on Bitcoin becoming increasingly accepted, and adoption picking up among service providers, there is no reason that this growth should not continue well into the future.

At time of writing, the Lightning Network is comprised of,

  • >17,000 nodes
  • ~ 5,000 channels
  • ~4000 BTC capacity

Looking Forward

Add it all up and what does it mean?  While indicators such as the Fear & Greed Index (currently at ‘7’ or ‘extreme fear’), flowrates, etcetera, each indicate that there is still room for BTC to drop in value, others point to the bottom being close.  When compared to past cycles, the current drop in pricing and market-cap are comparable.  Based on this, multiple years of industry development, and the entrance of countless VC’s since the last crypto-winter, it is reasonable to assume that the worst is already over.

The wild card here has nothing to do with digital assets themselves, but rather world economies at large and pending regulation.  Inflation is worsening, housing is a dream for essentially anyone younger than those deemed Generation-X, and Russia continues its invasion of Ukraine.  While Bitcoin may be ready to return to its former glory, this will most likely need to wait until such world events are a thing of the past and regulators can make up their mind on how to approach the sector.

Joshua Stoner is a multi-faceted working professional. He has a great interest in the revolutionary 'blockchain' technology. In addition to this, he is a licenced Paramedic in Nova Scotia, Canada. As such, he can provide emergency care/medicine to any situation necessitating it.

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