The current macroeconomic environment is new for Bitcoin: rising inflation figures, threat of interest rate hikes and, on top of that, a war on European soil with an uncertain outcome. All this confuses not only the crypto market, but the entire stock market. DAX, DOW Jones: everything is upside down. Only gold lives up to its reputation as a crisis currency and is hitting new all-time highs (see chart).
But what do the fundamentals of Bitcoin really say? Which is more likely: ground search or further corrective action?
A look at the hash rate reveals that no one is really optimistic anymore, including miners. The hash rate, i.e. the cumulative computing power that miners put into the network and thereby protect it, has been remarkably stable recently, despite falling prices. The tide has now turned and the hashrate is correcting along with the general trend in the market.
Since peaking at 214 exhashes per second in mid-February, the hash rate has lost around 10 percent and is now at 193 EH/S, as can be seen on the chart.
The fact that the hash rate only drops to a limited extent compared to the price of Bitcoin is due to the professionalization of the industry. After all, mining companies are investing as much as they can and there is still a real bottleneck of new listings on the Nasdaq stock exchange.
Search for ground or surrender?
However, it is not clear if the decrease in the hash rate is a harbinger of more sales or if the bottom has finally been reached. On-chain data provides information. The volume of coins stored on bitcoin exchanges has tended to drop recently. From the “all-time high” of coins deposited on Binance, at the time of writing, there are about 4 percent fewer coins stored in Binance wallets at 573,743.
It would be too easy to draw a direct price implication from this. In principle, however, a low supply is a sign of hoarding activity and a shortage of coins in the market. That could definitely give the decisive signal for further price growth in the crypto market.
The entity-adjusted latency flow indicator, which shows the relationship between market capitalization and on-chain spending behavior, also paints a picture of the bottom line. Because if you follow this indicator, which has often signaled a trend reversal in the past, there are signs that BTC is quite oversold these days. You can learn more about the indicator here.
Overall, though, the signs for Bitcoin are good in the long run.
Is inflation facing Bitcoin?
As a limited commodity, Bitcoin is the diametrical alternative to the fiat money printing machine. The fact that the economic damage caused by the corona pandemic in the last two years has mainly been absorbed by the printing press is now bringing us to our feet. In the US, for example, according to official figures (!), inflation is 7.9 percent, this is the highest value in 40 years.
An average 7.9 percent inflation also means some areas are significantly higher, as Compound Capital Advisors founder Charlie Bilello points out via Twitter.
Inflation is no longer temporary, it is permanent and it is coming stronger than expected. Bitcoin may not yet be the safe haven for fear of inflation that some Bitcoiners believe it to be. But it wouldn’t be surprising if this narrative picks up steam in the future. Because while prices are rising, one thing is certain: the next halving is coming.
Looking for the right hardware wallet?
In the BTC-ECHO guide we show you the best providers for the safe storage of cryptocurrencies.
to the guide