The Fear and Greed Index
The Fear & Greed Index serves as a gauge of the prevailing emotional climate within the Bitcoin market, ranging from extreme fear to extreme greed on a scale of 0 to 100. It takes into account factors like volatility, market momentum, social media sentiment and trends in its calculation. Notably, the index experiences notable fluctuations over time, reflecting the dynamic and ever changing nature of market sentiment in the realm of Bitcoin. There seems to be a consistent link between shifts in the Fear & Greed Index and movements in Bitcoin’s price. Instances of heightened greed often align with price peaks, while periods marked by fear typically coincide with price dips. This observation suggests that sentiment among investors significantly influences the trajectory of Bitcoin’s value. Despite this correlation, it’s important to note that there are occasions where price movements deviate from prevailing sentiment. For instance, early in 2021, despite a decline in market sentiment according to the Fear & Greed Index, the price of Bitcoin continued on an upward trajectory.
Throughout this period under review, Bitcoin’s price demonstrates an overall upward trend interspersed with notable bouts of volatility. Noteworthy spikes in price are observed towards late 2020, early 2021 and late 2023, each followed by subsequent corrections. The Fear & Greed Index appears to alternate between phases of fear and greed, indicating that market sentiment in the Bitcoin market follows a cyclical pattern. Times of intense fear are commonly succeeded by periods of greed and vice versa.
Stock to Flow Ratio and Percent of Supply
The stock to flow ratio serves as a gauge of scarcity, which is calculated by dividing the total supply (stock) by the annual production (flow). A higher ratio signifies increased scarcity. Bitcoin’s stock to flow ratio rises gradually over time, following a pattern influenced by the halving events that take place approximately every four years. These halvings reduce the issuance of new bitcoins, thereby boosting the stock to flow ratio.
The price of Bitcoin typically mirrors the stock to flow ratio, with notable surges observed around the time of halving events. This correlation implies that Bitcoin’s price appreciation is significantly driven by its increasing scarcity measured through the stock to flow ratio. Looking ahead to 2024-2028, projections on stock to flow ratios and prices are displayed on a chart. These projections are based on anticipated future halving events and assume that the historical relationship between stock to flow ratios and prices will continue.
It’s worth mentioning that these are just forecasts and not definite outcomes. To sum up, Bitcoin’s stock to flow ratio has been on the rise due to periodic halving events, which decrease the new supply of bitcoins. The price of Bitcoin has generally mirrored this increasing scarcity, indicating that the stock to flow ratio plays a significant role in Bitcoin’s price appreciation. However, the price also shows considerable volatility, suggesting that other factors contribute to determining Bitcoin’s worth. Projections for the future based on the stock to flow model should be seen as approximations rather than certainties.
The amount of Bitcoin’s supply that has remained untouched for over a year is a way to assess how long term investors are behaving and can provide insights into market sentiment. A higher percentage implies that more people are holding onto their bitcoins for an extended period, signaling optimism about the market.
According to the data, the portion of supply last active over a year ago has been on the rise over the past five years, climbing from approximately 44% in early 2019 to nearly 70% by early 2024. This indicates a growing trend of investors holding onto their bitcoins for the long term. There seems to be an informal reverse relationship between the percentage of supply last active and Bitcoin’s price movements.
When prices surge significantly, the percentage of untouched supply tends to drop, indicating that some long term holders are selling off during these price upticks. Conversely, during price declines, the proportion of untouched supply tends to increase, showing that investors are holding onto their bitcoins despite market downturns.
The link between these two indicators is not always consistent. For instance, in late 2020 and early 2021, both prices and the percentage of inactive supply rose simultaneously. This suggests that new investors were entering the market and choosing to hold onto their bitcoins for extended periods despite increasing prices. The rising percentage of supply that was last active more than a year ago, along with the increasing price of Bitcoin, indicates a growing trust in Bitcoin’s long term value proposition among investors.
Considering the 4 Effects to Justify the Metrics
Bitcoin Halving Events
When a halving occurs, it directly impacts how much miners earn by reducing the rewards they get in half. This, in theory, lowers the amount of new Bitcoins entering the market, assuming that demand stays the same or goes up. Looking at past data after halving events in 2012, 2016 and 2020, there’s a trend of prices going up in the first 12,18 months following the event. This jump is usually attributed to less supply pressure from miners who are selling fewer Bitcoins to cover their costs. For example, after the 2020 halving, Bitcoin’s price surged from around $8,800 to over $63,000.
Explanation: This lines up with basic economic rules of supply and demand. When there’s less new supply coming in but demand remains constant or increases (all else being equal), prices tend to go up.
Mining Economics and Technology
The math for miners profits considers electricity costs, how efficient their mining equipment is and Bitcoin’s price. Improvements in semiconductor technology like moving from 7nm to 5nm chips can boost computational efficiency by about 15 -25%, which cuts down on energy use per hash. If you add a climbing Bitcoin price into this mix, it can have a big impact on how profitable mining operations are.
Fees for Transactions:In terms of numbers; Transaction fees, as a portion of total miner revenue, have varied over time, reaching a peak of over 30% in December 2017. With limited block space and the rise in popularity of features like Bitcoin Ordinals, sudden increases in transaction fees can temporarily boost miner revenue substantially.
Adaptation and Efficiency in the Market
In terms of numbers; The mining difficulty adjustment ensures that the block time stays around 10 minutes, even with changes in hash rate. This system enables the network to adjust to miners entering and leaving while keeping operations running smoothly. Efficiency gains from hardware upgrades and operational changes, such as strategically moving operations to areas with lower electricity costs, can enhance profit margins despite Bitcoin prices remaining steady or decreasing.
According to behavioral finance theories, market sentiments and regulatory conditions have a substantial influence on how investors behave and the overall market trends. This, in turn, indirectly affects the profitability of mining through its impact on Bitcoin’s price.
Additionally, advancements in mining technology, changes in transaction fees and how the market adjusts to regulatory and economic shifts will all play crucial roles in shaping the landscape of mining. Economic models like supply and demand analysis, cost benefit evaluations and adaptive market theories help us understand these dynamics. Yet, given the unpredictable nature of technological advancements, regulatory actions and market moods—there remains significant uncertainty when it comes to forecasting the future of Bitcoin mining quantitatively.
Technically Speaking?-Bitcoin Mining and Levels
The price of Bitcoin has been on a steady rise since mid March 2024, going up from a low of $29,928 to a high of $72,943. This marks a significant increase of more than 150% within just two months. The upward trend is marked by consistently higher peaks and lows, indicating strong positive momentum.
During this period, the Bitcoin Production & Electricity Cost Curves indicator (shown in red) has also been increasing, albeit at a slower rate compared to the price. Currently hovering between $23,000 and $25,000, the indicator suggests that Bitcoin mining remains quite profitable given the current market value.
Looking at the chart, we can observe that the price recently retreated from its peak of $72,943, possibly forming a bullish flag pattern. Should the price manage to stay above the support range of $67,000 to $69,000, it could signal a continuation of the upward trend.
In case the price surpasses its current high at $72,943, key resistance levels to monitor include psychological barriers like $78,000 and $90,000 as well as the Fibonacci extension level at $85,000. If the price doesn’t manage to stay above the support levels and drops below $69,700, it might indicate a deeper correction. In such a scenario, it’s important to keep an eye on the major support level at $65,000.
Bitcoin is trading at a roughly 200% premium to its production cost. This indicates mining remains highly profitable at these prices.
However, profitable mining will incentivize expanded operations which increases mining difficulty. Over time, this would push production costs higher until they converge closer to the market price. The rate of Bitcoin’s appreciation may slow as this convergence occurs. To sum up, Bitcoin is currently on a strong uptrend, comfortably above its production costs. However, as the price nears critical resistance levels, there may be expectations of a pullback or consolidation once mining economics stabilize. Keep an eye on key support levels at $58,689 and $49,881, while significant resistance levels include $78,000, $85,000 and $90,000.
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Disclaimer: This is not an Investment Advice. Investing and trading in currencies, CFD’s involve inherent risks. It’s essential to conduct thorough research and consider your risk tolerance before engaging in any financial activities.
