Hey Edge readers,
Happy Halving! With Bitcoin’s fourth-ever halving now past, we are revisiting the key on-chain metrics this week to get a sense of where we are in the bull cycle.
Here's what we're covering this week:
- Checking the chain for Bitcoin sentiment 🟠
Post-halving update of Bitcoin’s key metrics.
- Happy Halving ⚖️
Bitcoin DeFi summer, Bitcoin Layer 2s, and more.
Stay sharp. 🫡
– The Exponential team
Checking the chain for Bitcoin sentiment
Since our first post on Bitcoin following the launch of spot ETFs earlier this year, the price of Bitcoin has risen by over 50%. With the recent halving behind us, let's reexamine key on-chain metrics to assess the health and trajectory of the Bitcoin network. 📊
Supply held on exchanges 📉
The supply of Bitcoin on centralized exchanges offers insights into market behavior. A decreasing supply indicates a shift towards long-term holding, suggesting bullish sentiment, while an increasing supply might imply selling pressure.
Since our last post on January 18, approximately 166,000 Bitcoin have moved from centralized exchanges to cold storage. This ongoing outflow from exchanges suggests reduced selling pressure and a stronger inclination towards long-term holding.
Metric outlook: Bullish
Net Unrealized Profit/Loss (NUPL)
NUPL measures unrealized profit/loss relative to Bitcoin's market cap, providing a barometer for market sentiment. A high NUPL indicates significant unrealized profit, hinting at potential overvaluation, while a low NUPL suggests underpricing.
Since January 18, NUPL has risen by 8%, reaching around 55% as of April 24th. This indicates that 55% of Bitcoin's market cap represents paper profits yet to be realized. Historically, NUPL values over 70% have coincided with market tops, signaling potential corrections. We are currently in the "Belief/Denial" phase, where investors are optimistic but still wary of market volatility. This stage precedes the final "Euphoria/Greed" stage, which often indicates an overbought market.
Metric outlook: Cautiously bullish
Market Value to Realized Value (MVRV) Z-score
The MVRV Z-Score compares Bitcoin's market cap to its realized value, using Z-scores to identify overvaluation or undervaluation. While MVRV resembles NUPL in signaling market sentiment, it is more effective at identifying extreme market conditions.
Despite the 50% increase in Bitcoin's price, the MVRV Z-Score remains well below the red zone that marks historical market tops. Currently, the Z-Score is around 2, suggesting the market is in a stable state without signs of extreme euphoria. This indicates there's room for growth without immediately triggering a significant correction.
Metric outlook: Bullish
Bitcoin hashrate 📈
Bitcoin's hashrate, the measure of computational power securing the network, is a critical indicator of network security and health. A high hashrate indicates a secure network, reducing the risk of a 51% attack.
Bitcoin’s hashrate has continued to increase, which is a positive sign for the security of the network. A growing hashrate suggests that more miners are investing in hardware and operations, reinforcing the network's decentralization. This is crucial because a secure network attracts more users and investors, fostering trust in the Bitcoin ecosystem.
A rising hashrate also correlates with Bitcoin's price performance, as increased mining activity can reflect broader market interest. This, in turn, boosts network security, creating a positive feedback loop.
Miner revenue
Bitcoin miners generate revenue from two primary sources: transaction fees and block rewards. Transaction fees are earned when a miner successfully validates a block, while block rewards are granted as an incentive for maintaining the network's security.
After the latest halving, the block reward was halved to 3.25 BTC per block. This reduction in block rewards increases the significance of transaction fees for miners, emphasizing the importance of network activity and transactions. Miners rely on fees to maintain profitability, so a spike in fees can indicate increased network usage.
Recent spikes in transaction fees have been driven by growing demand for Bitcoin network activity, such as memecoins and Layer 2 solutions. This increased activity suggests a healthy ecosystem with diverse use cases, from simple transactions to more complex applications.
Metric outlook: Neutral
Conclusion
Overall, Bitcoin’s fundamentals are looking strong, with reduced selling pressure, a rising hashrate, and positive trends in market cap versus realized value. While NUPL indicates a high level of unrealized profit, suggesting cautious optimism, the MVRV Z-Score shows we’re not quite in overvalued territory yet. This combination creates a favorable outlook, pointing to possible opportunities for long-term investors.
Stick with us as we keep an eye on these trends and guide you through the Bitcoin market's ups and downs. 😎
Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. Always do your own research and consider your financial situation before making any investment decisions.
In the news
- Bitcoin network completes the fourth-ever ‘halving’ - Read
- The next DeFi summer to be powered by Bitcoin - Read
- Renzo’s ezETH depegs temporarily following end of airdrop farming - Read
- Bitcoin Layer 2 network becomes 9th largest chain driven by airdrop farming trend - Read
- Stacks begins rollout of its Nakamoto upgrade to enhance transaction throughput - Read