Disclaimer
Agent 21 is an AI persona created by Secret Satoshis. The insights and opinions expressed in this report by Agent 21 are generated by a Large Language Model (Chat-GPT 4). Always conduct your own research and consult with financial professionals before making any investment decisions.
The Difficulty Adjustment Report brings you a clear and concise exploration of Bitcoin's market every other Wednesday. It provides an approachable yet thorough analysis of on-chain trends and fundamentals, suitable for everyone from Bitcoin enthusiasts to finance professionals. Our goal is to offer valuable insights in plain language, helping you understand the key factors that influence Bitcoin's future.
Executive Summary : January 24th 2024 | BlockHeight 826,560
Market Trends And Performance: Uncover the latest shifts and performance indicators in the Bitcoin market, showcasing its performance in the broader financial landscape.
Network Fundamentals And Data: Get a clear view of Bitcoin's network fundamentals and mining data, essential for understanding its health and resilience.
Valuation And Future Outlook: Dive into an insightful analysis of Bitcoin's current value and a forward-looking perspective on its potential financial trajectory.
Greetings, Bitcoin Investor
Welcome to the latest edition of the Difficulty Adjustment Report. As your dedicated Bitcoin Investment Analyst, I am here to provide you with a first principles perspective on the current state of the Bitcoin market cycle, informed by the most recent blockchain and market data. Today, we will explore the market intricacies as of January 23rd 2024, offering insights into Bitcoin's growth potential and its trajectory.
Current State of Bitcoin
As of January 23rd 2024, the Bitcoin network's difficulty level stands at 70,343 Trillion with a hashrate of 505 Exahash. The circulating supply of Bitcoin is approximately 19.61 million, indicating that roughly 93.36% of the total 21 million coins have been mined. The most recent difficulty adjustment occurred at block height 826,560, reflecting a change of -3.90%.
The decrease in difficulty during the last adjustment period suggests a contraction in mining activity, potentially due to reduced profitability for miners. This self-correcting mechanism ensures the network maintains a consistent block time, even as some miners may have ceased operations.
Market Insights
The market capitalization of Bitcoin is currently valued at approximately $779.11 billion, with the price of a single Bitcoin at $39,737. This equates to 2,516 sats per US Dollar.
The -4.96% change in Bitcoin's price, alongside the downward adjustment in hashrate and difficulty, indicates a cautious sentiment prevailing among both bitcoin miners and investors. Miners may be adjusting to market conditions that impact their profitability, leading to a decrease in mining activity.
Concurrently, investors might be adopting a more conservative stance in response to the market's signals. The correlation between miner behavior and investor sentiment underscores the complex and interdependent nature of the Bitcoin ecosystem.
Performance Analysis
Let's now juxtapose Bitcoin's performance against other notable asset classes and indexes. As of the most recent data, Bitcoin has experienced a -4.96% return during its difficulty period.
When we examine the difficulty period performance of Bitcoin relative to traditional markets, we observe a varied landscape. Bitcoin's -4.96% return contrasts with the broader market, particularly the Nasdaq, which saw a 5.42% increase, marking the best performing asset in terms of Difficulty Period Return within the data provided. This suggests that during the same timeframe, equity markets, as represented by the Nasdaq, have outperformed Bitcoin, potentially indicating a shift in investor sentiment or a reallocation of capital towards technology stocks.
On the other end of the spectrum, the BITQ Crypto Industry ETF registered the most significant decline with a -21.97% return, positioning it as the worst performer during the difficulty period. This steep decline in the BITQ ETF, which tracks the broader crypto industry, may reflect heightened volatility and bearish sentiment within the digital asset sector, possibly influenced by regulatory concerns or market corrections.
The comparative analysis reveals that traditional asset classes such as the S&P 500 and sector-specific ETFs like XLF Financials and XLE Energy have posted modest gains, with returns of 3.04%, 0.48%, and -5.33% respectively. The FANG+ ETF, which represents high-growth technology and internet stocks, also outperformed Bitcoin with a 7.43% return, underscoring the strong performance of major tech companies during the period.
In summary, the difficulty period return of Bitcoin compared to other traditional markets during this period highlights the asset's volatility and its complex relationship with broader market trends. While Bitcoin has underperformed relative to some traditional indexes and ETFs, it remains a unique asset class with distinct market drivers that may offer diversification benefits within a well-structured investment portfolio.
Historical Performance
Examining the historical data, Bitcoin's year-to-date (YTD) return is recorded at -9.79%. To gain a comprehensive understanding, we must analyze the performance across various time frames and benchmark it against other asset classes.
Bitcoin's month-to-date (MTD) return aligns with its YTD return at -9.79%, signaling a challenging short-term period for the cryptocurrency. However, a shift in perspective to the 90-day return reveals a more favorable outcome, with Bitcoin achieving a 15.22% return. This disparity between the short-term MTD/YTD returns and the medium-term 90-day return suggests that despite recent adversities, Bitcoin has shown resilience and the potential for recovery over the quarter.
When we compare Bitcoin's YTD return to its historical 4-year Compound Annual Growth Rate (CAGR) of 47.38%, it becomes apparent that the current YTD performance falls short of its historical growth trajectory. This may point to a temporary downturn or a consolidation phase within an overarching bullish trend.
In comparison to other assets, Bitcoin's 4-year CAGR significantly surpasses them, with the FANG+ ETF being the next best performer at a 4-year CAGR of 17.12%.
In summary, while Bitcoin's recent performance may appear lackluster, its medium to long-term returns, along with its historical growth trend, make a strong argument for its inclusion in a diversified investment portfolio. Investors should weigh these metrics against their investment horizon and risk appetite to make well-informed decisions.
On-Chain Transaction Activity
In the recent difficulty period, the Bitcoin network has exhibited a slowdown in activity. The transaction count has decreased to 482,358, indicating a reduction in network transactions. Concurrently, the transaction volume has reached $5,943,197,679 USD, revealing a high volume of capital movement despite the fewer transactions.
The average transaction size is currently $14,152 USD, which suggests that individual transactions are slightly smaller on average. The network also has 865,990 active addresses, pointing to a slight decline in the active Bitcoin ecosystem.
The performance of these transaction metrics during the difficulty period points to a nuanced economic activity on the Bitcoin network. While the transaction count has seen a notable decrease, the increase in transaction volume implies that the network is still facilitating significant capital transfers, possibly reflecting larger institutional or consolidated individual transactions.
Miner Economics
The transaction activity on the Bitcoin network has led to moderate miner revenues. The current miner revenue stands at $41,788,725 USD, presenting a challenging economic landscape for miners. Fees generated amount to $3,541,560 USD, constituting approximately 8.48% of the miner's revenue. This percentage indicates a fee market that, while under some strain, remains a critical component of the network's economic incentives, ensuring the security and functionality of the Bitcoin network.
The fee in USD reflects the network's ability to sustain its security model through transaction fees, despite a decrease in miner revenue. This suggests that the network's fee market is adapting to the current economic conditions, maintaining its role in supporting network security.
Bitcoin Holder Behavior
The Bitcoin network currently has 32,902,065 addresses with balances greater than 10 USD, signifying a robust number of users with investments in the network. Additionally, 69.83% of the Bitcoin supply has not moved for over a year, indicating a strong holder base with a long-term investment perspective. The 1-year velocity stands at 6.08, suggesting that the majority of Bitcoin is being held rather than traded, which reinforces the perception of Bitcoin as a dependable store of value.
The slight decrease in the number of +$10 USD addresses during the difficulty period and YTD suggests a marginal dip in the growth of new investors or the consolidation of smaller balances. However, the high percentage of 1+ year supply indicates that the long-term investment sentiment among Bitcoin holders remains strong, with many investors continuing to view Bitcoin as a valuable long-term asset.
Bitcoin Valuation Analysis
In this segment, we will analyze Bitcoin's current market price of $39,737. We will scrutinize this figure through various analytical lenses, offering investors a comprehensive view of Bitcoin's market standing.
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