Bitcoin is undergoing mass adoption: Analysis


Tracking Bitcoin Adoption and Investor Commitment through Unique Address Analysis

By examining the number of unique Bitcoin addresses holding at least 0.01, 0.1, and 1 bitcoin, we can get a sense of investor conviction. This data shows that the number of people buying and keeping bitcoin in self-custody is growing. It’s worth noting that one person can store their bitcoin at multiple addresses. However, the growth in private addresses holding these amounts of bitcoin suggests that more people than ever before are buying bitcoin.

Another valuable metric is the quantity of bitcoin held by long-term holders, which has grown to nearly 14 million bitcoins. To calculate long-term holders’ supply, we use a threshold of a 155-day holding period. This means that after this period, it becomes less likely that these coins will be spent. At present, 72.49% of the bitcoin in circulation is unlikely to be sold at current prices.

Bitcoin investors consistently buy digital assets regardless of their price.

In December 2022, Dylan LeClair, Head of Market Research said in an interview on “Going Digital” “You have people all over the world acquiring this asset and you have a huge and growing group of people who do not care about price while accumulating”

With the growing number of unique addresses holding bitcoin and the high amount of bitcoin held by long-term investors, we believe in the potential of bitcoin’s progress and global adoption. Several factors indicate the possibility of asymmetric returns as the demand for bitcoin rises and its adoption increases worldwide.

Bitcoin’s Total Addressable Market: Store of Value Phase

As a currency monetizes, it passes through three stages: store of value, medium of exchange, and unit of account. As demonstrated by long-term holding metrics, Bitcoin is currently in its store-of-value phase. Other assets commonly used as stores of value include real estate, gold, and equities. Bitcoin, however, has several advantages as a store of value. It is more liquid, easily accessible, transportable, and secure. It is also easier to audit and has a finite scarcity with its hard-cap limit of 21 million coins. To capture a larger share of the global store of value market, Bitcoin must maintain these properties and gain the trust of investors.

As readers can observe, bitcoin represents a small portion of global wealth. If bitcoin captures only a 1% share of other stores of value, its market capitalization would reach $5.9 trillion, resulting in a value of over $300,000 per coin. These estimates are conservative as we anticipate that bitcoin adoption will occur gradually and then rapidly.

Increasing Transfer Volume on the Bitcoin Network

An analysis of the total value transferred on the Bitcoin network over time shows a steady upward trend in US dollar terms. This is reflective of the growing demand for bitcoin transfers in recent years. In 2022, the adjusted transfer volume on the Bitcoin network surpassed 556 million bitcoins, a 102% increase from 2021. In terms of US dollars, the total value settled on the Bitcoin network in 2022 exceeded $15 trillion.

Rare Buying Opportunity in Bitcoin’s Price: A Look at the Metrics

By analyzing specific metrics, we can evaluate the exceptional chance investors have to acquire bitcoin at current prices. Bitcoin’s market capitalization has declined 18.8% from its all-time high, making it the second-largest decline in its history. Although macroeconomic factors are worth considering, we believe that this represents a rare buying opportunity.

Compared to its history, bitcoin is currently in a phase where it is as affordable as it gets. Its current market exchange rate is around 20% lower than its average on-chain cost basis, which has only occurred at or close to the local bottom of bitcoin market cycles.
For investors seeking to buy bitcoin at a low exchange rate, current prices are a rare opportunity. Historically, buying bitcoin during these times has resulted in substantial returns in the long term. However, it’s also crucial to keep in mind that 2023 is likely to bring bitcoin’s first prolonged economic recession.

As we enter 2023, it’s crucial to understand the current macroeconomic environment as it plays a significant role in driving economic growth. The lag effect of last year’s central bank decisions is being felt worldwide, with the U.S. and EU still in recession and China continuing to de-dollarize. Additionally, the Bank of Japan has raised its target rate for yield curve control. All of these factors have a significant impact on capital markets.

It’s critical to note that nothing in the financial markets occurs in isolation. The rise of Bitcoin in 2020 and 2021, while similar to previous crypto market cycles, was closely tied to the explosion of liquidity in the financial system following the COVID-19 pandemic. However, 2022 has been characterized by a lack of liquidity.

Interestingly, when comparing the performance of Bitcoin against U.S. Treasury bonds, which are considered Bitcoin’s largest long-term competitor for monetary value, the drawdown in 2022 was relatively mild compared to previous drawdowns in Bitcoin’s history.

Bitcoin miners are showing that they are more bullish

Bitcoin miners are showing that they are more bullish than ever by deploying more machines and investing in expanded infrastructure. The last time Bitcoin’s price was in a similar range was in 2017, when the network hash rate was only one-fifth of current levels. This indicates a fivefold increase in the number of Bitcoin mining machines being used. In addition, efficiency upgrades to the machines themselves, as well as major investments in facilities and data centers to house the equipment.

As the hash rate increased while the Bitcoin price decreased, miner revenue took a hit this year after a significant rise in 2021. Public mining stock valuations also followed this trend, falling even more than the Bitcoin price, while the Bitcoin network’s hash rate continued to rise. In “State Of The Mining Industry: Survival Of The Fittest,” we looked at the total market capitalization of public miners which has fallen by over 90% since January 2021.

One way to analyze bitcoin’s scarcity is by looking at the illiquid supply of coins.

Liquidity is quantified as the extent to which an entity spends its bitcoin. Someone that never sells has a liquidity value of 0 whereas someone who buys and sells bitcoin all the time has a value of 1. With this quantification, circulating supply can be broken down into three categories: highly liquid, liquid, and illiquid supply.
Illiquid supply is defined as entities that hold over 75% of the bitcoin they deposit at an address. Highly liquid supply is defined as entities that hold less than 25%. Liquid supply is between the two. The analysis and quantification of illiquid supply were developed by Rafael Schultze-Kraft, co-founder and CTO of Glassnode.

These metrics of an increasingly illiquid supply paired with historic amounts of Bitcoin being withdrawn from exchanges and being removed from the market, provide a contrasting picture from the factors outside of the Bitcoin network. While there are still unanswered questions from a macroeconomic perspective, Bitcoin miners continue to invest in equipment and on-chain data shows that Bitcoin holders aren’t planning to relinquish their Bitcoin anytime soon.

Conclusion The various factors discussed above provide a reason for being long-term bullish on the Bitcoin price going into 2023. The Bitcoin network continues to add another block approximately every 10 minutes, more miners keep investing in infrastructure by plugging in machines, and long-term holders are unwavering in their conviction as shown by on-chain data.

With Bitcoin’s ever-increasing scarcity, the supply side of this equation is fixed while demand is likely to increase. Bitcoin investors can get ahead of the demand curve by averaging in while the price is low. Investors need to take the time to learn how Bitcoin works to fully understand what they are investing in. Bitcoin is the first digitally native and finitely scarce bearer asset. We recommend readers learn about self-custody and withdraw their Bitcoin from exchanges. Despite the negative news cycle and drop in Bitcoin price, our bullish conviction for Bitcoin’s long-term value proposition remains unfazed.

retrieved article from Bitcoin Magazine
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