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The Wolf Den #570 - How To Value Bitcoin

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August 31 · Issue #570 · View online
The Wolf Den Crypto Newsletter
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In This Issue:
  1. How To Value Bitcoin
  2. Bitcoin Thoughts And Analysis
  3. Altcoin Charts
  4. Legacy Markets
  5. Bank Error In Your Favor
  6. Everything Is On Sale
  7. Will The Rainbow Hold?
  8. My Recommended Platforms And Tools
How To Value Bitcoin
If I had a handful of Satoshis for every time someone told me that Bitcoin had no intrinsic value, I would be a Bitcoin billionaire by now. The comment usually goes something like this:
Bitcoin has no intrinsic value. There’s nothing physical about it and it’s not backed by anything! It has no value.
News flash! The dollar is a piece of green paper backed by the word of the government.
So how exactly do we value Bitcoin?
Fundamentals.
There are numerous factors to look at to arrive at Bitcoin’s value, but for today, I’ll discuss the big three: hash rate, addresses and the mining floor.
Hash rate
Hash rate can be defined as the total computational power used to secure the Bitcoin network. Every time a miner plugs in their rig, the total hash power of the network increases by a small interval. The current hash rate for Bitcoin is 224.62 EH/s. If this sounds like a foreign language to you, that’s okay. All you need to know is that the figure is at an all-time high, with it’s biggest difficult adjustment in ages having just happened.
As the hash rate increases, the possibility of a 51% attack decreases. Bitcoin remains valuable because the network is secure and decentralized. Other competing coins can claim neither of those attributes. The only time recently that the Bitcoin hash rate saw a major correction was when China shut down mining. It has recovered and then some. Bitcoin is valuable because it is secure.
Addresses
If we suspect that Bitcoin has value, then it’s important to determine how many people are willing to store their wealth in it. If Bitcoin is a store of value, then people need to be using it as such. If enough people use Bitcoin, it becomes a unit of account, making it more valuable.
Current Bitcoin addresses surpassed 40 million earlier this year, up 93% from 4 years prior. Bitcoin addresses, like hash rate, are trending up.
If we look at the Bitcoin Rich List, we can see that a quarter of the total addresses hold .01 Bitcoin or more. About 13.5 million addresses are richer than $100. The world is taking Bitcoin seriously.
The Mining Floor
Not everyone buys into the theory of a Bitcoin price floor, but I’ll lay out the premise. Because Bitcoin is expensive to mine, this adds to its scarcity and difficulty to extract. Bitcoin needs to maintain certain price points for miners to churn a profit. If it goes too low, miners have to close shop.
As weak miners are eliminated from the network and strong miners (with a lower cost basis) survive, a price floor begins to form. Like gold, Bitcoin has a price tag to mine and that price tag affects its market price. If anyone could pull gold out of the ground, it wouldn’t be so valuable. The same is true for Bitcoin. If price were to wipe out a lot of weak miners, those that remain would be able to mine more coins, helping create equilibrium.
There’s so much more that makes Bitcoin unique, but this is a good starting point. When the mainstream has completely given up, it’s important to remember why we are here. That’s where the true value lies..
Bitcoin Thoughts And Analysis
WEEKLY CHART
For me, there is very little reason to zoom in on the Bitcoin chart for now, and little has changed on larger time frames. Bitcoin is still trading below the 200 MA on the weekly, and the move to 25K looks like a lower high. This would be confirmed with a lower low, which I am not necessarily expecting. Either way, there’s nothing bullish about this market structure on a large time frame. Be patient.
Altcoin Charts
I do NOT share signals in this section. I share setups and charts that I am watching, in an effort to help show you how I view a chart and what criteria would be necessary for me to consider taking a trade. NEVER blindly buy something because it is listed in a newsletter or posted on twitter. You need to have a plan when you enter a trade. These are just ideas, and are almost always “if, then” scenarios. If a certain set of things happen, then I would consider a trade.
BITCOIN DOMINANCE
Charting Bitcoin Dominance is a bit of a meme, because it is not an asset that is being traded. Support and resistance are caused by humans placing orders, so always take charts of dominance with a grain of salt.
That said, there are always trends to be seen in any chart. If you were here in June, then you likely remember me circling the price action at the top of the range and the overbought RSI. My prediction at the time was that dominance would fall off of a cliff - generally a good thing for altcoins. That certainly happened, although the drop was so aggressive for Bitcoin that alts did not really have their chance to shine in the initial crash.
Now RSI is oversold and nearing the range lows. Perhaps the range will break down, but that is less likely with RSI below 30. Also, there is clear bullish divergence forming. The odds (nothing is for sure) are that Bitcoin Dominance will bounce in this area, RSI will head back up, and altcoins will suffer in the short term.
The hope is that this happens with Bitcoin RISING. When Bitcoin pumps, money tends to flow in from altcoins, causing dominance to rise. In this case, alts generally stay at the same value in USD but lose value against BTC.
If this happens with Bitcoin DROPPING, then altcoins tend to underperform in both denominators.
Note, it has not yet reached support. Each bottom has been on a touch or sweep of the range lows.
For now, I am concerned about altcoins in the coming weeks.
Legacy Markets
Stock Market Today: Dow, S&P Live Updates for August 31 - Bloomberg
Here are some key events to watch this week:
  • ECB Governing Council members due to speak at event Tuesday through Sept. 2
  • Euro-area CPI, Wednesday
  • Russia’s Gazprom set to halt Nord Stream pipeline gas flows for three days of maintenance, Wednesday
  • Cleveland Fed President Loretta Mester due to speak, Wednesday
  • China Caixin manufacturing PMI, Thursday
  • US nonfarm payrolls, Friday
  • UK leadership ballot closes Friday. Winner announced Sept. 5
Will Chinese sovereign bonds outperform Treasuries? China is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.
Some of the main moves in markets:
Stocks
  • The Stoxx Europe 600 fell 0.5% as of 10:05 a.m. London time
  • Futures on the S&P 500 were little changed
  • Futures on the Nasdaq 100 rose 0.2%
  • Futures on the Dow Jones Industrial Average were little changed
  • The MSCI Asia Pacific Index rose 0.6%
  • The MSCI Emerging Markets Index rose 0.1%
Currencies
  • The Bloomberg Dollar Spot Index was little changed
  • The euro fell 0.3% to $0.9988
  • The Japanese yen rose 0.1% to 138.62 per dollar
  • The offshore yuan rose 0.2% to 6.9081 per dollar
  • The British pound was little changed at $1.1647
Bonds
  • The yield on 10-year Treasuries advanced two basis points to 3.12%
  • Germany’s 10-year yield advanced three basis points to 1.54%
  • Britain’s 10-year yield advanced 10 basis points to 2.80%
Commodities
  • Brent crude fell 1.7% to $97.58 a barrel
  • Spot gold fell 0.6% to $1,713.59 an ounce
Bank Error In Your Favor
Crypto.com accidentally transfers $10.5m to woman instead of $100
It’s everyone’s dream to wake up and see that your broker accidentally added a few zeros to your account. This happened to two sisters in Melbourne, Australia, but the dream has turned into a nightmare. The accident happened when one of the sisters, a Crypto.com user, submitted a request for a $100 refund and received $10.5 million instead.
Remember when Lloyd Christmas and Harry Dunn found a briefcase full of cash in Dumb and Dumber? That’s how the sisters reacted. They put the money to work quickly: a house, shopping sprees, and more.
Crypto.com is now suing to have their “property” returned. The court has already sided with them. The house has been ordered to be sold and the judge has effectively ruled, “if you’re withholding property of someone else you’re effectively holding property by deception, you’re not entitled to it, you need to give it back.
It was probably fun while it lasted.
Everything Is On Sale
Reddit co-founder’s VC fund to invest $177 million into crypto sector as ‘everything is on sale'
One of Reddit’s co-founders, Alexis Ohanian, is planning to raise $177.60 million for a new crypto fund dubbed Kryptós. The name of this segment comes from a quote Alexis used to describe the crypto space - the timing seems right.
The full quote: “this is the best time to buy if you’re really long on the industry. It’s on sale. Everything is on sale. Now is potentially a unique opportunity to invest in strong founders at a discount.” Are you wondering what the firm has their eyes on? Look no further than Bitcoin and Ethereum. The crypto market could certainly take another strong leg down, but Alexis is undeniably right that everything is on sale.
Will The Rainbow Hold?
🌈 Bitcoin Rainbow Chart (Live) - Blockchaincenter
According to the Bitcoin Rainbow Price Chart, the price is currently in the lowest band, indicating “Basically a Fire Sale.” Created back in 2014, the Rainbow chart is just a fun “arbitrary and without any scientific basis” price model used to track Bitcoin. This is the closest that the model has come to reaching its lower limit. If Bitcoin takes another leg down, consider the model “broken.” Luckily this model is designed to be a meme, so it shouldn’t shatter the sentiment of the market like the S2F model.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to “Buy,” “Sell,” or “Hold” an investment.
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