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Bitcoin in a historically attractive zone

Bitcoin is a cryptocurrency that fluctuates in value. We have seen dramatic changes in the last 12 months, from 10,200 in mid-February to 12-month lows below $4,000 last week. Such a drop unfortunately makes it hard to believe in a huge really before the May 2020 mining reward being cut by 50%. 

However, with the price reduction there is hope in sight. There is a key indicator called the “Puell Multiple” that is important and worth paying attention to. This Multiple looks at the supply side of Bitcoin’s economy, which means that the Multiple loos at bitcoin miners and their revenue.

The Puell Multiple is calculated by dividing the daily issuance value of Bitcoins in USD by the 365-day moving average of daily issuance value.

The important part for our purposes, Coinmarket, and Bitway is that the Multiple explores market cycles from a mining revenue perspective. When you are a Bitcoin miner you generally have to sell your Bitcoins to cover you cost. In this way you are always a seller. Bitcoin miners’ revenue stream can therefore influence price over time.

To understand why we are moving into a time of buying we need to understand the historical standards. Bitcoin has declined to very low levels. The levels are so low that the value of newly issued bitcoins is also low compared to earlier issued Bitcoins from mining. This indicates that Bitcoin is now undervalued.

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2018 bear market

It is always interesting to look back in time when trying to assess what the future will bring. Bitcoin peaked back in December 2017 with a price of $20,000. Within a year the price was very low at near $3,200 in mid-December 2018. When the price was that low the Puell Multiple indicated that the cryptocurrency was undervalued and the price started to rise again. 

If we take a look a bit longer back in history, the Bitcoin went through similar things. Bitcoin experienced a then high of $1,100 in November 2013, which fell back to a low of $150 in January 2015. The Puell Multiple also bottomed out near the current level as today before raising again. 

Is the bear market over?

If we have a look at the Multiple, the worst is behind us. However, the Puell Multiple has not dropped to the same level as we saw twice before rebounding. We therefore expect a bit of rough seas before we are in the clear. 

If we use history, we may see one more bout of selling, which could give us prices at around $4,000-$5,000. We have experienced better prices in the earlier parts of the month. Currently, however, the Bitcoin is trading around $6,500. That is quite a bit higher than the possible $4,000 low. Prices hit a high of $6,907 early Friday, which indicates that the currency has juice to start a climb.

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Cryptocurrency Regulation Under Coronavirus Quarantine

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Though over a decade old and having evolved from fringe hobbies to a multibillion dollar asset class, cryptocurrencies have thus largely evaded the attention of regulators. Though in the US, the IRS and SEC have proactively hunted down taxpayers who neglect to report cryptocurrency trades, as well as businesses who skip the registering of tokens as securities, they have largely failed to outline and update guidance on the value of specific crypto transactions and which initial coin offerings qualify as security offerings. The recently-introduced Cryptocurrency Act of 2020 aims to elucidate consumers by categorizing cryptocurrencies as well as delegating regulation and enforcement to specific agencies. 

An example of governing in the time of coronavirus, Arizona congressman Rep. Paul Gosar introduced the Cryptocurrency Act of 2020 while under quarantine, though he initially brought it forth in December 2019, following a joint statement from the SEC, FinCEN, and the CFTC that those engaging with digital assets must actually observe laws. A specific point was adherence to anti-money laundering and counter-terrorism financing obligations as defined in the Bank Secrecy Act (BSA). Therefore, all institutions using cryptocurrency are obliged to report suspicious activity and maintain record-keeping practices. This fell short though of outlining who it falls upon to regulate and enforce these requests. 

In order to designate enforcement and regulation, the Cryptocurrency Act of 2020 has divided cryptocurrencies into three designations. Crypto Currencies are defined as any currencies or synthetic derivatives within a blockchain or a cryptographic ledger, such as Bitcoin, Litecoin, or even stable coins. Crypto Commodities, on the other hand, are exemplified by Bitcoin futures contracts, and are economic goods or services treated by markets in regard to their producer, resting in a blockchain or decentralized ledger. Finally, Crypto Securities are initial coin offerings, or debt, equity, or derivative instruments resting on a blockchain or decentralized ledger. It is vital to note that the Cryptocurrency Act of 2020 is still a bill and therefore does not hold the force of law; however, if it passes, the following agencies will regulate these three categories. Normally tasked with regulating banking and money service institutions, FinCEN, the Financial Crimes Enforcement Network, would regulate what are defined as Crypto Cureencies. The SEC, or Securities Exchange Commission, would regulate Crypto Securities, since it typically watches over the securities markets. Lastly, the CFTC, or Commodity Futures Trading Commission, the usual watchdog of commodities and futures markets, would regulate Crypto Commodities as well. In addition, the Federal Digital Asset Regulator would be responsible for maintenance of all licenses, certifications, and/or registrations employed in creating, issuing, or trading digital assets. FinCEN, working with the Security of the Treasury, would develop sets of comparable rules for tracing crypto transactions by traditional financial institutions. 

Many aspects of the Cryptocurrency Act of 2020 read as anathema to those attracted to cryptocurrency in the first place, in that it will be regulated and watched over by centralized authorities and traditional banking institutions. Its very existence though is also a testament to the prevalence and staying power of cryptocurrency. 

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Bitcoin in the Time of Coronavirus

March 9, 2020 saw the worst tumble that the S&P 500 has seen in over a decade, to the point of triggering the “circuit breakers” instituted in 2013 for the first time, and halting trading. At fault is the lightning-fast spread of the coronavirus and the economic monsoon that the virus threatens to herald. With fears of a looming global recession, consumers are flying, driving, and consuming less and factories are shuttering during quarantines, decreasing a demand for oil. Two of the world’s more ornery oil giants, Saudi Arabia and Russia, fell into an unexpected spat when they could not come to an agreement over the quantity of oil to produce and offer on international markets. Without a consensus, Saudi Arabia announced that it would ramp up production, flooding the market with cheap oil and dropping prices over 20 percent in a single day, oil’s sharpest drop since the first Persian Gulf War. Many world currencies are tied to the price of oil, sending them into a tailspin also.

For fans of cryptocurrency, times like these demonstrate the advantage of a de-regulated currency that is not tied to a central bank. When the economies of major nations are in a state of dread and uncertainty, those of smaller, poorer countries are doubly so. This is why especially in markets with unstable local currencies, cryptocurrencies are the far more promising option for investment. However, cryptocurrency itself is only a decade old and known to be volatile. Bitcoin, as the oldest, most well-known cryptocurrency is a bit more of a sure bet. At moments of uncertainty, platforms like Coinmarket truly demonstrate their worth. A free cryptocurrency tracking and portfolio management platform, it offers up-to-the-minute prices for several cryptocurrencies, as well as changes over a 24-hour span, the marketcap, volume of trading in 24 hours, and the supply. Since the situation with the world economy promises to become more, not less combustible in the near future as infections skyrocket, Coinmarket is a site for any cryptocurrency enthusiast to bookmark and check several times daily. 

How has the economic panic affected the cryptocurrency and bitcoin market? February 26th, 2020 already ushered in a mass headache with a price plunge that shaved $25 billion off the entire cryptocurrency market. Since then, most digital currency trading patterns have shown triangular consolidation. Though every market has felt the wrath of the world economic downturn, including safe bets such as precious metals, over the last 90 days, BTC is up 18%, and over the last 12 months, up 123%. There has been some selloff on the cryptocurrency market since February 26th, which coronavirus fears may worsen. However, Bitcoin, while not independent of the world, is largely disconnected from Wall Street. It is an unrelated asset and often grows during Wall Street downturns; this turn though may be for the worse. Bitcoin’s price has fallen since Monday morning, but not nearly to the extent of traditional investments and safe bets like gold.