Daily Bitcoin Analysis

Daily BTC Analysis: The Weekender

Sunday, January 24, 2021

Welcome to the Weekender! Every week, we review the top news stories from the digital asset world, as chosen by our readers' clicks. This week we start with the opinion piece by Joel Valenzuela, where he asks if the US crypto regulations will return Bitcoin to its digital cash origins?

The United States Financial Crimes Enforcement Network, or FinCEN, recently proposed a series of new regulations applying to financial institutions dealing with digital currencies, such as Bitcoin. To summarize the proposed regulations, exchanges would essentially be required to file a report with FinCEN when a customer makes a purchase in excess of $10,000, and gather Know Your Customer information any time a transaction of $3,000 or greater is conducted using a non-custodial wallet.

This means that if a customer buys $3,000 worth of Bitcoin and withdraws it to a wallet they control, they will have to not only prove ownership of that wallet but also provide their name and physical address, along with additional identifying information.

Joel goes on to ponder if the new U.S. regulations regarding non-custodial wallets may push more cryptocurrency users to skip the exchanges altogether and use their coins to directly buy and sell goods and services. Will this be enough to push Bitcoin to reclaim its peer-to-peer digital cash purpose by finally getting scaling solutions, such as the Lightning Network, developed enough so that they’re easily usable by the average person? Or will one of its children choose this time to shine, taking over the payments space while Bitcoin holds down the investment use case?

Which leads us nicely to the story that President Joe Biden has mandated all federal agencies in the United States to temporarily suspend all in-process regulations pending a thorough review by members of his cabinet. This also puts FinCEN’s proposed rule on non-custodial crypto wallets on hold, according to a Decrypt report on January 21, 2021.

Mnuchin’s draconian crypto wallet rule may be on hold for now, but is it merely a function of standard procedure or effective lobbying by the crypto community?

Neeraj Agrawal, Communications Director at Coin Center, said: “Thanks in part to the community’s response, the rulemaking was extended into the Biden administration. When a new government takes office it’s standard practice to freeze and evaluate ongoing rulemaking.”

Tether and Bitfinex have asked for a further 30 days to produce critical trial documents. iFinex Inc needs another 30 days to produce trial documents for the New York Attorney General. iFinex Inc — the parent company of crypto exchange Bitfinex and stablecoin issuer Tether (USDT) — has written to the New York Supreme Court, requesting that its upcoming trial date be pushed back even further.

According to a filing submitted to the New York court system on Jan. 19, the legal counsel for iFinex Inc requested another 30 days to produce the documents demanded by the Office of the Attorney General (OAG).

The document production process was supposed to be completed by Jan. 15 — a date which itself was an extension on the original deadline of Dec. 16. Legal counsel for the defendant, Charles Michael, said in Tuesday’s court filing that a “substantial volume” of material had already been handed over to the OAG, but that there remained “supplemental agreed-upon items” that still had to be sourced.

Major Wall Street banks are continuing to pump large sums into the crypto market. The shared blockchain mortgage platform Figure has stated it has received a $100 million dollar funding for their mortgage products from the US investment bank JPMorgan.

Figure Technologies said on Wednesday, according to media reports, that this is the fifth major investment for its online lending business. The total volume of transactions is now almost $1.5 billion. In addition to JPMorgan, Jefferies and other well-known Wall Street banks are also partners. The new business covers both compliant and so-called jumbo mortgages, meaning loans that go beyond traditional credit restrictions.

Finally, we end with the story that the head of the International Monetary Fund (IMF) has called on countries worldwide to increase spending.

IMF Managing Director Kristalina Georgieva has urged governments worldwide to spend as much as they can and then spend even more. She said on Friday at Russia’s annual Gaidar economic forum that policymakers worldwide should embrace more spending to help revive their economies. She was quoted by Reuters as saying:

"In terms of policies for right now, very unusual for the IMF, starting in March I would go out and I would say: ‘please spend’. Spend as much as you can and then spend a little bit more."

Technical Analysis

Support at $34,820 gave way early last week, as Bitcoin extended its trading range to include lower levels. After touching the 50% retracement level of $29,780, Bitcoin found buyers and the market has moved back to $32,065.

$32,065 and $34,820 are the key levels this week. Should the market fail to hold the first and rally above the second, then support will continue to be tested. $28,000 and $25,800 will be the targets for the bears, whose ultimate goal this week would be $21,775.

A move back above $34,820, will settle the nerves and allow the bulls to build a base from which to move prices back above $35,868. Should bullish momentum grow, then $38,180 is our upside target for the week.

The Market in Numbers

This Weekend's Coffee Reading

ByteTree's Bitcoin Valuation Mode

Every time someone initiates a Bitcoin transaction, they contribute to the network. According to ByteTree data, last week there were 2.2 million transactions that saw $55bn change hands. At that rate, expect to see over $2 trillion change hands over the Bitcoin Network this year, another record high. Given Bitcoin’s main purpose is to transfer value over the internet, it stands to reason that the amount of value transferred (transaction value TV) is closely linked to the total value of the network (network value NV).

In the chart, the NV (black) is the number of Bitcoins (in existence) times the BTC price; also known as the market cap. The green line shows the TV over one week, while the red line shows a smoothed version over 12 weeks (Nerds note: for the coin count, I have deducted inventory of 1,530,029 BTC, which are still held by miners).

Source: NV (black), TV (green), 12-week smoothed line (red).

Different characteristics closely link these three lines. A few observations:

  • The y-axis right and left scales are 10:1 apart. NV tends to be around 10 times TV.
  • The 12-week TV lags the 1 week TV. When they cross, they agree.
  • From 2015 to June 2017, the NV appeared to trade below TV.
  • Post 2018, NV is more in line with TV.

The y-axes are 10x apart, which looks neat and simplifies the point. However, this relationship moves over time. By dividing the NV by the TV, you get the network value to transaction value ratio (NVT). That is shown by the blue line below. It used to average around 7, but post-2019 has been closer to 10.

The red line is a three-year trailing median of the blue line. As you will recall from school, a median gives less weight to the outliers, which is important as Bitcoin has plenty of outliers. The red line varies around 7 until 2018 and has been rising since. It is now 10, which is how ByteTree’s valuation models have been calibrated.

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