the key factors to analyze

In this article we are going to look at what are the most interesting on-chain metrics for Bitcoin.

As the cost of mining a BTC approaches the current market price of the cryptocurrency, the hash rate quietly drops, giving way to a decrease in network problems.

Meanwhile, liquid Bitcoin is becoming increasingly scarce in the markets, with crypto holders not giving up and jealously guarding their coins for over a year.

Overall, the situation for Bitcoin is very complex: on-chain metrics help by giving us some indications for the medium term, but at the same time, the US economy reflects conflicting data from each other.

Let’s check all the details below.

Bitcoin network problems after the hash rate drop

Analyzing Bitcoin’s chain data, we quickly see that the network’s mining problems are decreasing, with the recent adjustment on September 6th resulting in a -2.65% in block resolution time.

Adjustments to network problems occur approximately every 2 weeks (more precisely, every 2016 blocks) to ensure that each block is added to the Bitcoin blockchain approximately every 10 minutes.

An increase in difficulty indicates that competition among miners is increasing and that the overall computing power of the network is growing.

Conversely, a decrease in this metric indicates a decrease in miner presence and overall computing power decreasing.

Indeed, while noting that the overall trend in hash rate is extremely positive with year-over-year increases in network security, things are slightly different in the short term.

The 14-day average of this indicator shows us that at the beginning of September there was a significant decrease in the work of miners, who contribute through their computing power to validate transactions and ensure the perfect functioning of Bitcoin’s blockchain.

In turn, the reduction in the hash rate depends on an environment in which profitability for miners becomes increasingly risky after the cryptocurrency’s latest depreciation.

Indeed, while Bitcoin prices recently fell below $26,000, the average cost of mining per coin rose slightly to around $23,289.

In such a situation where the profit margin is minimal, many insiders chose to turn off their hardware in anticipation of better times.

Also note how these figures represent an average based on US electricity costs provided by Cambridge University.

If we were to take the rest of the world as a reference, we would observe much higher costs in some countries such as Italy and much lower costs in countries such as Lebanon.

However, it is worth mentioning here that most of the network’s computing power comes from the United States, where there are major mining companies such as Foundry USA, Riot Blockchain, Hut8 mining, Marathon Digital and Bitfarms.

Bitcoin: on-chain data shows liquidity shrinking with crypto holders staying firmly on the market

Although mining data is not among the most optimal, we can see how Bitcoin holders are not discouraged and remain convinced of the cryptocurrency’s long-term potential.

Indeed, most of Bitcoin’s supply is illiquid, so it hasn’t been moved for more than a year. In detail, 68.65% of the supply is in the hands of holders (or refers to lost coins that are no longer accessible due to the loss of private keys) who are simply waiting for a significant increase in the coin’s price for the next halving

Approximately 4.12 million BTC represents the true liquidity of the asset, where most is handled by centralized operators such as exchanges.

In such an environment, where we observe a low general interest in investing in speculative assets like Bitcoin and a low liquid supply for the cryptocurrency, the risks of price manipulation are very high.

Now movements in the market are very dependent on factors outside the logic of the crypto market, such as the FED’s decisions on interest rates and the issues surrounding the approval/denial of a spot ETF for Bitcoin.

Although this is not exactly positive as the cryptocurrency price is at the mercy of various sharks, we still have to admit that the situation is becoming more positive in the long run.

The fact that the short-term supply is becoming increasingly illiquid is a factor that emphasizes the scarcity in the digital sphere of the asset with an increasing interest of bitcoiners to store their satoshi safely.

Therefore, a strong accumulation is underway.

A complex picture to analyse: what to watch for in the coming weeks

The big picture for Bitcoin is becoming more and more complex, with the on-chain data being slightly worrisome in the short term and certainly more encouraging in the long term.

At the same time, all this reasoning needs to be placed within the logic of the US markets, which could be a total game changer, at least between now and the next 6-12 months.

The US economy is also showing mixed signals and it is not helpful to come to a clear conclusion with the growing service sector driving the country’s existence and inflation unfortunately still not completely under control.

Manufacturing appears to be picking up, but the inventory/sales ratio has fallen to its lowest in 3 years indicating that something is not quite right.

It is also striking how the dollar is not experiencing one of the best times in the last decade, especially considering the recent attacks with the formation of the BRICS alliance.

On the Bitcoin front, given the uncertainty prevailing in every aspect, it will be important to watch what the SEC’s upcoming decisions will be in light of the deadline for approval of BlackRock’s ETF.

Indeed, the approval of such a financial product can legitimize the asset on a more institutional level leading to a high increase in volumes and disrupting the current dominance situations.

At the same time, the FED’s upcoming FOMC determinations will be crucial to understanding what Powell has in mind for the coming months, with investors expecting a return to expansionary monetary policy by May next year.

Meanwhile, for the next meeting, odds suggest interest rates will remain unchanged at 5.25-5.50% with only a 7% chance of a 25 basis point hike.

As long as rates remain this high, it will be difficult to see any real flow of capital, given that investors prefer to invest in government bonds that give an assured and decent return, rather than looking to the uncertainty of speculative markets to move

However, when and if we return to near-zero interest rates, we can expect a sharp rise in the price of Bitcoin and the entire US stock sector.