Bitcoin Went Down?!?!?

Let's look into the price of Bitcoin and the value of Crypto tokens

Author

Adam Blumberg
January 21, 2024

What Happened to Bitcoin Prices?

I’ll admit it…I didn’t expect that.

More trading volume and inflow records…and the price lost 20%.

Bitcoin and crypto give us new metrics and data points to consider, and we’ll discuss below.

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📉Why the F*^k did Bitcoin go DOWN?

A Surprising Twist in Bitcoin's Market Journey

Last week was pretty important in the crypto cycles. It was the first week of bitcoin spot ETFs trading. Despite high expectations from the crypto community, Bitcoin experienced a notable 20% drop from its high, coinciding with the trading of new ETFs. This development offers a prime opportunity to dissect the complex dynamics of Bitcoin as a global asset and to understand the factors influencing its price movements.

The ETF Phenomenon and Bitcoin's Price Fluctuation

The launch of nine new Bitcoin ETFs, including those from giants like BlackRock and Fidelity, witnessed tremendous inflows, exceeding a billion dollars in some cases. This surge in demand was expected to boost Bitcoin's price. However, the reality was a stark reminder of the multifaceted nature of global asset movements. The very demand for these ETFs, unique in their impact on the underlying asset's price, brought an unexpected twist.

Deciphering the Price Drop: Key Factors at Play

  1. Grayscale's GBTC Conversion: The conversion of Grayscale's GBTC to an ETF played a pivotal role. With its higher fees (1.5% compared to others at 20 basis points), investors shifted to less expensive alternatives, leading Grayscale to sell a significant amount of Bitcoin to balance its assets under management.

  2. Bitcoin Miners' Strategic Moves: The upcoming Bitcoin halving in April, where block rewards will halve from 6.25 to 3.125 Bitcoin, led miners to sell off portions of their Bitcoin holdings. This was likely a strategic move to ensure liquidity and operational stability post-halving.

Insights for Financial Advisors

  • Understanding Global Asset Behavior: This event underscores the importance of comprehending the global nature of Bitcoin and how various factors, beyond just demand, can influence its price.

  • Strategic Planning for Halving Events: The Bitcoin halving is a significant event that can impact miner behavior and market dynamics. Advisors should consider these cycles in their investment strategies.

  • Adapting to ETF Impacts: The introduction of Bitcoin ETFs has introduced new dynamics in the market. Understanding and adapting to these changes is crucial for effective client advice.

Conclusion: Embracing a Holistic Approach

Bitcoin's recent price fluctuation, influenced by the ETF introduction and strategic decisions by key players like Grayscale and miners, highlights the need for a comprehensive understanding of cryptocurrency market dynamics. As financial advisors, we must navigate these complex waters, balancing knowledge of global trends, technological shifts, and market psychology to guide our clients effectively.

🌐 Exploring New Metrics: How Developer Reports Shape Crypto Asset Valuation

We talk so often about new and different metrics we’ll use for crypto assets, many of which will even translate to tokenized versions of traditional assets.

So today we’re going to talk about developer activity on different blockchain networks, and how it might impact the value of the crypto assets representing those networks.

The Significance of Developer Activity in Crypto Networks

You know, every year Electric Capital, a venture capitalist in the Web3 and crypto realm, releases a developer report. This report is like a treasure map for understanding where the action is happening in the blockchain world. It shows us which networks or blockchains are buzzing with the most developers, and guess what? Ethereum is leading the pack, followed by Polygon and Solana.

Why Should You Care About Developer Activity?

You might wonder, "Why should I care about developer activity?" Here's the deal: The more developers a network has, the more apps are likely being built on it. More apps mean potentially more adoption, more usage, and ultimately, more demand. And what does more demand lead to? You guessed it – potentially higher prices for the network's token, like ETH for Ethereum, MATIC for Polygon, or SOL for Solana.

A New Lens for Valuing Crypto Assets

This is a whole new ballgame in terms of metrics. Unlike traditional finance, these networks don't produce cash flow, and the tokens don't represent ownership in the network. Instead, they represent potential demand for space on that network, paid for with the native token. And here's the cool part – all this is transparent. You can actually hop onto GitHub and see what these developers are building.

Why This Matters for You

As we navigate the evolving landscape of crypto investments, it's essential to keep an eye on these new ways of valuing assets. A report like Electric Capital's isn't just informative; it's a vital tool for understanding where the crypto world is heading.

Conclusion: Embracing the Future of Finance

So, as we journey together through this new frontier of finance, remember, it's not just about price charts and trading volumes. It's about understanding the heartbeat of these networks – the developers. Their activity can give us unique insights into the potential value and future of these digital assets.

We Launched a Podcast!

Years ago we had a podcast about crypto and DeFi, and we decided to re-launch the Interaxis Podcast. Now we’re talking about the happenings in crypto, and how they affect you, the financial advisor.

🌐Decoding the Value of Crypto Tokens: Insights for Financial Advisors

In this issue, we talked about the new metrics and data points for Bitcoin, and for other networks. Let’s discuss some valuation thoughts and techniques.

As usual, the video is at the end.

Understanding the Diverse Values of Crypto Assets

In the world of crypto, not all tokens are created equal. Each has its own set of valuation techniques, fundamentals, and speculative aspects. It's somewhat like evaluating traditional assets – we assess their potential value over time and how that accrues to what we own.

Case Study: Bitcoin and Ethereum Networks

- Bitcoin: When evaluating Bitcoin, consider factors like its potential increased usage due to its decentralized nature. With a cap of 21 million coins, if the usage increases, what could be the potential value of Bitcoin? This is a fundamental valuation approach that might differ from other crypto assets.

- Ethereum: Looking at Ethereum, if you predict an increase in its adoption (like by big players such as BlackRock or Visa), this could mean more demand for ETH to pay for transaction fees (gas) on the network. This demand for block space could potentially increase the value of ETH. However, remember to also factor in Ethereum's issuance policy, where new ETH is created every 12 to 13 seconds, and some are burned based on the transactions in a block. This policy can affect the overall supply and value of ETH.

Diverse Crypto Assets: Filecoin, Chainlink, and Solana

- Filecoin: With Filecoin, you're looking at a token used for data storage on the blockchain. Evaluating its potential to replace or augment services like Google Cloud or Amazon Web Services will help you gauge its adoption and subsequent impact on the token's value.

- Chainlink: Chainlink serves as an Oracle provider, facilitating off-chain data movement onto the blockchain. Assessing the growing need for such services and how it might impact the demand and value of LINK tokens is crucial.

- Solana: A smart contract platform like Ethereum but with different issuance policies and transaction costs. Understanding the number of builders and applications on Solana can give insights into its adoption and the potential demand for its token.

A New Paradigm in Valuation

As a financial advisor, you need to recognize that crypto assets will not always move in sync. Like evaluating stocks, you should assess each token based on its potential growth, adoption, issuance policies, and market dynamics. This approach requires understanding the unique characteristics of each token and its underlying blockchain technology.

Conclusion: Navigating the Crypto Landscape

Navigating the world of crypto tokens requires a nuanced understanding of various factors – from blockchain technology to market adoption, issuance policies, and even the role of governance tokens. It's about looking beyond the surface to understand the intrinsic value each token might hold.

If you’re enjoying this, tell your friends. Always something happening in crypto and we’ll break it down for you.

See you next week!

-Adam