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1. Sentiment dives into “extreme fear”
The Fear & Greed Index, a standardized sentiment score for crypto markets from 1-100, at the time of writing plunged to 33.
It’s important to point out that the index briefly plummeted even to the “extreme fear” territory of 21 last week. However, the index is becoming a source of amusement for some familiar names.
Investor and entrepreneur Alistair Milne noted that “extreme fear” is hardly an appropriate reaction to BTC/USD trading at $54,000.
“This much fear and we are at $54k. Wild,” he noted.
According to Will Clemente, from an intermediate-term standpoint, there’s a clear bullish sentiment between the illiquid supply shock ratio and price right now. Illiquid supply shock compares liquid entities (sell 50% of the BTC they take in) and highly liquid entities (sell 75% of the coins they take in) to illiquid entities (hold 75% of the coins they take in). That is to say, supply is moving to entities with little history of selling. Until this starts to decline, there is no reason to become bearish. For now, it is continuing a steady incline.
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There are numerous models on how to value Bitcoin.
One of the most commonly used has been the stock to flow (S2F) model,an indicator used in commodities for decades and has now been popularized by an analyst PlanB.
It’s easy to understand why stock to flow has gained popularity, as it is relatively simple to grasp and has proven surprisingly accurate to date.
But let’s look at how the model works.
The model is defined by the following equation:
SF = stock / flow
Stock is the size of the existing stockpiles or reserves, and flow is the yearly production.
The chart below is a representation of S2F when applied to Bitcoin.
The beauty of the S2F formula lies in its simplicity. For example take a look at the Stock-to-Flow Metrics for selected precious metals below.
The third column (SF) refers to the number of years it would take to double the existing supply of an asset if current production levels remained the same.
So in the example above, it would take 62 years to mine the existing levels of gold out of the ground, making the supply we have right now relatively scarce. By way of comparison, it would take 22 years for silver, 1.1 for palladium and 0.4 for platinum
So the higher the number in the SF column, the scarcer the asset.
When PlanB released this chart, Bitcoin’s SF was 25, with 17.5 million coins in stock and 700,000 coins in production per year. That made Bitcoin scarcer than silver but not quite as scarce as gold.
But over the past two years, Bitcoin’s S2F has become significantly higher. Its total stock has increased to 18.9 million bitcoin and, because of last year’s halving, the issuance schedule fell to 328,500, raising Bitcoin’s SF from 25 to 57.5.
One of the biggest reasons Bitcoin advocates believe in the SF model is that the production schedule is very predictable. Just take a look at the chart above.
Of course, there is no failproof way to predict the price of Bitcoin. But the model has worked like clockwork so far, and many fund managers have started using it to predict the price of Bitcoin.
3. What Exactly Is a Hashrate?
Bitcoin is a proof-of-work asset, and a hashrate is used to measure the total computational power used to process transactions and mine new coins.
Hash consists of a 256-long alphanumeric string that must begin with 18 zeros at the time of writing.
For example, a hash of blocks look something like this:
But to get to this hash, Bitcoin miners must try their luck.
By way of analogy, it is strikingly similar to a group of friends throwing a pair of dice. The first one who rolls a double 6 gets to be the lucky miner. To compensate these miners for their hard work, they are rewarded with Bitcoin..
That transaction is called a coinbase transaction, which is the very first transaction of each block. The reward used to be 12.5 Bitcoin per block. However, in May 2020, this reward got halved 210,000 blocks to 6.25 coins per block. The next halving is expected to take place around May 2024.
In essence, the hashrate is the total number of times that such tries are being conducted every second across the Bitcoin network.
So to use our figurative example, it is the number of times that these metaphorical dice are thrown to get that double six.
It’s important to remember that being the lucky Bitcoin miner is exponentially much more difficult than just getting a double six. This number is currently very high.
At the time of writing, the hashrate was over 156,000,000 TH/S (156 million tera hash) where 1 TH/S is 1,000,000,000,000 (one trillion) hashes per second.
On one hand, a high hashrate signifies that there are a lot of miners active in that particular blockchain and that the blockchain is healthy. On the other hand, a high hashrate also means that the electricity consumption is high.
Although with all of the developments surrounding China’s crackdown on crypto mining hashrate dropped but it’s important to realize that over the last 3 months Bitcoin’s hashrate soared 42% higher. In other words, Bitcoin is almost 50% more difficult to mine than it was 3 months ago.
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