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Money Supply and Bitcoin Distribution

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Supply and demand are the two most important forces in any market. As the first thing that kids learn when they begin studying economics, it is a tool that can be applied to almost anything

The company Chainalysis provides analysis of recent occurrences on the blockchain and how they affect the overall economics of the market. Although Bitcoin is thought to be anonymous in the layman’s world, those familiar with the technology will tell you it is easily traceable with the right tools. Chainalysis uses compliance and investigation software to break down the trends on a macro-scale.

Segmenting Bitcoin Holders

It is tempting to think of investors as a homogeneous aggregate of hardcore Bitcoin enthusiasts, but the reality is much more complicated than that. Chainalysis classifies the coin on a spectrum according to how liquid the coins are. The range starts at the level of speculators and goes all the way to lost coins (or those that haven’t even been mined yet).

The most liquid category is that of the speculators (or traders). They are short term investors, and are mostly looking to make a quick buck before selling out of their position. The rise of so many trading platforms is clear enough evidence that this segment is continuing to increase. As of April 2018, it composed 35% of the current money supply.

Bitcoins used in transactions are the second-most liquid type of Bitcoin. In a way, these Bitcoin are being used for the reason Bitcoin was originally invented for: facilitating economic exchanges without the involvement of a bank. These can often be estimated based on the movements of the wallets belonging to major services.

Investment coins, or the coins held by long-term investors (HODL’ers) are the least liquid of the coins in circulation. Yes, there are the 4 million unmined coins and 2.3 million lost coins, but these coins are actually held by investors, but are not expected to surface any time soon.

The lost coins are estimated based on the amount of time it has been since the wallet in question last spent Bitcoin. Users aren’t expected to report it every time they lose the private key to their wallet, so the best method of estimating this portion of the money supply is by using 2014 as a cut-off date for lost wallets. It is always possible the owner of the wallet is a long-term holder, but this is an inexact science.

What Do the Trends Mean?

One of the more interesting observations is that the proportion of Bitcoin used to make transactions by major services has remained stable over time. This could mean several things – the services could be managing their wallets carefully, or the industry’s zero-sum structure could prevent the share of money supply from growing too high.

Investment coins actually used to compose a much larger proportion of the money supply, but over the last year their share has decreased from 72% to approximately 50% of the share. This is likely a reflection of the increased trading activity and rent-seeking on the part of speculators.

Another implication here is that investors have cashed out of their holdings in a meaningful way. This can be interpreted in one of two ways: either the investors lost faith in Bitcoin, or they wished to lower their adjusted cost base in the coin by buying back their coins on the dip.

To put things in monetary rather than percentage terms, during the crash of early 2018 investors sold off $30 billion of Bitcoin. This Bitcoin was picked up by speculators, which is a sign that even more volatility can be expected in the Bitcoin space in the future now. These speculators are putting a downward pressure on the coin by not holding long-term, and more investors take a long-term view on Bitcoin, we can expect these trends to continue.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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  1. Mister.Ticot

    July 11, 2018 at 4:30 pm

    What about the people who recently bought coin with investing in mind? Having held the coin for only a short duration now, wouldn’t they be count as part in speculators category in those statistics?

    Another way to put it: can those numbers give away people intention when they recently bought the coin?

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Bitcoin

New Bitcoin Core Release Prevents Miner DoS Attack

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The Bitcoin Core development team released an important update yesterday that patches a crucial security vulnerability. Bitcoin is usually known as the most hackproof and secure blockchain, which makes any vulnerability in the network incredibly newsworthy.

Specifically, the patch addresses a potential opening for a denial of service attack within the Bitcoin Core wallet software.

The way the potential exploit could work was by allowing anyone who was capable of mining a sufficient number of proof of work blocks to crash Bitcoin Core nodes running software versions 0.14.0 to 0.16.2.

They made sure to emphasize, however, that stored funds were not at risk. They also warned that derivative software such as Knots are also affected and have their own specific patch for the issue.

That said, the developers made clear that if you only occasionally run Bitcoin Core, it is less urgent to patch, although it would obviously be safest to upgrade as soon as possible.

Upgrading will take between five minutes to half an hour dependent upon the processing power of a given users computer. In addition, users should note that the new wallet will have to redownload the entire blockchain and that downgrading to an older version after the fact is not supported.

The update also fixed a non-insignificant number of minor bugs. I strongly encourage our readers to check out the full instructions on the Github page for Bitcoin Core.

These bugs were:

1. Consensus: 14249 696b936 fixed crash bug with duplicate inputs within a transaction
2. RPC and other APIs: gives an error when an amount is needed but missing
3. Miscellaneous: Invalid flags error should be set to bitcoinconsensus_err
4. Documentation: #13844 11b9dbb correct the help output for -prune

The news could have come at a better time for Bitcoin. There has been mounting uncertainty about whether Bitcoin is trapped in a semi-permanent slump that could continue for years. Those who believe in the untapped power/capabilities of the Bitcoin network continue to wait for solutions like the lightning network to increase the utility of Bitcoin as a true peer to peer electronic cash.

Although this should not concern those who primarily view Bitcoin as a store of value, any whiff of exploits in the network’s inherent security could result in a massive sell-off as core assumptions are demolished. This analyst hopes this is a momentary blip in the promise of Bitcoin. I encourage our readers to reach out to members of the dev team directly for any additional clarifications.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Bitcoin

Bitcoin’s Third Bear Market Showing Little Sign of Letting Up: Analyst

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Despite several attempts to rationalize bitcoin’s yearlong downturn, the leading digital currency remains locked in a protracted bear market that is showing little signs of letting up, according to veteran analyst Willy Woo. Based on this view, there’s little evidence to suggest that a reversal is imminent.

Bear Market Continues

In a recent tweet, Woo emphasized that bitcoin’s downtrend is likely to continue for longer and that there was no evidence of a reversal anytime soon. This view is reinforced by a historical analysis of bitcoin’s trajectory, which suggests that sideways trading is the best the market can hope for at the moment.

“Bitcoin has seen only 3 bear markets in its history,” Woo said. “We are in the third one now. One signal we can use to determine the end of the bear is for the price to cross above its 200 day moving average.”

Woo’s position isn’t bearish on the value prospects of bitcoin; it merely suggests that the bulls aren’t out of the woods yet.

The view that bitcoin is still in the middle of a downtrend contradicts several leading opinions on the matter. Wall Street crypto analyst Tom Lee has predicted that a return to record highs is possible this year, while billionaire investor Mike Novogratz has said that an exhaustion of the current downtrend will likely generate a bullish reversal in the foreseeable future. Although some of these viewpoints are backed by fundamental research, fear, uncertainty and perhaps manipulation have undermined bitcoin’s revival. This comes despite a wave of positive developments regarding institutional adoption, business innovation and even regulation.

As Hacked recently showed, bitcoin’s latest price collapse appears to have been set in motion by a prominent whale moving hundreds of millions of BTC and BCH to multiple wallets. A large chunk of those assets were then transferred to leading digital currency exchanges where they may have been sold.

BTC/USD Update

Bitcoin is currently trading at $6,331 on Bitfinex, where it is little changed compared with the previous session. Data from CoinMarketCap suggests the BTC price has gained roughly 1% over the past 24 hours on trading volumes of $4.4 billion.

Bitcoin’s momentum indicators suggest lateral moves are likely to continue in the short-term as neither the RSI nor the MACD is showing signs of breaking out. The leading digital currency slumped at the start of the week after failing to make new highs. The BTC price appears to have formed a double-top above $6,500, which eventually paved the way for a reversal.

At current values, bitcoin is capitalized at $109.6 billion, which represents 55.3% of the entire market.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 604 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Analysis

Crypto Update: Market Remains Weak Despite Ripple’s Surge

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Ripple made headlines today in the cryptocurrency segment, as the third largest coin jumped by more than 15% after trading in a narrow range for several days. Most of the major coins joined the rally, but the gains were muted and the technical setup remained unchanged in most cases, with the long-term outlook still being bearish, while the short-term picture remaining mixed.

Ethereum, which has been in the center of the trends in the segment for weeks rallied back above $200, but stayed below the recent swing high, leaving several questions unanswered concerning the short-term trend. Bitcoin also got stuck near the $6275 level yet again, and the total value of the market is still below the $200 billion mark, with still no clear signs of major capital inflows in the segment.

ETH/USD, 4-Hour Chart Analysis

Ethereum quickly recovered above $200 after dipping below the weekend lows yesterday in late trading, retaining the short-term buy signal in our trend model. That said the coin still needs to show stronger bullish momentum to avoid a resumption of the clearly declining long-term trend. As sustained dip below $200 would still warn of a move to last week’s lows, while a move above $235 would open up the way towards $260 and the confluence resistance near $275.

BTC/USD, 4-Hour Chart Analysis

Bitcoin has been showing weakness in the last couple of days, and although the coin is still on a short-term buy signal, similarly to Ethereum, a quick recovery above $6500 would be needed to avoid a bearish turn.

Traders should hold on to their positions here, but given the still bearish segment-wide trends, we still don’t advise full positions even in the stronger coins. Below $6275, weaker support is found at $6000, close to the key long-term zone near $5850, while resistance is ahead at $6500, $6750, and $7000.

Ripple Needs Follow Through For a Buy Signal

XRP/USDT, 4-Hour Chart Analysis

While today’s spike in Ripple is encouraging, the coin needs to show further signs of strength, as the recent sudden spikes in the majors were quickly sold as the bearish trend remained dominant in the segment.

With that in mind, despite the broken resistance levels, XRP remains on a neutral short-term signal in our trend model, while still being bearish from a long-term perspective. The coin is currently trading right at the $0.32 level, with support found at $0.3130, $0.30 and near $0.30, while strong resistance is ahead at $0.35.

DASH/USD, 4-Hour Chart Analysis

Dash is among the stronger coins from a short-term technical standpoint, trading in a bullish consolidation pattern just below the key $200 level. That said, the coin failed to show strength today amid Ripple’s rally, and that still points to a dominant bearish trend in the segment. With that in mind, traders should wait for further positive signs before entering new positions, especially since a bullish leadership still hasn’t developed.

IOT/USD, 4-Hour Chart Analysis

IOTA is still weaker than average, together with NEO, EOS, and ETC, and the coin is still just above the August lows, clearly being in a broad downtrend, despite holding up above the lower boundary of its short-term range. A test of the lows is likely in the coming weeks, and the coin remains on sell signals on both time-frames, with support found between $0.455 and $0.475, and near $0.405, and with key resistance ahead near $0.57 and $0.64.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 348 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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