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Academy Industry Analysis Article

Five On-chain Metrics to Assess Post-halving BTC Markets

2020.05.08 何, 颖

The sentiment has been high in the cryptocurrency space as markets await the long-expected bitcoin reward halving, which is t-minus four days from now. OKEx Academy covered everything you need to know about halving, from the basic to trading strategy, and also data that matters.

BTC Halving highlights from OKEx

One of the most popular narratives about halving is that it will reduce the supply of bitcoin. Therefore the price will go up. While this story may continue to fuel BTC bulls in the medium/long-term perspective, key on-chain and market data should also deserve traders' and investors' attention, especially shortly after the halving. That is because these data could reveal key information about the market sentiment and could provide essential price implications for the short-term.

1. Unique address used

The bitcoin unique addresses show how many addresses that have been participated in sending or receiving activities on the blockchain, it has been considered one of the most effective on-chain indicators for the overall level of network activity and the valuation of the cryptocurrency, in the case bitcoin.

As we can see, the number of unique addresses has fully recovered to the pre-selloff levels, and the uptrend seems been continuing as the price moves toward the 9200 handles.

Why is that important?

We believe that the continuation of the rising unique address is critical for keeping the BTC rally in the post-halving period, as the number of active users could directly affect the value of the network. A higher number could indicate more users were transacting on the network, results in a higher valuation and a higher price.

Figure 1: Bitcoin Unique Addresses Used (as of May 7)

Source: OKEx; blockchain.com

2. Hash rate and difficulty

Hash rate and the difficulty could be another clue for what will happen after bitcoin halving. The upcoming reward halving will cut the total block reward for miners from 12.5 BTC to 6.25 BTC. As miners’ reward is set to reduce, downward pressure on mining profitability is expected to increase.

At the time of writing, bitcoin hash rate and difficulty almost reaching their all-time high, as miners were in full power to validate as many transactions as possible to maximize their rewards before it got halved. At the same time, difficulty also pointed in the same direction, showing the competitions between miners were heated.

Why is that important?

We believe that the level of willingness that miners want to allocate their computing power into the network is a crucial indicator because it could reflect how confidence miners are in terms of the price. Lennix Lai, Financial Market Director at OKEx, told Cointelegraph that miners might start preparing to earn income only from transaction fees, as mining rewards keep reducing.

Figure 2: Bitcoin Total Hash Rate (TH/s) as of May 7

Source: OKEx; Blockchain.com

Figure 3: Bitcoin Network Difficulty (t) as o May 7

Source: OKEx; Blockchain.com

3. HODLer net position change

HODLers’ stance on BTC prices could also be another key indicator for investors to evaluate the post-halving market. Data from Glassnode shows that BTC HODLer net position change has been staying positive for eight consecutive weeks, suggesting that HODLers have been staying bullish in pre-halving.

However, the Glassnode’s report also pointed out that price could be peaked when HODLers stop accumulating BTC. The report sighed an example in February when the price reached over USD 10000, hodlers’ stopped accumulating BTC, suggesting HODLers’ confidence has been lowered at such price levels.

Why is that important?

We believe that the confidence levels of HODLers/whales could give important implications on the post-halving BTC prices, especially from a medium-term perspective, because the accumulation and reduction of BTC could be a direct reflection of the sentiment of HODLers and whales.

Figure 4: Bitcoin HODLer Net Position Change

Source: Glassnode

4. Social volume

The social element is a unique part of the cryptocurrency market structure, and investors probably do not want to miss out on how the crypto community and the rest of the internet see bitcoin in the post-halving period. In our previous research, we highlighted the importance of social media metrics, and that is something that often is forgotten.

Figure 5 shows the aggregate social volume of the term “bitcoin” over Telegram, Reddit, profession trader chatrooms, and other social sources. In some cases, a sudden spike of social volume could point to a price peak, results in price corrections or consolidations. While consolidation of social volume after a plunge may indicate, markets could be bottomed.

Why is that important?

Our research has pointed out that cryptocurrency investors often only have limited choices when it comes to market analysis, that patchy information landscape could strengthen investors' tendency to make trade decisions based on their sentiment.

Figure 5: Social Volume Score

Source: Santiment

5. MVRV ratio

The MVRV ratio is the market value (MV) divided by the realized value (RV). The number could tell us if the underlying is overvalued or undervalued the current market cap, in this case, BTC. If the MVRV is between 0 and 1, then the market is “undervalued” on average.

At the time of writing, markets found themselves four days away from halving, data from Santiment shows that BTC’s MVRV ratio was standing at 0.99.

Why is that important?

We believe that the valuation is crucial information when it comes to predicting bitcoin prices. For example, if the MVRV value is 2, which means that HODLers sell their assets at the current price will generate a 200% profit on average, which could mean more people will be willing to lock up their profits and sell their assets. It will be interesting to see where the MVRV will go in the post-halving period.

Author: Cyrus Ip

Research Analyst, OKEx.

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.