Euphoria has once more gripped the space and sights have quickly moved beyond $10k bitcoin, $100 Litecoin and up-to potentially $100k Bitcoin, $1k Litecoin and the start of a new major bull trend with the upcoming halving events on both networks. However, data from New York-based blockchain researcher, Chainalysis suggests that not much has changed regarding fundamental usage of the network.
“Bitcoin economic activity continues to be dominated by exchange trading,”
Exchange activity still accounts for 89.7% of bitcoin network usage, a nominal change from 2017 and 2018 of 91.1%. Peer to peer activity has however increased from 2.5% to 3.9%. Merchant usage remains around 1.5%, Mining at 3.2% and darknets at 0.8%, more than doubling from 0.3% in 2018.
“This suggests Bitcoin’s top use case remains speculative, and the mainstream use of Bitcoin for everyday purchases is not yet a reality.”
- Kim Grauer, senior economist at Chainalysis
Then again, it’s not necessarily a bad thing, beyond the fact that it is just the market exercising free will. On chain analyst and partner at Adaptive Capital, Willy Woo, provided further insight via twitter regarding his NVT pricing model that has proven useful in determining prior market trends and fundamental network value, based upon real world usage and transaction data. His method suggests bitcoin price has more than doubled its actual usage and a more realistic valuation is closer to $3.7k per bitcoin.
“If you want to see just how high the price exceeded what’s normal for on chain capital flows, NVT Caps paints a very clear picture. The short squeeze pushed price mismatch to late bull market “mania” levels before the blow off today, we are still well above organic levels.”- Willy Woo
Onchain flows still have yet to adjust to the market bullishness, supporting the view that this recent period has been driven by speculation primarily over real world usage. While news has been more bullish, with Bakkt launching soon and Fidelity providing promising status updates, no one knows where the price will go next. The recent rise, matched with this data, does suggest that we may be seeing once more an overvaluation of the space. The increasing hashrates, security and price may not be sustainable in the short term.
Everyone’s eyes are now on the upcoming litecoin halving in august 2019 and bitcoin halving in 2020, where the promise of scarcity has tended to drive prices much higher before returning to a more sustainable level. The run up however, has occurred much sooner than in previous halvings which may mean that it has already been priced in… Or perhaps as was the case in 2019, we will see prices continue to rise unabated.