VanEck Mid-August 2024 Bitcoin ChainCheck

Please note that VanEck has exposure to bitcoin.

Our mid-August 2024 ChainCheck provides insight into Bitcoin's mixed on-chain signals and highlights notable off-chain developments. Over the past 30 days, we have observed Bitcoin's market resilience amid U.S. election season volatility and innovative shifts in the mining industry.

Some takeaways for Mid-July – Mid-August:

• Bitcoin’s Price Action
• Bitcoin ChainCheck Monthly Dashboard
• Bitcoin’s Network Activity, Adoption, and Fees
• Bitcoin Market Health and Profitability
• Bitcoin Miners

Bitcoin’s Price Action

• Market sentiment: At $59,052, bitcoin’s 7-day moving average (7 DMA) is down 9% over the past 30 days. Bitcoin surged in late July, outperforming the SPX and NDX, fueled by Donald Trump's rising poll numbers after the assassination attempt and optimism over the RNC's 2024 platform—the first U.S. party platform to endorse crypto with explicit, positive policies. However, this enthusiasm ended abruptly in early August, which saw bitcoin prices briefly dipping into the upper $ 40,000s amid one of the worst stock market selloffs since the COVID pandemic. Importantly, the selloff was not catalyzed by the crypto markets but by the unwinding of the Japanese Yen carry trade, which saw hundreds of millions of dollars of loan liquidations caused by a meager 0.25% interest rate hike from the Bank of Japan—if anything, highlighting the frailty of global financial markets and underscoring the case for hard money assets and commodities like bitcoin and gold. On balance, investor sentiment appears neutral to us.
• Bitcoin dominance: Interestingly, as illustrated by rising Bitcoin dominance (+4% MoM), Bitcoin benefits from optimism around electing a pro-crypto administration as a hedge against it. In the past 30 days, bitcoin dominance made multi-year highs not seen since April 2021. While the entire digital assets ecosystem would benefit from more crypto-friendly regulators, Bitcoin is uniquely positioned to outperform the rest of the crypto market if a more crypto-hostile administration is elected, thanks to regulatory clarity around its status as a commodity.
• Regional trading:
• Asia hours: BTC’s 7 DMA price fell 4% this month during Asian trading hours.
• U.S. hours: 7 DMA prices fell 6% this month as Trump odds fell.
• EU hours: The MoM change in BTC’s 7 DMA price increased 1% among European traders this month, possibly due to them adding during selloffs in the larger Asian and American markets.

Source: Glassnode, as of 8/19/24. Past performance is no guarantee of future results.

• Funding rates:
• Over the past 30 days, the 7 DMA annualized cost of funding Bitcoin futures has dropped from ~11.6% to ~8.8% for a relative decline of ~24%. These levels indicate a risk appetite similar to those seen during market recoveries following 20%+ BTC price drops in early May and July of this year.

Bitcoin ChainCheck Monthly Dashboard

Source: Glassnode, VanEck research as of 8/19/24. Past performance is no guarantee of future results.

Bitcoin’s Network Activity, Adoption, and Fees

• Daily transactions: Average daily transactions on the Bitcoin blockchain dropped 11% from their all-time highs set last month. However, this figure still rests at the 99^thpercentile of all-time history, indicating sustained network adoption.
• Ordinals inscriptions: Curiously, Ordinals inscription transactions increased 83% after months of decline. While the metric is still down 80% YoY, this month’s surge in activity is a welcome change for Ordinals ecosystem artists, developers, and users. We believe activity may be picking up amid cautious optimism particular to Bitcoin ecosystem dominance.
• Total transfer volume: Transfer volumes were down 14% for the month. After adjusting for 9% price declines, this number was essentially flat in the 85^thpercentile.
• Average transaction fees: Average transaction fees dropped 44% to $0.79 this month, down 17% year-over-year, despite increased daily transactions. This decline is driven by Bitcoin's hash rate reaching new highs in 2024 and reduced network congestion. Fees have been decreasing since their June spike, where they peaked at ~$50 per transaction due to a surge in unconfirmed transactions, reportedly linked to OKX's wallet sorting. Concurrently, Bitcoin's difficulty adjusted to a record high level at the start of August, with further increases expected in the next adjustment anticipated on August 28th.

Bitcoin Market Health and Profitability

• Percent of addresses in profit: The weekly average of Bitcoin addresses in profit declined 9% over the past 30 days, reducing the total to 84% and representing the 72nd percentile of the metric’s all-time history. Despite the pain for short-term investors, we remind newcomers to the asset class that this drawdown is well within the bounds of a typical bull market retracement.
• Net unrealized profit/loss: This ratio dropped 1% to an average of 0.47 this month, hovering just below the 'Optimism — Anxiety' and 'Belief — Denial' sentiment line drawn at 0.50. This week's reading reinforces the neutral sentiment noted earlier, as this metric has remained close to this line since late June.

Bitcoin Miners

• Total daily BTC miner revenues: Daily mining revenue averages dropped 12% to approximately $27.4 million this month, a metric we advise caution in over-indexing. While bitcoin mining revenues have faced challenges due to post-halving block reward reductions and low network fees, many publicly traded bitcoin miners in the MarketVector Digital Asset Equity Index (MVDAPP) are outperforming this year by capitalizing on opportunities in AI and high-performance cloud computing. For instance, miners like Core Scientific (CORZ) and Hut 8 (HUT) are reallocating power capacity to meet the growing demand for AI/HPC infrastructure. Early indications suggest that AI/HPC could deliver significantly higher margins per megawatt than traditional bitcoin mining, offering a compelling avenue for miners to diversify their revenue streams. We are closely monitoring this trend and have published in-depth research on our updated thesis for bitcoin miners, which can be accessed here: Bitcoin Miners' AI Arbitrage Play to Boost Revenue.
• Transfer volume from miners to exchanges (USD): Transfer volumes from miners to exchanges fell 21% over the past 30 days, suggesting stabilization from miners after their post-halving selling increased significantly in June and July. We believe some miners’ strong equities performance on the back of their emerging AI/HPC story may contribute to this month’s increased ‘HODL’ strategy, in which bitcoin miners keep their bitcoin in anticipation of monetizing it at higher future values.

Chart of the Month: Bitcoin Miner Selloffs Hit New Lows as Halving Pressure Eases

Source: Glassnode, VanEck research as of 8/19/24. Past performance is no guarantee of future results.

Notes:

Net unrealized profit/loss ratio (NUPL) can be calculated by subtracting the realized market cap from the market cap and dividing the result by the market cap. When a high percentage of Bitcoin’s market cap consists of unrealized profits, it can be interpreted that investors are greedy. Background reading here.

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