A bear market does not herald the end

In the second quarter, bitcoin hit an all-time high (ATH) of $ 64,888.99 and ended the quarter down 46% from its ATH of $ 35,046.22. The drop, among other factors, prompted our team to boldly state in a previous issue of Crypto Long & Short that cryptocurrencies are officially in a bear market.

Price cuts invite cynics in droves, and once pompous, paper-rich day traders are suddenly “in search of the tech,” but a bear market need not be fatal for the institutional investor. For investors who believe in the intrinsic value of bitcoin, ether, and other cryptocurrencies, bear markets highlight useful tools and metrics for gauging market sentiment and crafting an investment strategy to long term.

Related: El Salvador could face a “limitation” on the use of Bitcoin as a medium of exchange: JPMorgan

One of these metrics, MVRV, or market value versus realized value, has yet to reach the highs it historically reached prior to profit taking, suggesting that there are still unannounced gains. made in crypto markets that traders can capitalize on. Additionally, a second metric known as the Puell Multiple, which is calculated by dividing the total dollar value of bitcoin mined in a single day by its 365-day moving average, recently fell to a one-year low, signaling an undervaluation of BTC and a potential weakening of the bearish momentum of the market.

For a more in-depth look at these metrics and how they’re calculated, check out the full CoinDesk 2021 Q2 quarterly review on the Research Hub.

A brief point I should mention before I get to the price discussion is the fact that the price of ether rose 20% in the second quarter, while bitcoin lost 40%. This is only the fourth time since CoinDesk’s Ether Price Index (ETX) was created in 2016 that the two assets have experienced mixed quarters. Despite the single divergence, the 90-day correlations of daily log returns for BTC and ETH remained strong and unfazed, trending around 0.75 throughout the quarter.

The story continues

China vs. Bitcoin

In other notable news from this past quarter, the Chinese government cracked down on bitcoin mining in the country. Again. This time it’s different, however. There have been rumors of a potential “east-west” bitcoin mining migration for some time now, but this is the first indication that this is actually happening.

Related: Market wrap: Bitcoin rises after volatile week

Regulatory crackdowns between May and June in Qinghai, Inner Mongolia, Yunnan and Sichuan forced several Chinese mining pools to close or scale back their operations. After each event, Bitcoin’s hashrate – a measure of the computing power spent by miners – was negatively affected. Hashrate hit 200 million terahashes per second in the second quarter and ended the quarter just below 90 million.

The hashrate is expected to eventually rise as the miners based in China relocate their operations. This is where the real take-out lies. Where are these miners going? Do they fly their rigs to Maryland? Or are they moving their operations to Kazakhstan? Are they hoping the government’s current stance on bitcoin mining will be short-lived? We don’t know for sure at this time, but where these miners end up will have a significant impact on the bitcoin mining energy mix and will be an important story to watch in the months to come.

Bitcoin is not a “coin”

Market volatility aside and the regulatory crackdown on bitcoin mining aside, Bitcoin has proven to be a technology worth renewing and innovating in the second quarter.

On June 12, 2021, miners signaled their support for a technology upgrade to Bitcoin known as Taproot. Taproot is a set of three upgrades that aim to improve network security, privacy, and scalability. Taproot is the most significant upgrade to the Bitcoin network since the activation of the Segregated Witness Block Capacity Upgrade in 2017.

There are certain corners of Twitter that characterize bitcoin as the “boomer’s coin” because it’s “old technology, big and slow”. It’s true that over the years the bitcoin ‘digital gold’ narrative has shifted more to ‘gold’ than ‘digital’, but with Taproot officially locked for activation in November. , bitcoin is no longer a boomer coin. Bitcoin is now a fun and exciting technology!

All kidding aside, Bitcoin’s ability to change within the confines of a broad decentralized consensus is important. Big changes to Bitcoin don’t happen often, and the few that do manage to get past the grueling and slow governance process of the network are worth taking the time to understand. (Learn more about the taproot.)

For now, bitcoin retains its digital gold status while expanding its use cases beyond anything gold could even imagine. So goes the optimist.

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