Bitcoin was developed by the mysterious Satoshi Nakamoto with a variety of unique features. It has a tight supply of just 21 million BTC and a distribution protocol that limits the amount of coins that can get on the market.
The rest of the out-of-circulation coins are locked away and only rewarded to miners whose sole purpose is to validate blocks and secure the network. The core bitcoin code also includes a recurring halving event that halves the block reward roughly every four years.
It is this sudden shift in supply that massively offsets the balance between supply and demand, creating an environment in financial markets where prices rise exponentially. In a way, this creates the boom and bust bubble cycles that the first cryptocurrency is known for, each new bubble attracting more and more participants through the network effect.
When the peak is reached, the bubble bursts, Bitcoin falls 80% or more, and the whole pattern repeats itself again four years later after halving. So far it has been like clockwork, repeating itself over and over again in the same pattern. When comparing past market spikes, a unique Bitcoin metric says the current cycle is still far from the top.
Bitcoin predictive models are being put to the test
There are a variety of tools that investors, traders, analysts and speculators alike use to predict future price targets or patterns in Bitcoin and other cryptocurrencies. This includes technical analysis, chart patterns, indicators and more. It also includes on-chain and other fundamental analysis. It also involves the use of economic or mathematical models that focus on a unique aspect of Bitcoin.
The stock-to-flow model, also called the S2F model, is one of the most widely publicized predictive models that analysts swear by. It follows a four-year cycle that suggests Bitcoin will hit hundreds of thousands of dollars per coin before peaking during that cycle. However, there is another, less common tool that could show even better that the top is not in there just yet for those who doubt the stock-to-flow model.
The other model is called Puell Multiple and was created by David Puell in March 2019. Although the tool is relatively new, it can look back on past Bitcoin cycles and call up each one with the utmost accuracy. Every major Bitcoin peak ended with a foray into the red zone in the graph below. The cycle did not end until the parabolic curve was completely broken, which has not yet happened in this cycle. Without a significant red zone and an intact parabolic curve, Bitcoin could soon hit new highs.
The Puell multiple explains and how to use it
The Puell Multiple, according to the website of the creator, “looks at the supply side of the Bitcoin economy”, that is, the Bitcoin miners and their income. It is calculated by dividing the daily output value of BTC in USD by the 365-day moving average of the daily output value.
“It examines market cycles from a mining revenue perspective. Bitcoin miners are sometimes referred to as forced sellers because they have to cover the fixed costs of mining hardware in a market with extremely volatile prices. The sales they generate can therefore affect the price over time. ” the site reads.
What this essentially means is that the tool can explain when newly mined BTC entering the ecosystem is so high compared to historical norms that miners are selling to strategically secure profits.
The red box itself “indicates periods when the daily output value was extremely high, which enabled the Bitcoin investors who sold here to take advantage of profit.” This boils down to the fact that when Bitcoin hits the red box on the Puell Multiple, it is often the best time to sell your coins, because then the miners sell the greatest profit.
This is how you benefit from every additional Bitcoin upside
Knowing that there is much more bull run and price potential ahead of us with Bitcoin and the other cryptocurrencies, investors and traders can change their strategy in advance and prepare for the opportunity that presents itself.
Investing and trading isn’t one size fits all, so here are some possible ways to take advantage of the rest of any remaining bitcoin bull run if the crypto cycle has another leg left.
Buy and HODL
Buying and holding is the most common way to get involved in Bitcoin and other cryptocurrencies. Investors who choose this route will need to find a cryptocurrency exchange and then decide whether or not to hold their own coins. Long-term HODLers are recommended to personally secure their coins and private keys using a cold storage wallet. The challenge with holding is that it is difficult to get out in time before a trend reversal occurs, as the recent sell-off demonstrated.
Margin trading in cryptocurrency is a popular way to take advantage of the dramatic uptrends Bitcoin is known for. For example, if a trader had been long Bitcoin at $ 10,000 at the end of 2020, it could later have closed successfully around local highs at $ 65,000. In normal situations, this would have resulted in a profit of $ 55,000, but with leverage this could have been $ 5.5 million. Platforms like PrimeXBT offer such professional trading solutions.
Crypto exposure in the stock market
Investing in crypto-related stocks like MicroStrategy or Square is another popular way some investors are using Bitcoin in ways they think are more secure. You let others do the BTC exposure and then gain in the brands and companies brave enough to do so. This strategy has proven successful for those on Wall Street who are not fully ready to take the plunge into cryptocurrency.
More options in the future
In the future, there will be more and more ways to get involved with Bitcoin. For example, PayPal, Venmo, and all offer Bitcoin and Crypto exposure but do not offer full ownership or custody of the coins. This means you can’t move them off the platform if you want a wallet you own or elsewhere.