Bitcoin continues to trade around the $8,000 level and, even though profit taking looks sensible at these levels, trying to call the cryptocurrency market now would be like trying to catch a falling knife. Momentum is clearly suggesting a move to higher levels, but as underlying network fundamentals continue to lag the price advance, bears continue to warn of a crypto market correction.
On that note, Bloomberg produced a report on the state of the market featuring a JPMorgan analyst who pointed out that Bitcoin (BTC) has surged beyond its “intrinsic value,” mirroring a similar move in 2017 which preceded a slump. This view is based on their valuation model which treats Bitcoin as a commodity and calculates its “cost of production” using inputs such as estimated computational power, electricity expense and hardware energy efficiency. Specifically, “over the past few days, the actual price has moved sharply over marginal cost and this divergence between actual and intrinsic values carries some echoes of the spike higher in late 2017, and at the time this divergence was resolved mostly by a reduction in actual prices.”
This, of course, does not take into account other features that are much more difficult to value, such as transferable store of value and more importantly Bitcoin’s censorship-resistance.
Bitcoin rally aside, Bitcoin Cash (BCH) and Bitcoin SV (BSV) continue their decoupling trend and, given the upcoming upgrades to the BSV network, even amid the ongoing media controversy, there are signs pointing to near-term correction and spread narrowing. Specifically, the newest iteration of the BSV client has been rolled out by the Bitcoin SV Node team. On May 20, the Scaling Test Network (STN) will see the first results from this upgrade. It will increase its maximum acceptable block size to an astounding 10GB, with default produced blocks set to 128MB. Then on July 24, with the Quasar Protocol Upgrade, the mainnet and testnet will have their block size settings increase. The current maximum acceptable block size of 128MB will increase to 2GB, and the default produced block sizes will increase to 128MB.
Looking elsewhere, the amount of ETH locked in MakerDAO credit ecosystem continues to decline and currently stands at 1.6876% (vs. 2.11% at its highs earlier this year). At the same time, the “open” feature that allows users to create their own CDP remains well within the recent range, while the feature dubbed “draw”, which is used to take loans in Dai from your CDP is also yet to indicate a consistent mass exodus from leveraged positions.
In other news, the US Securities and Exchange Commission (SEC) has again delayed a decision on a bitcoin exchange-traded fund (ETF) proposal. In a new document filed Monday, the SEC said it was instituting proceedings on whether to approve or disapprove a proposed rule change that would allow the VanEck SolidX Bitcoin Trust to issue and list its shares.
Finally, the US Internal Revenue Service (IRS) is working on its first tax guidance for cryptocurrency since 2014. According to lawmakers, the agency is working on guidance for “acceptable methods for calculating cost basis, acceptable methods of cost basis assignment, and the tax treatment of forks”.
Thank you for reading,
The BeQuant’s Analytics team