To investors,

The team at Reflexivity Research, led by Will Clemente, recently published a Q2 report on the state of the bitcoin network. This in-depth report covers everything from on-chain activity to various narratives. Below is an excerpt from that report. You can read the entire thing by clicking here.

Bitcoin Price Performance

After another positive quarter for the asset, Bitcoin is up now 85% to start the year, outpacing Gold which is up 5% YTD, the S&P 500 which is up 16% YTD, and even the Nasdaq which is up a whopping 40% YTD. Throughout this report we will take a look at all relevant metrics around the network from price performance, market structure, derivatives, and network health. After being down as much as 75% from its all-time high, the largest digital asset is now down just 55% from its late 2021 peak of just north of $69,000.  

Market Structure Trends

Bitcoin has been provided with the tailwind of two events this year with the SVB banking crisis and Blackrock Bitcoin ETF filing that have unequally benefited digital gold relative to the other digital assets in the market. This has translated to Bitcoin’s market capitalization dominance relative to the rest of the market breaching 50% for the first time since early 2021.

In addition, we’ve also seen volume for Bitcoin perpetual futures clearly diverging from Ethereum perpetual futures, showing a shift in interest from traders towards Bitcoin relative to the #2 asset by market capitalization.

Who has been driving this performance for Bitcoin? When we look at Bitcoin’s cumulative return by regional trading hours (US, EU, and APAC) we can clearly see that the majority of Bitcoin’s performance has occurred during US trading hours, particularly following the Blackrock ETF filing. This is also true when looking at Coinbase’s trading premium relative to other venues.

US based firms getting active in the market is also evident by Bitcoin CME futures open interest rising by over $1 billion following the ETF filing. 

The ETF trade is in full effect with Coinbase, the exchange that Fidelity, Blackrock, and others have opted into a shared surveillance agreement with for their ETF filings, having rallied 70% this month. In addition, we have seen the GBTC trade being put on as the trust’s discount to NAV has dropped to its lowest levels in nearly a year. 

Despite the positive YTD price appreciation, liquidity for Bitcoin remains relatively muted with regulatory uncertainty still looming and many market participants still licking their wounds from the counter-party risk left over from a year of crypto company blowups throughout 2022. Here we define liquidity as looking at the coin denominated bids and asks in the order books between current trading price and moving price 2%. 

Network Data

One of the biggest stories for the quarter for Bitcoin that has been drowned out by the ETF developments was the massive influx in ordinals usage. This influx in ordinals usage began in early April as the total number of inscriptions blew past 10 million and is now at 14,756,276. In total ordinals inscriptions have generated over $56 million in fees for the network to date. While the hype around ordinals has come from scorching hot down to a simmer, this will be a space to continue to keep an eye on over the coming quarters.

This quarter the number of Bitcoin addresses with over 1 Bitcoin breached 1 million for the first time. 

In addition, the network has now settled over 858,000,000 transactions worth a cumulative $109 trillion, an increase of roughly $2 trillion throughout Q2. 

Bitcoin’s hash rate has also continued to increase, making consistent new all-time highs as a reflection of more demand to mine the digital asset as well as more efficient rigs being brought online. 

Bitcoin’s free float, defined as supply not held by long term holders (market participants that have held their coins for less than 155 days), is nearing all-time lows despite the favorable YTD performance. Higher prices will eventually incentivize more sellers, but after the craziness throughout the last two years, its safe to say these market participants aren’t looking to voluntarily offload their inventory until offered much higher prices. Should some of these ETFs get approved, the effects of newfound demand with near record low available supply could be quite powerful. With several of the firms trying to get approved having recently re-filed, the ball is now in the court of the SEC to make a decision. 

Lastly, comparing realized cap to market cap, we get a relative historical valuation model of how high the current marginal trading price is relative to realized, which when divided by circulating supply can also be viewed as the aggregated cost basis of the market. Similar to the charts shown in the first section of this report, appears to be early innings for this current Bitcoin cycle, with the possibility of retesting cycle lows similar to March of 2020 still there. 

I hope you enjoyed this excerpt from Reflexivity Research’s Q2 bitcoin report. If you want to read the full thing, you can click on this button. Hope you have a great end to your week. I will talk to you on Monday.

Read Full Q2 Bitcoin Report

-Pomp

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