Bitcoin (BTC -1.40%) has arguably been one of the most talked-about topics in the financial world recently as the first spot Bitcoin ETF launched on Jan. 10. Yet, despite the widespread coverage, the decentralized nature of Bitcoin can make it difficult to evaluate its current position and keep track of developments. That’s where Cathie Wood and her team at Ark Invest come in.
Every month, they compile a report that sheds light on the latest Bitcoin-related developments, providing both short-term and long-term information that can help us gain better insight into the world’s most valuable cryptocurrency. With another month passing, it’s time to dive into what the experts had to say in their latest analysis.
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An encouraging short-term outlook
After a solid end to 2023, Bitcoin surpassed key indicators that Ark Invest and its analysts track closely. While these indicators are often used for technical analysis and day trading, they can still benefit investors implementing a buy-and-hold strategy.
One of the most intriguing discoveries detailed in the report was that Bitcoin’s resurgence as the year closed resembles patterns preceding previous bull markets. As described in the report, Bitcoin’s reclamation of these critical technical levels insinuates that it is forming an “early to-mid” stage of a bullish trend.
Adding to the short-term analysis, Ark found that long-term holders (investors who have not moved their coins in more than 155 days) are beginning to take profits. Known for their stubbornness to sell, they provide valuable insight into the dynamics of the Bitcoin market compared to day traders who buy and sell at much greater frequencies. Although not extreme, which is why Ark Invest remains bullish, the realization of profits at this scale hasn’t happened since the spring of 2023.
While Bitcoin’s 50% jump in the last three months of 2023 led to some long-term holders beginning to sell, Ark Invest thinks it is far from reaching a peak. The report highlighted that at the end of December, 90% of the total Bitcoin supply was sitting at a profit.
Since all data on the blockchain is public and accessible, Ark can analyze when and at what price each investor purchased or sold. With this data, Ark found that the last time profit levels were this high was when Bitcoin was $58,900 in November 2021.
Implications of this can vary, but analysts believe this is generally a positive development since greater profitability at lower price points “suggests that market participants are comfortable holding” until higher prices are reached. This implies that although the profits are starting to be obtained, the selling pressure could remain low until the investors feel incentivized enough to sell their Bitcoin.
Long-term trends continue to solidify
At its core, Bitcoin operates as a decentralized network where users can make transactions, and miners are the backbone of this system. Bitcoin could not function without miners, so the report evaluated the 7-day average miner revenue in recognition of this dynamic.
The thinking goes that as long as miners remain incentivized to continue fulfilling their role, the more robust Bitcoin becomes. Fortunately, miners have been raking in profits as a surge in transactions occurred on the network in Q4; Ark’s report found that average revenue increased by 26% in December compared to November and jumped over 200% compared to the prior year (December 2022).
What’s more noteworthy is that this profit growth has attracted more miners to join the network. The report measured this influx by examining “mining difficulty,” revealing a doubling since December 2022.
An increase in mining difficulty is a positive sign for Bitcoin’s security as it implies a growing number of miners are actively participating, investing resources, and competing to validate transactions. Ultimately, this competitive environment enhances the overall robustness of the network, making it more resistant to malicious attacks and ensuring the integrity of every transaction.
While the short-term outlook for Bitcoin looks encouraging, the significance of these security metrics cannot be overstated. They are the foundation of Bitcoin’s long-term value proposition. Sustained growth is essential for Bitcoin’s long-term value as it reinforces Bitcoin’s claim as the most secure and decentralized blockchain. The more secure and decentralized Bitcoin is, the more reliable and valuable it should become with time.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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