In Q2, bitcoin hit an all-time high (ATH) of $64,888.99 and ended the quarter down 46% from its ATH at $35,046.22. The drop, among other factors, prompted our team to make the bold claim in a previous issue of Crypto Long & Short that cryptocurrencies are officially in a bear market.
Price declines invite the cynics in droves and once-pompous, paper-rich day traders are suddenly “in it for the tech,” but a bear market need not spell doom for the institutional investor. For investors who believe in the intrinsic value of bitcoin, ether and other cryptocurrencies, bear markets shine a spotlight on tools and metrics useful for gauging market sentiment and shaping long-term investment strategy.
This column originally appeared in Crypto Long & Short, CoinDesk’s weekly newsletter for professional investors.
One of these metrics, MVRV, or Market Value to Realized Value, has yet to reach the highs it historically hits before profit taking, which suggests there are still unrealized gains in the crypto markets on which traders can capitalize. In addition, a second metric known as the Puell Multiple, which is calculated by dividing the total dollar value of bitcoin mined in a single day with its 365-day moving average, dipped to a one-year low recently, signaling undervaluation of BTC and a potential weakening of bearish market momentum.
For a deeper look at these metrics and how they are calculated, check out the full CoinDesk Quarterly Review 2021 Q2 on the Research Hub.
A brief point I should mention before moving on from price discussion is the fact that ether’s price increased 20% in Q2, while bitcoin’s shed 40%. It’s only the fourth time since the inception of CoinDesk’s Ether Price Index (ETX) in 2016 that the two assets have recorded mixed quarters. Despite the unique divergence, 90-day correlations of daily log returns for BTC and ETH remained strong and unfazed, trending around 0.75 throughout the quarter.
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 feels different, though. There have been rumors of a potential “east-to-west” bitcoin mining migration for some time now, but this is the first indication that it’s actually happening.
Regulatory crackdowns between May and June in Qinghai, Inner Mongolia, Yunnan and Sichuan forced multiple Chinese mining pools to either shut down or scale back operations. Following each event, Bitcoin’s hashrate – a measure of how much computational power miners are expending – was negatively affected. Hashrate touched 200 million terahashes per second in Q2, and ended the quarter just below 90 million.
Hashrate is likely to rise back up eventually as China-based miners relocate their operations. Therein lies the real…