ByteTree CEO James Bennett discussed the latest onchain insights and observations in the Onchain Reaction segment.
This week he started off by looking at price volatility. A couple of weeks ago, he discussed how price volatility was hovering at close to an unprecedented level of 20-22%, which for Bitcoin was extraordinarily low. ByteTree was calling for a break in either direction and with volatility having been squeezed at the low end, we’ve seen that this week with the BTC price breaking up toward $13,500 as of Oct. 28. With that break to the upside, volatility has returned — we’ve just jumped from 22% to nearly 31%.
“We expect this to continue, as there’s quite a lot of price action ongoing today,” said Bennett.
Next, he looked at the total value of transactions settled on the Bitcoin network over the last seven days, or the seven-day moving average of the transaction value, saying,
“Transaction value has picked up sharply along with the increase in price volatility that we’ve seen and as a response to increased priced action.”
Next, miners’ revenue is created by a combination of new coins generated and transaction fees.
“This week we’ve seen fees surge to 24% of total miner revenue, which is the highest we’ve seen in the whole of 2020,” said Bennett.
He explained that revenue is approximately $12 million in fees per day, and it shows that there is a lot of competition for blockspace at the moment.
There are more transactions than there is space for blocks. Bennett went on to explain that miners are struggling to keep up with block production as difficulty reaches new all-time highs.
He likened it to a train station where there are fewer trains but still the same amount of people vying for space on the train, resulting in crushing and squeezing to get on the trains. If there were a payment mechanism, people would likely be prepared to pay more to get that space. On the Bitcoin network, there are fewer trains leaving coupled with a higher number of transactions, so there is a real competition for space.
Once again, difficulty is hovering at all-time highs but we are very much likely to see a big correction downward in the next few days, which is the next difficulty retargeting, Bennett explained.
“Expect a difficulty adjustment incoming as a result of this increased time between blocks,” he added.
Meanwhile, miners have been heavily offloading their newly minted coins into a strong market bid. The price has risen by about 14% in the last seven days, from just shy of $12,000 to $13,500. Miners’ response has been to sell their excess inventory.
Miners are strategically selling when the market bid is strong. When the market bid is weak, they tend to hold back on selling.
Moving on, the network value to transaction (NVT) ratio is a price-to-sales ratio for the Bitcoin network. Based on ByteTree’s calculations, bitcoin’s fair value is $8,400, which puts it at a 61% premium. Bennett is wary that the market is getting ahead of fundamental demand. As a result, he expects to see some retracement over the next couple of days.
Overall, however, sentiment in the market is very positive and there is a lot of growth across the number of addresses while transaction value is picking up.