The price of Bitcoin has recently set a new high for many years, and many fundamental factors indicate that Bitcoin will usher in a better performance in 2021.
With PayPal’s access to Bitcoin and well-known figures like Michael Saylor, Jack Dorsey, and Paul Tudor Jones supporting Bitcoin, people The demand for digital gold has reached the highest level in history.
Recently, traditional insurance companies such as Vantone Mutual have also disclosed that they have purchased Bitcoin worth $100 million, which continues to boost the price and popularity of Bitcoin.
It is not difficult to find that more and more people believe that 2021 will be an important year for the Bitcoin network to open the next chapter. Let us look at some key indicators that need to be paid attention to in 2021.
1. Valuation of Bitcoin miners
Bitcoin mining and gold mining have many similarities. However, in the complex task of evaluating Bitcoin miners’ operations, there are some key differences that need to be explored. We will use Riot Blockchain as an example, a Bitcoin mining company headquartered in Colorado, USA.
Riot started mining in 2017. The company recently announced plans to increase its computing power, and it is expected to deliver mining hardware in the spring of 2021. At present, Riot has a computing power of about 1.5 EH/s, which accounts for about 1.11% of the current Bitcoin network’s total computing power (135 EH/s).
According to Riot’s third-quarter financial report released on November 9th, the bitcoin mined in the third quarter was 224 BTC. At a price of $18,500 per BTC, Riot’s total revenue in the quarter was 4.1 million. Dollar.
Considering the above data, investors will doubt: a company’s market value is as high as 670 million US dollars, and its revenue in several quarters is only 8 million US dollars, in addition to huge operating and power costs, is this a problem?
Even if Riot’s asset load list has more than 1,000 BTC (18.5 million US dollars at the current BTC price), the company’s valuation is a bit outrageous.
There are two considerations here. Assuming that Bitcoin really enters a big bull market, then the market value of Riot and other mining companies may be reasonable.
2. Expectations for future BTC prices
Within a year from now, there have been a series of optimistic target values as to how much the price of Bitcoin can rise. For example, Mike Novogratz estimates it to be 65,000 U.S. dollars, while PlanB estimates a value based on the popular S2F model to 288,000 U.S. dollars.
At the same time, Citibank recently gave a forecast of $318,000, while the Winklevoss twin brothers gave a forecast of up to $500,000.
These price targets will obviously affect many Bitcoin participants (including miners). This is why some miners continued to mine during the 2018 bear market when they suffered losses. They expect that in the foreseeable future, the Bitcoin network Will always exist. Miners also know that they have a lot of power to act as a validator of network transactions, and the continuous increase in network computing power shows that Bitcoin is becoming more and more secure and competition is becoming increasingly fierce.
If the upper limit of the Bitcoin price is not determined, the 244 BTC mined by Riot in the third quarter will expand its source of income to a larger, more obscure number. This means that if BTC sees a parabolic rise again, Riot’s profit is estimated to be unconstrained.
3. The shortage of mining hardware
The last time Bitcoin experienced a parabolic rise was in 2017, when ASIC chips and other mining hardware were in short supply, and suppliers such as AMD, Nvidia, and Bitmain were unable to meet the demand.
If this happens again with Bitmain and MicroBT, any miner who currently owns next-generation equipment will have an advantage until more hardware is involved.
Conversely, if the price of gold doubles to US$4,000 per ounce, gold exploration work will increase and the speed at which miners can dig gold will increase. In turn, this will balance supply and demand, and if supply exceeds demand, the price of gold will decrease.
But for Bitcoin, no matter how long the mining hardware arms race lasts, Bitcoin’s mining speed cannot exceed 6.25 BTC every 10 minutes, thanks to Satoshi Nakamoto’s built-in supply plan and difficulty adjustment plan in the agreement , Which seriously affected the supply and demand dynamics of Bitcoin.
4. GBTC and Bitcoin
We know that Grayscale’s Bitcoin Trust (GBTC) allows investors to gain exposure to the underlying digital currency BTC in ordinary brokerage accounts (such as closed-end funds).
After deducting the 2% annual fee and premium of GBTC, each GBTC share represents 0.00095346 BTC.
It can be seen from the narrowing gap between asset prices at the end of September that during the price consolidation period, GBTC tended to perform slightly inferior to BTC.
As the premium expands, GBTC performs slightly better than the underlying asset, and the increase in market demand will cause the difference between GBTC and BTC to become larger.
In the course of price increases in the past two months, the widening gap between the two can prove this point.
During the BTC price decline period (April, July, and September), the GBTC premium bottomed to 10%, while during the rapid price increase in February and August, the GBTC premium expanded to 30% to 40%.
It remains to be seen what effect the competitors that provide Bitcoin exposure will have on GBTC. On November 25, VanEck launched Bitcoin ETN on the Böerse Xetra exchange in Germany. With the resignation of SEC Chairman Jay Clayton in December, if the new The appointment of the SEC chairman is more favorable to BTC, and the possibility of Bitcoin ETF approval may increase.
5. Supply and demand
fasten your seatbelt.
Currently, every 10 minutes, 6.25 BTC will be used as a block reward to compensate miners.
In other words, about 900 BTC are added to the Bitcoin network every day, and before the third Bitcoin halving on May 11, this number was 12.5 BTC every 10 minutes.
At the current price, the market value of Bitcoin increases by approximately $16.7 million every day. According to the GBTC report, on November 12, GBTC’s single-day inflow of funds reached 115 million U.S. dollars, an 11-fold increase from the previous weekly inflow of 50 million U.S. dollars.
This demand is 6.9 times the new supply. Therefore, the gap between the market’s demand for Bitcoin and the supply is getting wider. Historically, this dynamic will appear within a year or so after the block reward is halved.
In the last cycle, it made Bitcoin briefly enter the attention of mainstream retail investors, when the price of Bitcoin rose from $1,000 in January to nearly $20,000 at the end of the year.
In this cycle, if we compare Bitcoin to an alternative to gold, the $9 trillion gold market is the benchmark for investors.
As we continue to understand this fast-changing digital ecosystem at our own unique pace, the Bitcoin network is constantly advancing and gaining further traction, and no one will become a prisoner in the process.
Let us look forward to what kind of development 2021 will bring to us.
