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Bitcoin - The world's most popular crypto asset, continues to show impressive development. Despite experiencing high price fluctuations, Bitcoin remains a prima donna for investors and speculators who want to benefit from the crypto market. However, what are the factors that affect the price of Bitcoin? And how to analyze it exactly?
To answer these questions, we need to understand the concept of on-chain, which is the analysis of data coming from the Bitcoin blockchain network itself. Using on-chain metrics, we can gain insight into market behavior and sentiment, as well as fundamental factors affecting the price of Bitcoin.
One well-known on-chain expert is Matt from LookIntoBitcoin, a site that provides various on-chain tools and charts for Bitcoin. Matt often shares his analysis through his Twitter account, @matt__btc, which is followed by more than 100k followers. In some of his tweets, Matt highlighted several important factors that affect the price of Bitcoin, both from a macroeconomic and on-chain perspective.
The Impact of Global M2 Money Supply on Bitcoin
One of the macroeconomic factors that influence the price of Bitcoin is the global M2 money supply, which is the amount of money circulating in an economy, including cash, savings, deposits, and other financial instruments that are easily converted into cash. The global M2 money supply is an indicator of the liquidity available in an economy, which can trigger inflation or deflation.
According to Matt, there is a connection between the global M2 money supply expansion and Bitcoin's bullish cycle. In the chart he shared, Matt shows that periods of exponential increase in the global M2 money supply, such as those in 2008 and 2020, have coincided with Bitcoin's bullish cycle, which is a period in which the price of Bitcoin continues to rise significantly.
Matt explained that this shows that inflationary pressures and increased money printing in the aftermath of the global financial crisis and COVID-19 pandemic have pushed investors towards Bitcoin as a hedge against inflation. Bitcoin, which has a maximum supply of 21 million coins, is considered a deflationary asset and resistant to devaluation.
Conversely, when the global M2 money supply begins to peak or decline, signaling a decline in liquidity, Bitcoin has historically found its lowest point, which is a period in which the price of Bitcoin tends to stagnate or decline. This pattern underscores the importance of macroeconomic conditions in shaping the crypto landscape. This is the place where Bitcoin emerged as a beneficiary of the global monetary policy shift.
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On-Chain Metrics: MVRV Z-Score and Realization Price
In addition to macroeconomic factors, the price of Bitcoin is also influenced by on-chain factors, namely data derived from the Bitcoin blockchain network itself. One popular on-chain metric is the MVRV Z-score, which measures Bitcoin's market value against its realized value.
Bitcoin's market value is the sum total of Bitcoin's price currently in circulation, while realized value is the total amount of Bitcoin's price at the last time it changed hands. By comparing these two values, the MVRV Z-score helps identify periods of overvaluation or undervaluation of Bitcoin.
According to Matt, the MVRV Z-score has shown an interesting pattern since the beginning of 2020. In the graph he shared, Matt shows that the MVRV Z-score has reached lower peaks on every Bitcoin bullish cycle, namely in 2011, 2013, 2017, and 2021. This indicates that the Bitcoin market is maturing with volatility and slumping yields, in keeping with the broader trend of Bitcoin growth and adoption.
Matt explained that this shows that the slower rise in Bitcoin price compared to previous cycles indicates a more stable and mature market, with most Bitcoins held long-term and not subject to frequent trading. It also reflects the increasing demand and use of Bitcoin as a valuable digital asset, rather than mere speculation.
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In addition to the MVRV Z-score, another relevant on-chain metric is realized price, which is the weighted average of Bitcoin's price at the last time it changed hands. The realized price reflects the agreed value of Bitcoin buyers and sellers, as well as eliminates the impact of short-term price movements that may be caused by factors such as sentiment, news, or manipulation.
According to Matt, Bitcoin's realized price has shown a steady uptrend since the beginning of 2020, even when Bitcoin's market price experienced a sharp correction, as happened in March 2020 and May 2021. This shows that Bitcoin investors remain optimistic and are not tempted to sell their Bitcoin despite facing market pressure.
Matt explains that this shows that Bitcoin's realized price is a more reliable indicator of Bitcoin's intrinsic value than Bitcoin's market price, which tends to be more volatile and influenced by external factors. Bitcoin's realized price also shows a strong level of support for Bitcoin, which could be the basis for a sustained uptrend.
How to Buy Crypto on Bittime
You can buy and sell crypto assets in an easy and secure way through Bittime. Bittime is one of the best crypto applications in Indonesia that has been officially registered by Bappebti.
To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. In addition, also make sure that you have enough balance by depositing some funds into the wallet. For your information, the minimum asset purchase at Bittime is Rp10,000. After that, then you can make a crypto asset purchase in the application.
Monitor the price chart movements of Bitcoin (BTC), Ethereum (ETH), Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.
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Bitcoin Trading Strategies: How to Make Money from Bitcoin
DISCLAIMER: This article is informational in nature and does not constitute an offer or solicitation to sell and buy any crypto asset. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices may change significantly from time to time and Bittime is not responsible for fluctuations in crypto asset exchange rates.
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