Bitcoin (BTC -2.49%) Arguably one of the most talked about topics in the financial world recently as the first Bitcoin ETF was launched on January 10. However, despite its widespread coverage, the decentralized nature of Bitcoin can make it difficult to assess its current status and track developments. That’s where Cathie Wood and her team at Ark Invest come in.
Every month they compile a report that highlights the latest developments related to Bitcoin, providing short-term and long-term information that can help us get a better view of the world’s most valuable cryptocurrencies. With another month to go, it’s time to dig deeper into what the experts had to say in their latest analysis.
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Encouraging forecasts in the short term
After a strong end to 2023, Bitcoin has outperformed the major indices closely tracked by Ark Invest and its analysts. While these indicators are often used for technical analysis and day trading, they are still useful for investors implementing a buy and hold strategy.
One of the most interesting and detailed findings in the report is that Bitcoin’s year-end comeback resembles patterns that preceded previous bull markets. As noted in the report, Bitcoin reclaiming these critical technical levels indicates that it constitutes an “early to intermediate” phase of an uptrend.
In addition to the short-term analysis, Arc found that long-term holders (investors who have not moved their coins for more than 155 days) are starting to take profits. They are known for their insistence on selling, and they provide valuable information on Bitcoin market dynamics compared to day traders who buy and sell with much greater frequency. Although it is not extreme, which is why Ark Invest remains bullish, making profits at this range has not happened since the spring of 2023.
While Bitcoin’s 50% jump in the last three months of 2023 has some long-term holders starting to sell, Ark Invest believes it is far from reaching the peak. The report highlighted that at the end of December, 90% of the total supply of Bitcoin was generating a profit.
Since all the data on the blockchain is publicly available and accessible, Ark can analyze when and at what price each investor bought or sold. Using this data, Ark found that the last time profit levels reached this high was when Bitcoin hit $58,900 in November 2021.
The implications of this can vary, but analysts believe this is an overall positive development given that greater profitability at lower price points “suggests that market participants are comfortable” until higher prices are reached. This means that even though profits have started to occur, selling pressure may remain low until investors feel motivated enough to sell their Bitcoin.
Long-term trends continue to take hold
At its core, Bitcoin operates as a decentralized network where users can make transactions, and miners are the backbone of this system. Bitcoin cannot function without miners, so the report evaluated miners’ 7-day average revenue in recognition of this dynamic.
The thinking goes that as long as miners remain incentivized to continue doing their part, the more powerful Bitcoin will become. Fortunately, miners made profits with an increase in transactions on the network in the fourth quarter; The Ark report found that average revenues rose 26% in December compared to November and jumped more than 200% compared to the previous year (December 2022).
What is even more noteworthy is that this profit growth has attracted more miners to join the network. The report measured this flow by studying “mining difficulty” and revealed that it has doubled since December 2022.
An increase in mining difficulty is a positive sign for Bitcoin’s security because it means that an increasing number of miners are actively participating, investing resources, and competing to validate transactions. Ultimately, this competitive environment enhances the overall strength 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 importance of these security metrics cannot be overstated. It is the basis of Bitcoin’s long-term value proposition. Sustained growth is essential to Bitcoin’s long-term value because it reinforces Bitcoin’s claim to be the most secure and decentralized blockchain. The more secure and decentralized Bitcoin is, the more reliable and valuable it will become over time.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.