It's important to celebrate wins.
But it's even more important to acknowledge mistakes.
Earlier this year, I wrote an article titled "The bull thesis of Bitcoin and why I think the price of Bitcoin won't go below $25,000".
At the current time of writing this article, the price of a Bitcoin is hovering around $20,000. Bitcoin has gone below $25,000 for more than a week. Hence, it's clear that I am wrong in my prediction of Bitcoin's price. I was very confident then that Bitcoin will not go below its realised price then. You can pretty much see it in the title.
The reason behind this confidence is simple then. If Bitcoin is trading below its realised price, it could mean that the majority of holders will be underwater. For that to happen, people will have to be selling their coins at a loss. It's hard to imagine people selling their coins at a loss.
Of course, this turns out wrong and hence we are staring at a price of ~$20,000 per Bitcoin now.
So yes, this is a mistake here. It's acknowledged and I learnt to never be too confident about any price predictions.
While I might be wrong about the floor price of Bitcoin, I am still convinced that the long term future of Bitcoin remains to be intact. In fact, I am probably more convinced about the eventual wide-scale adoption of Bitcoin than previously.
You might be wondering why. Here are the reasons.
In the article, I stated that it's very important to monitor the metrics in layer 1 (which represent the network health). In understanding the value of Bitcoin, it's important to visualise it in 3 layers (as shown in the article). Layer 1 is the fundamental layer and has great impacts on the next 2 layers. If the metrics in layer 1 is not showing a favourable trend, it's a big red flag. In fact, I will even think that prices are just noise. What's really important are the metrics in layer 1.
So what are these metrics?
These metrics are things like hash rate, supply distribution and transaction volume. What has happened to these prices amid the crashes in the past few months?
First, let's talk about the hash rate. Bitcoin hash rate reached an ATH last week. Hash rate is a representation of the processing power miners used to secure the network and hence the security of the network is directly affected by the hash rate. Even with the recent drastic drop over the weekend, the hash rate continues to show positive uptrend over time. It's important that the hash rate does not show a negative downtrend over time, and what we have here is definitely encouraging.
Next, supply distribution. Supply distribution of Bitcoin addresses represents how "wealth" is being distributed among the Bitcoin addresses. For a monetary system to work, you cannot have only a few accounts handling the bulk of the wealth as this will not be a healthy distribution. The recent rapid crashes over the past few months have actually make the supply distribution "even healthier". Over the past week, the number of Bitcoin wallet addresses containing one BTC or more increased by 13,091 to 865,254.
The growth is even more apparent with the wallet addresses containing 0.1 BTC or more with the parabolic run shown below.
Interestingly, the number of wallets containing 100 BTC or more has dropped by 136 over the past week. What do all these numbers tell you? The distribution is more evenly spread out than before- all thanks to the crash in Bitcoin price.
Lastly, transaction volume. Below is the graph showing the 7-day average transaction volume over the past year. You can see that the continuous price crashes across 2022 did not significantly affect the transaction volume.
All three metrics in layer 1 show very healthy signs. In fact, the network health seems to be in an even better position than where it was in January (when I published the article). In this situation, I should be even more optimistic about the future of Bitcoin than ever.
And I am.
While the prices are definitely disappointing or even disheartening, I choose to remain convinced about the adoption of Bitcoin in the longer run. Hence, I will continue to accumulate Bitcoin over this period of depressed prices.
Fun fact: I recently ran a poll in my Telegram group to seek the general consensus on Bitcoin's price. Here's the results.
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