Grayscale Bitcoin Trust and BTC cycles
The price of GBTC (Grayscale Bitcoin Trust) is at its lowest in 2022.
Before the implosion of the Terra/Luna ecosystem in May, the price was $25, but after that event it first fell below $20, and then to $12 in June.
With the failure of FTX in early November, it fell further first to $8 and then even to $7.7 in late November. It is now almost $9.
Compared to the price at the beginning of May, the current value is 65% lower, while in the same period BTC lost “only” 55%.
Grayscale Bitcoin Trust and Bitcoin
Grayscale Bitcoin Trust, whose symbol is GBTC, is a fund fully invested in Bitcoin (BTC). So in theory, the market value trend of the shares should follow that of Bitcoin, while instead during 2022 GBTC lost significantly more than BTC.
At this timeGBTC is proportionally worth 42% less than BTC, although in mid-November it went as low as -45%.
This means that market demand for GBTC is significantly lower than for BTC, while selling pressure is higher.
This disconnection started at the end of February last year, and began to intensify at the end of March also in 2021.
It is possible that this is due to the presence of financial derivatives in the market which are preferred by investors when deciding on the price of Bitcoin without having to buy, and hold, BTC directly.
Thus, there would only be pure competition as a result of financial products with better functions. Bitcoinhowever, has no real competitors.
In other words, the eye-popping decline in GBTC that has been going on for more than a year and a half cannot be taken as a benchmark to evaluate Bitcoin’s price performance.
The MVRV parameter
In the meantime, however, Grayscale continues to analyze Bitcoin’s price trend. They recently discovered an interesting value of a parameter that seems to be related to BTC cycles.
This is the MVRV parameter (Market Value to Realized Value ratio), which is the ratio between current market value and realized capitalization.
“Realized capitalization” means the total value of all existing BTC by taking as a reference not the current price, but the individual purchase prices of all individual Satoshis. One Satoshi is the smallest unit of measurement that Bitcoin can be divided into, and is equivalent to one hundred millionth of a BTC.
When MVRV is greater than one, it means that the current price is higher than the average purchase price, while if it is less than one, it means, on the contrary, that the current price is lower than the average purchase price, i.e. most BTC are currently at a loss.
The odd thing, as Grayscale points out, is that Bitcoin’s MVRV is rarely less than 1.
From our newsletter: #BitcoinMarket value to realized value ratio (MVRV) recently reached its lowest point in more than 3 years. In a report earlier this year, we explored how MVRV can be used to analyze historical crypto market cycles: pic.twitter.com/60WTQRWxAp
— Grayscale (@grayscale) 28 November 2022
In fact, historically the few times the value has fallen below 1 it has then generated gain of 300% over the next three years.
Since 2012, the year of the first halving, only three other times has Bitcoin’s MVRV been negative. In 2012, 2015 and at the turn of the year 2018 and 2019, with a very short rise in March 2020 during the collapse of global financial markets due to the outbreak of the pandemic.
In other words, so far BTC’s MVRV has followed Bitcoin’s four-year cycle driven by the halving.
Grayscale points out that Bitcoin’s MVRV recently hit a 3-year low, effectively suggesting that the current phase may be the bottom of the current cycle.
Bitcoin’s Cycles
Bitcoin has a cycle, predictable and planned, of about 3 years and 10 months, related to the fact that every 210,000 blocks mined and added to the blockchain occur halving of the miner’s reward. The latter is also Bitcoin’s only monetary policy measure, given that all existing BTC has been created, and will be created in the future, as a reward for miners.
It is therefore not surprising that the price of Bitcoin follows a trend that is heavily influenced by the halving.
The first halving took place in 2012 and the following year triggered the first huge speculative bubble in the price of BTC which saw it rise in less than twelve months from $13 to $1100.
The second halving happened in 2016, and the following year saw the second big bubble that took the price up to $20,000.
The third halving, which occurred in 2020, was also followed the following year by a new bubble, but this time of smaller proportions.
The next halving will take place in the spring of 2024.
The graph of BTC’s MVRV gives a good idea of this cycle. It also gives a good idea of how the 2013 bubble was bigger than the 2017 bubble, which in turn was bigger than the 2020 bubble. And it also makes it clear that these were really speculative bubbles, and not organic growth.
The question now is: will the MVRV of BTC grow again in the coming years as it has in the past. Will there be another speculative bubble in 2025?
This is currently unclear, but at least that graph makes it clear that right now we are in a situation that is absolutely comparable to the bottom of the previous two cycles.
