This data may bode well for the Bitcoin Rebound

In the midst of a terrible year for bitcoin and the broader cryptocurrency complex, HODLrs are looking for some positive news that could support a bitcoin rebound in 2023.

If chain data proves accurate, help could be on the way for bitcoin and for crypto-correlated exchange-traded funds such as Invesco Alerian Galaxy Crypto Economy ETF (SATO).

For the uninitiated, on-chain data analytics is the use of blockchain data to determine bitcoin users’ views on the market. Think of it as a sentiment indicator. There is efficiency with this methodology because it evaluates both transaction data and how much moves in and out of crypto wallets.

Interestingly, on-chain data provides security to bitcoin transactions. That’s what makes these transactions traceable. In fact, it was on-chain data that provided clues regarding the collapse of FTX.

“Bitcoin is a terrible asset for crime. It is 100% traceable. Most other cryptocurrencies are also traceable. Within hours of the FTX hack in November, Kraken exchange so they had identified the hacker. On-chain analysis was also invaluable in November for monitoring currency risk and the Capriole Fund used it to monitor FTX foreign exchange reserves and protect investors’ assets,” according to Capriole Investments.

As for potential upsides for bitcoin prices and ETFs like SATO, Capriole highlights the scenario that started the run-up on FTX, including a Tweet from the CEO of Binance. The research firm noted that the subsequent fallout “resulted in a rare deepening of Bitcoin’s value to fundamental factors in the chain.”

Capriole also pointed out that in the wake of the FTX disaster, bitcoin miners, several of whom reside in SATO, are capitulating. These companies sold bitcoin reserves to raise capital, in turn sending the price of the largest digital currency below electricity costs – a remarkable scenario.

“Capriole’s Bitcoin Electrical Cost represents the cost of mining a Bitcoin based on the global average miner electrical cost of $0.05/kWh and taking into account the mining hardware, depreciation and more,” Capriole noted. “It is incredibly rare for Bitcoin to trade below its electrical cost – a price point that has been a historic floor for Bitcoin.”

Bottom line: Bitcoin and its crypto counterparts remain covered assets, and the ongoing FTX situation is not helping matters. However, on-chain data could be a sign that digital currencies and the related stocks could outperform in 2023.

vettafi.com is owned by VettaFi, which also owns the index provider for SATO. VettaFi is not a sponsor of SATO, but VettaFi’s affiliate receives an index license fee from the ETF sponsor.

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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not materialize. Information on this website should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.