Metric Indicators - Crypto Academy / S5W2 - Homework post for pelon53
After I went through your lecture sir, I got to know more about the METRIC INDICATORS (consisting of measurement oriented Indicators). And I got to see the importance of the Metric Indicators in relation to the crypto world. So without wasting time, let me show my understanding to the lecture by answering the various questions.
Indicate the current value of the Puell Multiple Indicator of Bitcoin. Perform a technical analysis of the LTC using the Puell Multiple, show screenshots and indicate possible market entries and exits
Let me tell us what the Puell Multiple Indicator is and how it works. This Indicator is actually designed and programmed to measure the revenue gotten from Bitcoin miners. It's designed to operate by calculating the Mining revenue in USD, divided by the 365 days Moving Average (MA) of the Mining revenue in USD.
According to the Puell Multiple chart shown above on the Buy Bitcoin Worldwide website, the current value of the Puell Multiple Indicator of Bitcoin as of the 24th of November 2021 is 1.38.
Perform a technical analysis of the LTC using the Puell Multiple and indicate possible market entries and exits
To perform this analysis, I will be using the Glassnode website
The screenshot above is an LTC chart with the puell multiple indicator. And the latest value of Puell Multiple Indicator of Litecoin in the chart is 1.948 approximately 2.0, while the price is at $82.72.
As you can see on the screenshot above, on the 25th of August 2015, LTC's first Halving took place, and you can see the puell Multiple line as well as the price entered the green box which indicates an entry point for the buyers.
As you can see on the screenshot above, on the 5th of August 2019 LTC's second Halving took place, and you can see the puell Multiple line as well as the price entered the red box which indicates an exit point for the sellers.
It is said to be profitable for LTC miners to buy or enter the market when the Puell Multiple line enters the green box. And below are screenshots of times where the line entered the green box.
The first one was around January 2015, where the Puell Multiple was around 0.17 and the price in USD was at $1.41. The second happened around December 2018, where the indicator was around 0.19 and the price in USD was at about $23.7 during that period, while the third one was around March 2020, where the Puell Multiple was around 0.34 and the price in USD was at $38.7.
It is said to be profitable for LTC miners to sell or exit the market when the Puell Multiple line enters the red box. And below are screenshots of times where the line entered the red box.
The first one was around May of 2017, where the Puell Multiple was around 5.6 and the price in USD was about $33, while the second was around December 2017, where the indicator was around 6.44 and the price in USD was around $282. during that period.
Explain in your own words what Halving is, how important Halving is and what are the next reward values that miners will have. When would the last Halving be. Regarding Bitcoin
What is Bitcoin Halving?
The word Halve or Halving in the crypto world, started in the year 2009, when the idea of the creation of Bitcoin was first introduced in a whitepaper made by the pseudonym (Satoshi Nakamoto).
The idea of the Bitcoin Halving is that after a set of 210,000 blocks must have been mined approximately after every 4 years, the miners reward will then be Halve or reduced by 50%.
So Bitcoin Halving in simple terms, refers to the 50% division / reduction of the rewards gotten from mining Bitcoin after every 4 years.
The importance of Bitcoin Halving?
There are various reasons why the existence and implementation of the Bitcoin Halving remains very important.
Satoshi Nakamoto created only 21 million Bitcoin to circulate the crypto world, and no additional amount of Bitcoin can be created apart from the 21 million BTC set to circulate the market. The major reason why the rewards given to Bitcoin miners get reduced after a duration of 4 years was because Satoshi Nakamoto knew that "the lesser the supply the more valuable the asset becomes."
If there were to be no limitations to the amount of Bitcoin being created, they would be so much BTC in circulation that they would have less value. So in other words, the more the BTC halving, the higher the value of the BTC asset.
The next reward values that miners will have
Before talking about the next reward values that the miners should expect, I would have to go through the previous values from where it all started. Below is a table showing the 4 years range as well as the reward values for that period.
| Below is the reward values for Bitcoin miners since it started | |
|---|---|
| The 4 years duration | Value of miners reward for that period |
| 2009 - 2012 | 50 Bitcoins |
| 2012 - 2016 | 25 Bitcoins |
| 2016 - 2020 | 12.5 Bitcoins |
| 2020 - 2024 | 6.25 Bitcoins |
| 2024 - 2028 | 3.125 Bitcoins |
As you can see on the table above, the last Bitcoin Halving took place on the 11th day of May 2020, where the current reward for mining BTC was set at 6.25 Bitcoins per block. So following the Halving processes, the next value for rewarding BTC miners would be set at 3.125 Bitcoins per block, and this is expected to happen from 2024 - 2028.
When would the last Halving be?
When Satoshi Nakamoto created Bitcoin back in 2009, he made only 21 million BTC to be in existence, and it has been calculated that only about 2 million BTC are left for mining. This means that around 19 million BTC have been mined already since 2009 till date.
As the Halving continues, so also will the mining reward get more difficult to get, and it has been and predicted that the last Halving process will take place in the year 2140.
Analyze the Hash Rate indicator, using Ethereum. Indicate the current value of the Hash Rate. Show screenshots
The mining process is done in form of a contest where different miners compete to solve logical riddles by guessing the answers to the combination locks of a block. The speed rate taken by a miners to guess these riddles is what is regarded as Hash Rate.
As you can see on the screenshot above from the Glassnode website), the Hash rate value of Etherum as of the 24th of November 2021 approximately 821 TH/s.
It had been observed that the more the miners, the more complex and higher the hash rate becomes. Using the Etherum chart, Let's see how the hash rate has moved and how it has been reacting with the market price during the past years. As you can see on the graph below, the chart is from 1st of January 2016 to 24th of November 2021.
The hash rate was very low during the 2016 - 2017 period, ranging below 10 TH/s. The gradual increase in the hash rate began in 2017, because they was a great bullish trend in the market at that time and the price of Ethereum went up which signifies that more people are rushing into the market.
As more people rushed into the market, the hash rate increased because more miners are now competing to solve the puzzle. The bullish run continued until January 2018, and it was at this point that the hash rate increased to 200 TH/s.
Towards the Mid of 2018 - 2019, there was a great downtrend in the market price, which signifies that more people are leaving the market.
And as more people left the market, the hash rate decreased as low as below 150 TH/s, because the lesser the miners the more easy it gets to solve the puzzle.
The hash rate was fluctuating below 200 TH/s, but when it got to the middle of 2020 it went up with full momentum from below 200 TH/s to 600 TH/s. The reason why the hash rate increased at that time was because of the great bullish run that started in the middle of 2020.
As the bullish run continues to increase, the hash rate equally continues to increase, and is currently around it's All Time Highest at about 800 TH/s.
Calculate the current Stock to flow model. Explain what should happen in the next Halving with the Stock to Flow. Calculate the Stock to flow model for that date, taking into account that the miners' reward is reduced by half. Show screenshots. Regarding Bitcoin.
Using the formula to get the stock flow of BTC:
Stock to Flow ratio = Stock÷flow
According to Buy Bitcoin Worldwide, there are currently 18,883,093.75 million BTC in existence as the of today 25th of November 2021.
Total number of blocks mined in 4 years (before Halving) = 210, 000
So therefore, blocks mined in 1 year = 210, 000 ÷ 4 = 52,500
Miners reward per block = 6.25 BTC
Flow = 52,500 × 6.25 = 328,125 BTC created every year.
Remember the formula is = Stock ÷ Flow
i.e 18,883,093.75 ÷ 328,125 = 57.548
Using the formula to get the stock flow model:
0.4 × SF^3
i.e 0.4 × 57.548^3
= 76,234.349 BTC.
Explanation of what will happen in the next Halving with Stock to Flow
The reward which miners get for mining BTC is still 6.25 Bitcoin every 10 minutes, while the stock to flow is still around 57.5. This indicates that it will take about 57.5 years for everyy Bitcoin to get mined at that rate.
But when the next Halving will occur in 2024, the miners reward will be reduced to 3.125 BTC per block, and the value of the stock to flow will increase to almost double the previous SF. As this SF values continues to increase, it indicates that the asset is becoming more rare.
Calculating the Stock to flow model for Bitcoin in the year 2024
The next Bitcoin Halving is expected to occur on the 26th March 2024, and after the Halving, the mining reward will be reduced to 3.125 per block. The number of Bitcoin left to be mined reduces every 10 minutes, and the current BTC left to be mined is 2,116,850.0 million. It is estimated that the amount of Bitcoin that will be left to be mined during the next Halving event would be around 803,907.
18,883,093.75 + 803,907 = 19,687,000.75
This means that about 19,687,000.75 million BTC must have been mined during that halving period.
Miners reward per block = 3.125 BTC
Flow = 52,500 × 3.125 = 164,062.5 BTC
Remember the formula is = Stock ÷ Flow
i.e 19,687,000.75 ÷ 164,062.5 = 119.996
Using the formula to get the stock flow model:
0.4 × SF^3
i.e 0.4 × 119.996^3
= 691130.88 BTC.
And the stock to flow ratio of Bitcoin for March of 2024 is estimated to be around $121,6.
The Puell Multiple Indicator helps in checking the revenue gotten from Bitcoin miners, and it can be used to check possible entry and exit points for miners. This is been done in respect to the halving that occurs approximately after every 4 years, where miners reward are reduced by 50%. And hash rate on the other hand, refers to the speed taken by a miner to guess the riddle required to mine a block.
And we have the stock to flow model to detect the number of years it will take for every BTCto get mined at a particular rate.
So far, I have learnt so much from your lecture Professor @pelon53, and am glad that you brought up such and educative lecture for us this week.