On-chain data Reveals Bitcoin is Undervalued
Next to nothing has changed from a technical standpoint on the BTC/USD chart since Monday. Bitcoin is ranging, and until one side gives way, there’s not much to look at.
As bitcoin chops around, however, it’s worth considering historically significant charts to contextualize the price.
The Puell Multiple is one such significant chart. It is calculated by dividing the daily issuance value of bitcoin (in USD) by the 365-day moving average of daily issuance value. The metric was created by David Puell, and it has just fired a ‘buy’ signal.
Not to be confused with short-term trading, the Puell Multiple provides insight as to what could be expected on a weekly or monthly basis. Per the above data, it’s painfully clear that bitcoin experienced one of the sharpest drawdowns in history — straight into the accumulation zone. In other words, even if bitcoin trades at lower prices over the next few weeks (which I think is unlikely), buyers will be aggressively accumulating under these conditions.
Meanwhile, Grayscale’s GBTC premium appears to be ticking higher, revealing that traditional institutional interest in the fund is increasing.
At just over -7%, the GBTC premium offers the possibility for investors to take advantage of the negative premium in order to potentially sell for an arbitrage (and price increase) after the 6-month lock up period.
According to a filing with the Securities and Exchange Commission (SEC), Morgan Stanley’s Europe Opportunity Fund has purchased a significant amount of shares from the largest asset manager in cryptocurrency, Grayscale.
Grayscale Litecoin Holdings Surge
Interestingly enough, the asset manager’s Litecoin holdings (ticker ‘LTCN’) have skyrocketed in the last 30-days, showing an increased investor appetite for the highly liquid secondary digital asset.
Given the lower market cap (compared to Bitcoin), Grayscale’s Litecoin Trust plays a notable role in the coin’s price fluctuations and could tip the scales as arbitrageurs move the market.
The Grayscale Litecoin Trust started trading in August 2020 at a premium-to-spot in excess of 1,000%. This drove arbitrageurs to borrow (physical) LTC from lenders (Genesis, BlockFi, Galaxy, Celsius, etc.), use those coins to subscribe for the trust, and then wait 12 months for the newly-issued shares to mature.
As those shares mature over the coming months (starting from July), these arbitrageurs will likely sell their LTCN shares and buy LTC coins back with the proceeds to repay their loans, collapsing the premium spread and possibly turning a profit higher than the cost of capital. Long story short, this amount of forced buying pressure could be pivotal in the coin’s future prices.
Source: Grayscale, BlockFi
Even though BTC and ETH repurchases are also taking place, Litecoin repurchases are more interesting because buying pressure relative to market cap could have larger rippling effects. per the above chart, Litecoin faces a potential demand surge of about 2.5% of its market cap (~$270mm) over the next twelve months, driven primarily by Grayscale.
It will most certainly be one to watch in the months ahead.
Catch you next time.
You can also support me in Bitcoin!
BTC address: 3EydsEYpjHn68axKnCUqBB7EbqcxrEjamr