1.- 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.
Current Value of Bitcoin Using Puell's Multiple Indicator
As we all know Puell's indicator gives the analysis of the current supply of Bitcoin into the world. It does this by giving the relationship between BTC issued and the daily moving average of 365 days. It also shows the current price of BTC as a way of showing the profitability of the BTC mined.
It has a red band and a green band, the red band is at the top and the green band is at the bottom. When Puell's indicator is at the red band it signifies that the price of Bitcoin is high and gives a sell signal. Likewise, when the indicator is at the green band it signifies the price of Bitcoin is low and gives a buy signal. The red band has values between 4 & 10 and the green band has values between 0.1 & 0.5.
As we can see on the chart above as at the time of checking this Puell's indicator which is 26/11/21, Puell's indicator is 1.198364. It shows that the indicator is neither in the red band nor on the green band. The indicator is just moving.
Also, in addition to Puell's indicator, we can see that the current price of Bitcoin is $53,865.00 which is a reflection of Puell's indicator as the price of Bitcoin is just moving.
Technical Analysis of Litecoin (LTC) Using Puell's Multiple Indicator
We can also analyze LTC using Puell's multiple indicators.
On the chart above we have two lines that represent the LTC price and the Puell's indicator. The price of LTC is indicated with the blue arrow, while Puell's indicator is indicated with the black arrow.
We can see a closeness between LTC price and Puell's indicator which is captured in the first square purple shape. Also, at that point, the price of LTC was very low as it was at $1.28 at the same time the value of Puell's indicator was low as it was at 0.12443838. At this point, both lines were below the green band. This was around January 2015.
Then the two lines experienced an increase or upward movement which was between June to the end of 2015. Then from January 2016 to Jan 2017 the two-line move in a channel or range, as in a straight line, this as captured is the rectangle purple shape. Then from January 2017, the two lines started moving up. Notice that Puell's indicator line was always above the LTC price line.
However, as the two lines moved up, the line of the price of LTC eventually crossed over the line Puell's indicator. This was around July 2017 and is captured with the circle purple shape.
So far as can be seen on the chart the line of the LTC price follows the line of Puell's indicator. When the Puell's indicator goes down, the price of LTC goes down, likewise when it goes up, the LTC price goes up and when it moves sideways, the LTC price moves sideways. The movement up and down in the price of LTC is a precursor to the movement of Puell's Indicator touching the Red and the Green bands.
When Puell's indicator touches the Red band it gives a sell signal and when it touches the Green band it gives a buy signal. So far on the chart, Puell's indicator touched the red band 2 times and touched the green band 5 times.
2.- 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
Halving is a situation where the amount of coins a miner receives reduces to half. This halving process occurs after a certain amount of blocks have been mined. For instance, in Bitcoin's network, it occurs after 240,000 blocks, while in Litecoin's network it occurs after every 840,000 blocks.
This process of halving is carried out to ensure that the value of the cryptocurrency is maintained as the supply of the cryptocurrency is checked and does not increase exponentially. At the same time, it tends to put upward pressure on the value of its price.
In the Bitcoins network, it was put on record that only 21,000,000 BTC would ever be created. It is substantially written in Bitcoin's whitepaper. To maintain this amount of supply, the network would experience halving every 4 years. A block is mined every 10 mins, which translates to 210,000 blocks every 4 years. Therefore the network experiences halving every 210,000 blocks or 4 years.
At the start of the mining process, the amount of BTC given out to miners was 50 BTC. With 210,000 blocks this translated to 10,500,000 already supplied. After the first halving, the number is given out reduced to 25 BTC. Therefore, at 210,000 blocks the reward was 5,250,000.00 BTC. The second halving took place and the rewards were reduced to 12.5 BTC. At 210,000 blocks it was 2,625,000.00 BTC. The third halving took place and the rewards were reduced to 6.25 BTC, so at 210,000 blocks that translates to 1,312,500 BTC. This process goes on until the very last Bitcoin has been mined.
The significance of the Bitcoin halving can be seen in the price of Bitcoin. After the process of halving the price of Bitcoins usually increases. Though the price increase is not a straightforward event, it usually happens. When the first halving occurred in 2012, the price of Bitcoin was relatively at $12. By 2013 the price had increased to about $1,040. The same occurrence happened in the second halving in 2016. Although the price went down to $650, it later increased to $2,518. By 2017 December the price increased to a whopping $20,089.
Currently, the rewards miners get is 6.25 BTC which is at the 3rd halving. So subsequent halvings are:
4th halving, 3.125 BTC by 2024
5th halving, 1.5625 BTC by 2028
6th halving, 0.78125 BTC by 2032
7th halving, 0.390624 by 2036
8th halving, 0.1953125 by 2040
9th halving, 0.09765625 by 2044
10th halving, 0.048828125 by 2048
11th halving, 0.00244140625 by 2052
12th halving, 0.01220703125 by 2056
13th halving, 0.006103515625 by 2062
The final halving is assumed to occur by 2140 at the 33rd halving at 0.00000000582076609134674072265625 BTC
3.- Analyze the Hash Rate indicator, using Ethereum. Indicate the current value of the Hash Rate. Show screenshots.
Ethereum currently uses the same consensus mechanism as Bitcoin which is Proof-of-Work PoW. In this consensus mechanism, miners are meant to solve a complex mathematical equation, this process involves the computational power of the miners involved. The computational power depends on Hash Rate.
From the chart above we can see the current hash rate of the Ethereum network. As of the time of checking it was at 789T/s. This is the hash rate value that allows a miner to mine a block on the Ethereum network.
Furthermore, by analyzing the chart we can see the life cycle of the hash rate on the network. At the start of the production of Ether in late 2015 up till January 2017, the hash rate was low. Then from January 2017 to August 2018, the hash rate had a marked increase to about 236T/s. The period is marked A.
Then from August 2018 to April 2019, the hash rate experienced a reduction to about 131T/s. This period is marked B. The next period C saw the hash rat move in a "channel", at there was no marked increase or decrease in the hash rate. It was between April 2019 and July 2020. Finally, the period marked D shows how there was a meteoric rise in the hash rate to the current value stated above. This period is from July 2020 to this period in November 2021. Although as it increased massively, it experienced a small decline between May 2021 and June 2021. It is believed that this slight fall was a result of the China ban on cryptocurrency mining.
4.- 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.
Calculate the current Stock to flow model.
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From the image above we can see that the total blocks generated so far is 18,884,000
SF = Stock / Annual Flow.
Annual flow = Reward of block x Annual block production.
For the date November 27, 2021: Stock = 18,884,000 BTC.
To calculate the Annual flow:
1 block is generated every 10 minutes which represents 6 blocks per hour, therefore,
The number of blocks mined in 24 hours = 6 (blocks / per hour) x 24hrs = 144 blocks/day.
Then,
Number of blocks per year = 144 x 365 = 52,560 blocks per year
Annual flow = 6.25 BTC per Block x 52,560 blocks per year = 328,500 BTC per Year.
SF = 18,884,000 BTC / 328,500 BTC per year
SF = 57.485 per year
Calculating the value of the indicator (the line of the Stock to Flow chart Indicator) gives,
Stock to Flow model = 0.4 x SF ^ 3
Stock to Flow model = 0.4 x 57.485 ^ 3
Stock to Flow model = 0.4 x 189.960.632559125
Stock to Flow model = 75,984.25302365 per year.
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.
In 2024 the BTC emitted is 3.125. At the rate of 210,000 blocks, 656,250 BTC would be emitted.
Circulation of BTC 18,884,000 + 656,250 = 19,540,250 BTC
Annual Flow = 3.125 BTC x 52,560 blocks per year = 164,250 BTC per year.
SF = 19540250 BTC / 164250 BTC per year = 118.97
Stock to Flow model = 0.4 x SF ^ 3
Stock to Flow model = 0.4 x (118.97) ^ 3
Stock to Flow model = 0.4 x 1,683,884.831273
Stock to Flow model = 673,553.9325092 per year.
From the calculations above the Stock to Flow model has a strong change in its value from 75,984 BTC to 673,553 BTC. This is also recorded in the chart above that the Stock to Flow value went up from around 75,984 BTC to around 673,553 BTC. This is done by navigating through the chart line which is a representation of the Stock Flow.
5. Conclusions.
The metric indicator consists of Puell's Multiple, Hash Rate, and Stock to Flow metric. They are indicators that give us information on the mining of Bitcoin and cryptocurrencies that make use of the PoW consensus mechanisms like LTC, Ethereum, etc.
Puell's indicator lets investors know when the price of BTC that is brought into the ecosystem is valuable and when it can be sold. The Hash rate indicator lets users know the current hash rate of the system so that they can form intelligent analysis. The Stock Flow helps lets investors know the possible value of BTC for every halving period beforehand which is a very necessary tool.
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