Hey guys,
I welcome you'll to the 2nd week of the SteemitCryptoAcademy course by Professor @pelon53.
Without wasting much of our time, let me quickly proceed with the given tasks.
QUESTION 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.
Puell Multiple Indicator is an indicator that provides information concerning the activities of Bitcoin miners.
Bitcoin miners help in verifying transactions by making use of high-energy computers in solving complex mathematical problems. As a result, they get rewarded by a certain amount of Bitcoin after every successful block is mined.
A block can simply be liked to a digital ledger where transactions are recorded. During mining, miners compete to verify transactions on recent blocks and once this verification is completed, the block is added to the blockchain thus making way for new blocks to be verified ie mined. At the same time, the miner who was able to verify the transactions on the previous block gets rewarded by a certain amount of Bitcoin which is current at 6.25 BTC at the moment.
Other factors such as halving and the current price of Bitcoin affect the rewards these miners get from mining.
For the very fact that blockchain technology is very transparent, the activities of these miners are not in any way hidden. Therefore, we can obtain various information concerning their activities such as their level of reward over a given period.
This level of reward helps us to know the value of Bitcoin that enters the ecosystem at a time and all these informations is provided by the *Puell multiple Indicator. *
- Screenshot
The Puell Mutilple indicator has a red and green region which serves as overvalued and undervalued regions respectively. The undervalued region (green) starts from 0.1 to 0.5 while the overvalued region (red) starts from 4 to 10.
When the Puell Multiple Indicator enters either of the regions, it tells a high or low value of miners' rewards. That is, when the Puell Multiple Indicator is at the green region, it tells that miners' rewards are low on average and when it enters the red region, it indicates that miners' rewards are high on average.
- Screenshot
These overvalued and undervalued regions serve as a signal provider for traders who take advantage of the position of the Puell Multiple Indicator to either buy or sell their assets.
When the Puell Multiple Indicator is at the overvalued region, it tells that the price of Bitcoin is very high and it is prone to a possible reversal thereby signaling traders to take a sell position in other to secure their profits.
Also, when the Puell Multiple Indicator is at the undervalued region, it shows that the Bitcoin value is undervalued and therefore a possible value increase is expected, and this in turn signals traders to buy.
Perform a technical analysis of the LTC using the Puell Multiple, show screenshots and indicate possible market entries and exits.
I will be explaining my technical analysis using the chart above.
Looking at the chart above, it is obvious that the indicator started by giving out a buy signal which lingered for months, and yet the price continued to pull downwards which saw Litcoin move from around $6 to almost $0.8.
The Puell Multiple Indicator kept on issuing a buy signal and many investors kept on entering the market both large and small investors due to the low price of Litcoin.
Fast forward to January 2017, the price of LTC broke out from the undervalued region and continued on the upside which saw it surpass $40 as of July 2017.
As of the same July 2017, the Puell Multiple Indicator started giving out a sell signal which lasted for over a year before the price moved out of the red zone in and the indicator started giving out a buy signal in July 2018.
The signal continued on the buy-side up until January 2019 when the price of LTC went bullish and continued on the upside until July 2019 when the Puell Multiple Indicator went closer to the red zone and as of then, the price of Litcoin has already gone high above $50.
The indicator didn't stay long in between the two zones before entering the undervalued region thereby giving out a buy signal which saw Litcoin skyrocket above $200 before retracing a little bit.
The current position of the Puell Multiple Indicator is in-between the two regions therefore investors who wouldn't want to buy based on the last issues signal, will only but wait to see the position of the Puell Multiple Indicator in months to come.
NB: This indicator serves majorly long-term investors who are ready to hold on to their assets for years.
QUESTION 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
Bitcoin halving is simply the half reduction of the Bitcoin reward earned by Bitcoin miners.
Normally, a certain amount of Bitcoin is automatically earned by miners after each successful block completion. This amount of Bitcoin is reduced by half after some years (4 years) or successful completion of 210,000 blocks.
IMPORTANCE
This reduction also reduces the rate at which newly mined Bitcoin enters circulation thereby maintaining scarcity and increasing value over time.
This increase in value is what encourages miners to keep mining even after the reward reduction as they can easily cover the same amount of cost with a lesser amount of Bitcoin.
Before the first halving in November 2012, miners earn a total of 50 BTC after every successful block completion. After the completion of 210,000 blocks which usually takes up to 4 years to achieve, the reward is reduced by half thereby leaving miners with a 25 Bitcoin as mining reward.
After the completion of another 210,000 blocks which took another 4 years to achieve, the block reward was automatically halved to 12.5. It continued like that until May 2020 when miners came to the successful completion of another 210,000 blocks, the reward was halved to 6.25 and that is what it has been up till this very moment.
NEXT REWARD VALUES MINERS WILL HAVE
| YEAR | BLOCK NUMBER | BLOCK REWARD | TOTAL BITCOIN |
|---|---|---|---|
| 2009 | 0(Genesis block) | 50 | 10,500,000 BTC |
| 2012 | 210,000 | 25 BTC | 5,250,000 BTC |
| 2016 | 420, 000 | 12.5 BTC | 2,625,000 BTC |
| 2020 | 630,000 | 6.25 BTC | 1,312,500 BTC |
| 2024 | 840,000 | 3.12 BTC | 656,250 BTC |
| 2028 | 1050,000 | 1.56BTC | 328,125 BTC |
| 2032 | 1,260,000 | 0.78BTC | 164,062.5 BTC |
WHEN WILL THE NEXY HALVING BE
Mining will continue untill a to total of 21,000,000 BTC has be successfully mined and added to the circulation supply and this will be achieved in the year 2140.
QUESTION 3
Analyze the Hash Rate indicator, using Ethereum. Indicate the current value of the Hash Rate. Show screenshots.
Cryptocurrency mining is very essential as it is a way of releasing coins from the total supply into the circulating supply.
Nevertheless, this mining gets harder with time in other to avoid inflation on the price of the coin. This difficulty is not just assumed and this is what brings us to the term hash rate.
Harsh rate is an indicator that helps in calculating the amount of energy that will be needed in other to successfully mine a block.
The increase in the harsh rate means an increase in the amount of energy that will be needed to mine a block and this in turn results in an increase in mining difficulty which will eventually lead to a decrease in mining reward.
- Screenshots
Before 2017, there was very little or no difficulty in mining Ethereum and this left the harsh rate lying flat.
Getting to 2018, the hash rate started increasing as more people started investing in Ethereum mining.
Getting to 2020, the pandemic which made a lot of people stay at home drove a lot of people into the cryptocurrency business with a lot venturing into mining.
This increase in the number of miners tends to reduce the time of wish new blocks are produced for the fact that most of the new miners would want to mine with a more powerful technology in other to have an edge over the old miners.
Once this happens, the mining difficulty increases in other to maintain the mining rate at a fixed time.
Again, once the mining rate increases, the difficulty drops in other to keep the time constant.
This increase and decrease in difficulty are correctly shown by the hash rate indicator though not accurate.
And currently, the hash rate of Ethereum as shown by the indicator is 764 TH/S.
QUESTION 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
Calculation of the current Stock to flow model
SF = Stock / Flow.
Current date 27/ 11/2021.
Stock existence =18,884,831.00 BTC.
Using the formula:
Annual flow = Reward / block × Annual block production.
Annual flow = 6.25 BTC × 52,560 Blocks = 328,500 BTC / Year.
Annual flow = 18,884,831.00 BTC/328,500 BTC
Annual flow = 57.48 BTC
Value of indicator line (Stock to flow model)
Using the fomula;
Stock to flow model = 0.4 × (SF) ^3
Stock to flow model = 0.4 × (57.48)^3
Stock to flow model = 0.4 × 189,911.07 (2decimal places)
Stock to flow model = 75,964.43 (2 decimal places)
What will happen in the next Halving with Stock to Flow.
During the next halving, the inflow of Bitcoin will reduce to 3.12 thereby causing scarcity, and the inflow of Bitcoin is inversely proportional to the stock to flow.
This means that if the in-flow of Bitcoin decreases, the stock to flow will increase.
During the next halving, the stock to flow will increase to 86,096 BTC.
Stock to Flow model = 86,096 BTC.
The more increase in the value of the stock to flow, the more decrease on the inflow of Bitcoin, and this, in turn, will lead to more scarcity of Bitcoin. And with normal basic economics, we know that scarcity increases demand and in turn causes an increase in value/price.
- Calculation
The current circulating supply of Bitcoin is 18,884,831.00 BTC and by 2024, the estimated supply will be 1,968,700.00 BTC and due to halving which will occur in 2024, the block reward will be reduced to 3.12.
Using the formula;
Annual flow = Reward / block × Annual block production.
Annual flow = 3.12 × 52,560
Annula flow = 328,500 BTC.
Now we recall that SF = Stock supply / Annual flow
SF = 1,968,700.00 BTC/ 328,500 BTC
SF = 59.93 BTC
Value of the indicator line
We recall;
Stock to flow model = 0.4 × (SF) ^3
Stock to flow = 0.4 × (59.93)^3
Stock to flow = 0.4 × 215.24 ( 2 Decimal places)
Stock flow = 86.096
- Screenshot
CONCLUSION
The Puell Multiple Indicator is an effective indicator which provides long term information on the possible price direction of Bitcoin, Ethereum and Litcoin.
It's was created by David Puell in March 2019 and ever since it has been in productive use.
Just like every other indicator, the Puell Multiple Indicator provides information based on previous information, and in as much as it is effective, it is best combined with other technical analysis tools for a more accurate price prediction.