On-chain data shows that Bitcoin is undervalued
From a technical point of view, next to nothing has changed on the BTC / USD chart since Monday. Bitcoin is moving, and until one side gives way, there isn’t much to see.
However, since Bitcoin is in circulation, it pays to consider historically significant charts to contextualize the price.
The Puell Multiple is one such significant diagram. It is calculated by dividing the daily output value of Bitcoin (in USD) by the 365-day moving average of the daily output value. The metric was created by David Puell and has just triggered a buy signal.
Not to be confused with short-term trading, the Puell Multiple offers an insight into what to expect on a weekly or monthly basis. From the data above, it is painfully apparent that Bitcoin has experienced one of the strongest drawdowns in history – straight into the accumulation zone. In other words, even if Bitcoin trades at lower prices over the next several weeks (which I think is unlikely), buyers will be aggressively accumulating under these conditions.
Meanwhile, Grayscale’s GBTC premium appears to be ticking higher, showing that traditional institutional interest in the fund is growing.
At just over -7%, the GBTC premium offers investors the opportunity to use the negative premium to potentially sell at an arbitrage (and price increase) after the 6 month lock-up period.
Morgan Stanley’s Europe Opportunity Fund has bought a significant number of shares in Grayscale, the largest cryptocurrency asset manager, according to a filing with the Securities and Exchange Commission (SEC).
Grayscale Litecoin stocks increase
Interestingly, the asset manager’s Litecoin holdings (ticker “LTCN”) have skyrocketed over the past 30 days, showing an increased investor appetite for the highly liquid secondary digital asset.
Given the lower market capitalization (compared to Bitcoin), Grayscale’s Litecoin Trust plays a notable role in the coin’s price volatility and could make the difference if arbitrageurs move the market.
The Grayscale Litecoin Trust started trading at a premium of over 1,000% in August 2020. This prompted arbitrageurs to borrow (physical) LTC from lenders (Genesis, BlockFi, Galaxy, Celsius, etc.), use those coins to subscribe to the trust, and then wait 12 months for the newly issued shares to mature.
When these stocks mature in the coming months (starting in July), these arbitrageurs will likely sell their LTCN stocks and use the proceeds to buy back LTC coins to repay their loans, collapsing the premium spread and potentially making a profit above the cost of capital. Long story short, this forced buying pressure could be critical to the future prices of the coin.
Source: Grayscale, BlockFi
Although BTC and ETH buybacks are also taking place, Litecoin buybacks are more interesting as the buying pressure relative to market capitalization could have a bigger impact. As per the graph above, Litecoin is facing a potential increase in demand of around 2.5% of its market cap (~ $ 270M) over the next twelve months, largely driven by Grayscale.
It will be seen for sure in the coming months.
Catch yourself next time.
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