Bitcoin (BTC) has slid 40% since May, and 70% from the record high in December 2017. The market cap stands at US$105.65 billion, with US$2.97 billion traded in the past 24 hours.
A new announcement from Mt. Gox trustee emerged this week with a proposed rehabilitation program and repayment plan for users of the now defunct exchange. Under court order, bankruptcy proceedings which resulted in the selling of crypto holdings between December 2017 and February 2018 have ceased. Creditors will need to re-file their claims, and a repayment plan will be developed to return the lost funds to users in crypto. A deadline for the proposal is set for February 14, 2019.
In effect, because the coins will be returned, creditors may realize a capital gain on their value. The Mt. Gox wallets still hold over 137,000BTC and 137,000 Bitcoin Cash, or an additional 16,753BTC at current prices. Returning these funds to users will likely result in a demand shock, similar to previous government auctions, and cause bearish price action. The Bitcoin block reward halving will also result in a supply shock and is slated for May 2020.
On the network side, transactions per day have averaged 180,000 since March. This metric has declined significantly for all cryptocurrencies. The Visa payment network processes an average of 150 million transactions per day, or around 1,667 transactions per second on average. However, the Visa network experienced a continent-wide outage for over two days in May, due to hardware failure, while Bitcoin has had 99.99% uptime since inception in January 2009.
Transaction fees, which increased dramatically throughout 2017, have also dropped since late December and remain relatively low. This fee reduction is multifactorial. Although a decrease in transactions per day means fewer transactions need to be cleared, SegWit, which currently accounts for ~37% of transactions, has also been a significant contributing factor in the average fee decline.
SegWit transactions occupy less block space than equivalent non-SegWit transactions, allowing SegWit transactions to pay less total fees to achieve the same feerate as non-SegWit transactions. Daily SegWit usage has steadily increased since January. A spike in SegWit usage in November was likely due to the proposed SegWit2x hard fork which failed to activate.
On-chain transactions per day have not only declined due to a lack of network use but also transaction batching, where one transaction is sent to many addresses at once instead of each transaction being sent individually. The ratio of outputs per transactions has risen significantly since this time last year, suggesting the practice has become a mainstay. In August 2017, a random block sampling showed that batching would have saved 9% of the block space, totaling about US$140,000 in transaction fee savings per day.
The impact of on-chain data batching can also be quantified by visualizing the number of transactions with OP_RETURN outputs over time. Since October 2012 (block 201403), the use of op-return outputs per transaction has increased dramatically. In May 2017, a BitFury address was shown to save ~87% in block space, or 10BTC in fees, if transactions had been created with multiple OP_RETURN outputs.
OP_RETURN is code used to embed metadata in a transaction. Normally, only one OP_RETURN output is allowed per transaction. If someone wants to insert N pieces of data in the blockchain, they have to make N transactions, resulting in a separate fee for each transaction.
Transactions with multiple OP_RETURN outputs allow for a reduction of fees by reducing the number of required transactions. The Bitcoin protocol makes these transactions possible, but they are not relayed by peers on the network, so they need to be sent to miners directly. Since the transactions are still valid, miners can mine transactions with any number of OP_RETURN outputs, so long as the block does not exceed the block size limit.
Using a 30-day Kalichkin network value to transactions (NVT) ratio, BTC remains in the upper-third of its historical NVT value. NVT has not been this high since January 2015 but has begun to turn downward recently, which suggests increasing on-chain network usage based on the dollar amount being transacted. Additionally, inflection points in NVT ratio can be correlated to extreme highs or lows in price.
Although NVT is difficult to compare between coins that use different transactions types, the ratio can be used to assess a network’s relative utility over time. XRP, LTC, and DOGE are currently the only coins with an NVT lower than BTC.
Hash rate and difficulty continue to post record highs as more and more ASICs are added to the network. Mining profitability has hit an all-time low, meaning that miners who account for a significant percentage of the hash rate are mining at a loss. The average cost in the U.S and Venezuela to mine 1BTC as of March 2018 was US$4,758 and US$531 respectively. More…