🧘‍♂️SPOTTED: Next Big Indicator?

Market Meditations | September 28, 2021

Can this predict $BTC price?

Dear Meditators

The importance of a blockchain’s security cannot be understated. Without a secure network, failure is inevitable.

One of the best ways we can determine Bitcoin’s current state of security is by examining its hash rate. But is there more to this metric than meets the eye?

Today’s Meditations: 

  • ✅ 5 Things You Need To Know About Crypto

  • ⛏ What Is Hash Rate & Why It Matters

  • ? Cardano’s New Stablecoin

  • ? Crypto Bot Quiz

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⏰ In A Rush?

Here’s the latest on the crypto markets:

Our Market Meditations are longer format educational segments. Each letter features a Market Meditation which will deep dive and analyse a relevant crypto event, theme or tool. 

?‍ Hashing It Out

⛏ What is a hash rate?

The total mining hash rate of Bitcoin corresponds to the blockchain’s resistance to attack. The higher the hash rate, the more difficult it is for attacks to succeed. This rate is a calculated numerical estimation which corresponds to how many hashes are being generated by miners attempting to solve the current BTC block. 

  • Bitcoin’s hash rate is represented in Hashes per second (H/s). It has no correlation with how quickly or slowly each block is solved. This is due to the dynamic nature of how it regulates difficulty. 

  • Hashing difficulty is adjusted roughly every two weeks by assessing the speed at which blocks were mined during the previous two weeks. Based on that moving average, the difficulty is adjusted to make the next two weeks appropriately difficult, so the time required remains relatively stable. 

  • As more miners join the network, the difficulty rises to match increased hashing power. Therefore, when the network expands, difficulty goes up, but transaction time remains reasonably constant. 

The same is true in converse. If miners drop off the network, as we saw earlier this year when China banned mining, the difficulty is lowered so fewer miners can complete the work in similar time. 

? Why is it worth knowing?

Over the years, the link between Bitcoin’s price and hashrate has been compelling. The hash rate itself has been lauded as a lagging indicator by some influencers and traders. 

In August of this year Yahoo looked at hash ribbons with impressive implications. Some interpret hash ribbons as a long-term signal to find confluence in macro scale bottoms during market cycles. 

Charles Edwards, the creator of the indicator, described how it works in 2019 and displayed some impressive retrospection regarding its insight relative to buying Bitcoin dips.

?Concluding Remarks

It might be tempting to buy into such a seemingly accurate track record. However, trusting anything with only a handful of data points can prove reckless. 

While hash rate and difficulty are potentially valuable tools, they should never be followed blindly or exclusively. Remember – forming a strategy involves selecting multiple tools to establish confluence.

Strategies are one of the most important parts of successfully trading or investing. We’ve published a comprehensive guide to responsibly prepare for building wealth.

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?No Ifs, Ands or Bots

Which of the following is not an advantage of using a bot to perform crypto arbitrage?

  1. 24/7 monitoring of the markets 

  2. Affordable and fast

  3. They use discretion

? Djedi Knight with a Coti Arms

When you think of the word stability you probably don’t think of cryptocurrency. But it’s a key area of focus, and at the Cardano Summit on Sunday Charles Hoskinson announced that Coti would be the official issuer of a new, algorithmic stablecoin called Djed

What’s this all about?

  • One of the key concerns in the DeFi world is the volatile nature of gas fees that can put users off and require them to have a stash of the network’s token.

  • By using a stablecoin the intention is to open up the DeFi world in the Cardano ecosystem  by acting “as an autonomous bank” that avoids wildly fluctuating transaction fees.

  • There are several types of stablecoin, but the general idea is that they are pegged to the value of another asset, such as the US dollar (e.g. USDC). Only if you are fully-backed and can react quickly enough to changes, can the peg be maintained. 

  • Algorithmic stablecoins aim for stability without collateral. They use smart contracts and user behaviour to keep the price stable (as we covered last week, LUNA is used to keep UST stable on the Terra network).

  • The Djed protocol “buys and sells stablecoins for a price in a range that is pegged to a target price” using cryptocurrency reserves. It employs a number of mathematically proven measures to “protect stablecoin holders from market crashes”.

  • And long term partner Coti will funnel the mint and burn fees into the Coti ecosystem to reward its users.

First smart contract functionality and now a stablecoin. Cardano’s slow start is picking up momentum on the news front. 

To read the Djed research paper click here, and to learn more about the potential for algorithmic stablecoins check out this great feature article by CoinDesk.

3. They use discretion

Bots of course can’t use discretion, they are unemotional and systematic. 

Last week we had a question about crypto arbitrage, this week we have a specific one on using bots to do so. Here is a breakdown of the advantages of using them.

  • 24/7 monitoring of the markets. Bots can work during the times when humans need to sleep.

  • Affordable and fast. Bots require little to no prerequisite knowledge to get up and running and cost relatively little. 

  • Unemotional. Bots can avoid falling into emotional pitfalls like fear and greed. They trade based purely on the technicals. 

If you want to learn more, check out our Crypto Bot Guide.

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??‍♂️✍️ Stories in this newsletter were written by Kyle F., Isambard FA, Nick T., Max P., Kimia K., Ellen B. and Koroush AK. Graphics were produced by Gerasimos P.

Not financial or tax advice. The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision. See our important security disclaimers here.

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