Metric Indicators - Crypto Academy / S5W2 - Homework post for pelon53.

in hive-108451 •  2 months ago 

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Image Designed by me on Canva App

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Introduction

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Hello Crypto Lovers,
The season 5 is going smoothly at my end here and I do hope you also are enjoying this season. It is the week 2 already. My name is Kehinde Micheal and my username is @msquaretwins here on this great platform. I have gone through the post presented by Professor @pelon53 on "Metric Indicators" in the intermediate class. Therefore in this post, I will be answering the questions posted in the homework section. Happy reading!


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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.

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To start with this question, let's first define Puell indicator. Puell multiple indicator is an indicator that is used to estimate or calculate the current mining pools of bitcoin by comparing it to the one attainable in the last one year.

The puell multiple indicator calculate this value by taking into account the ratio of bitcoin issued in USD per day and the moving average of the same coin in market in the last 365 days.

Mathematically, it can be written thus;
I.e puell multiple = Daily BTC issued in USD/365 day Moving average of the BTC

This indicators helps traders to know when miners are willing to dispose their asset and also informs them the possible or exact time buying of bitcoin can be done at a very discount price in market.

As we know that the miners receive bitcoin as the reward of mining bitcoin and the amount of which depends on the current circulation of bitcoin. The reward receive by miners is usually cut into half every time bitcoin halving occur. Consequently, the reward by miners at times can be large or small, all this information is provided by the Puell multiple indicator.

Puell multiple indicator consist of two zone. The upper zone and the lower zone. The lower zone ranges between from 0.1 to 0.5. While the upper zone is from 4 to 10.0.

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The picture above displays the puell multiple indicator on BTC chart. From the picture above, the current value of Puell multiple indicator is 1.154372 as at the time of writing this task.

Technical analysis of the LTC

To perform technical analysis of LTC using the Puell Multiple, I entered glassnode site and take the chart of LTC and the puell multiple indicator.

The puell multiple indicator for LTC as seen in the image below has two band, the lower band with green colour and the upper band with red colour. The upper band start from 4 to 10 while the lower band ranges from 0.1 to 0.5

The chart below shows the historical price of LTC coin from year 2014 up to year 2021 as seen in the picture below.

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As seen from the above chart, the price of LTC token experience a great fall from around $6 in the year 2014 to almost $0.08 in year 2015. At this point, the profit of the miners are very low because the price has dipped down and the puell multiple indicator has enter the green band, even downward. This is the first possible buy entry. And aswe can see, from year 2015, the puell multiple indicator moved from around 0.1 to around 0.6 and price moved from around $0.08 to over $6.

Another possible entry is seen in the year 2017 around march/April when puell multiple indicator enter the green band zone back. This is indicated as point 3 marked with a black box in the screenshot. In a short while during this period, LTC moved from 0.4 puell value and entered red band of puell indicator at the end of the 2017/early 2018. As a result of this, price greatly moved from around $5 to over $200.

Furthermore, the next buy opportunity is marked with red box and it occurred in January 2019. At this time, the puell multiple value is around 0.2 which indicate great buying opportunity. It does not take long befprw the price of LTC moved from around $5 to $40 dollar placing the puell value at 2.

Lastly for buy opportunity, the last buy opportunity spotted was around march 2020. Diring this time, the price of LTC moved from almost $40around march 2020 to over $200 in April year 2021. From then, the price of LTC has been moving around $200.

The next picture uploaded below shows some possible exit for this asset.

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As we have said above, the highest high of LTC coin during this period was attained in January 2018 and interestingly the puell multiple indicator also entered the red band which shows that the profit of the miners are very good and big. Around this time, the price of LTC fell greatly from over $200 to around $30 in January 2019. Puell value also dropped greatly from 10 to close to 0.2 within the same period.

Lastly, the sell opportunity also presented itself around July 2019. From this place, the price dropped to a price below $40. The puell indicators also dropped from 2 to around 0.2. This sell opportunity is indicated A and a in the screenshot above.


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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

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Halving which is otherwise known as halvening is a process of cutting the reward earned by the blockchain miners into half. This means that the reward of mining every new block is cut into half. The bitcoin halfing occur every 210,000 blocks of bitcoin mined and this is approximately every 4 years. The maximum supply of bitcoin is 21Million and this is how it will keep going until the maximum supply is reached.

This event is an important event because it degrade the amount of bitcoin in circulation and as such the price of bitcoin tends to rise especially if the demand at this time increases.

Bitcoin was launched in 2009, and the reward the block miners receive before the first halving is 50BTC. The first halving occur when the total BTC in circulation reached 10,500,000.00 in Nomeber 2012. Then the reward of miners reduce to 25 BTC. Another halving occurred in 2016 and at this time the reward of the miners was 12.5. The last halving occurred in the year 2020 and that's what made the current reward of miners to be 6.25BTC

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Table Created on WPS


The table above shows how halving has taken place from 2009 to 2020 and also indicate how it will take place from 2024 upward.

The first column shows the year halving takes place in the history of bitcoin. The second column is the number of block formed at every halving. 210,000 blocks form from 2009 till 2012 the first halving take place. Another 210,000 blocks formed in the next four year and that makes a total of 420,00blocks in the year 2016 which marked the second halving. This is how the block keep going.

The next column is the column for BTC/block which the miners receive during the years. The reward in 2009 was 50 BTC, this reward was cut into half in 2012 and as such the reward per BTC mined was 25 BTC. The reward keep decreasing at every halving.

The next column is the column for Initial BTC achieved before every halving. The column "BTC added" is the column for the addition of BTC added to the initial BTC after each halving. And the last column is the column for final BTC which is the addition of initial Bitcoin and the bitcoin added.


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3. Analyze the Hash Rate indicator, using Ethereum. Indicate the current value of the Hash Rate. Show screenshots

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There are different type of consensus mechanism or protocol used in blockchain. Some of the consensus protocol uses in blockchain are; Proof of Work (PoW), Proof of Stake (PoS), Proof of History (PoH), Delegated Proof of Stake (DPoS) etc. Among all these type of protocols, PoW requires high computational power for it operation and mathematical puzzle solution. This is where hash rate indicator comes into play because the hash rate gives detail information of exact number of computation capable to be delivered by miners.

Now, let's look at the hash rate chart of ETH over the last few years.

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The picture above is the hash rate chart of Ethereum and the price corresponding to different hash rate. The blue chart is for the hash rate plotted in Trillions on the left vertical axis while the black chart is the price of the Ethereum which is plotted on the right side of the chart in USD.

There are few miners on the ethereum blockchain from January 2016 to January 2017 and as such the computational operation at that time is not tedious. Consequently, the hash rate withing this time is seen to be stable as there is little or no increase in the hash rate as seen in the graph uploaded above.

In January 2017 the hash rate and the price of ETH were 472,681,397,425,0.07/secs and $8.45 as indicated by letter "a" and "A" in the screenshot respectively. But before the end of July 2017, more miners entered the ethereum ecosystem and more computational power was required and as such the hash rate increased progressively and reached 223,720,116,268,386/secs in Jan 2018 as indicated by letter "b", the price of ETH corresponding to this hash rate is $1,259 as indicated by letter "B" in the screenshot.

From 2018, the hash rate decreased and the computational power slightly reduced and 135,654,777,161,442/secs hash rate was recorded as marked by letter "c" around January/February 2019. At this time the price of ETH also fell from $1,259 to $91.76 as indicated by capital letter "C" in the screenshot above.

From, 2019, both the hash rate and the price of ETH has experience progressive increase up to this moment.

Now let's see the picture below to check the current hash rate of Ethereum.

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As we can see from the screenshot posted above, the current value of the hash rate as at the time of writing this task is 820,705,014,040,589/s


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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.

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For this question, I will be calculating current to stock-flow model.

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The calculation used for stock to flow is:

SF = Stock / Flow

And Flow can be calculated as;

Flow= Reward / Block x Annual blocks produced.

And we know that the current reward of mining a block is 6.25BTC

Now to now the annual block production, let's see the calculation below

1 block is mined every 10 Minutes

144 block is mined every 24 hours
Therefore the annual block mined will be 144x365 = 52,560 Blocks

So the annual block production is 52,560 and the current reward is 6.25BTC

Now let's calculate flow
Flow= Reward / Block x Annual blocks produced.
Flow. = 6.25 x52,560
Flow = 328,500 BTC

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According to the picture above, the current circulating supply of BTC is 8,882,000. This is then the Bitcoin in stock. Therefore, the current stock is 18,882,000

Therefore,

SF = Stock / Flow
SF = 18,882,000/382,500
SF = 57.479452055

Now The Stock to Flow Model can be calculated by using;
Stock to Flow model = 0.4 x SF ^ 3.
SF model = 0.4 x (57.479452055)^3
SF Model = 0.4 x 189905.63789446812
SF Model = 75962.25515778725
SF Model = 75,962.26 BTC

The SF Model is equally the same as the one we have in the chart below.

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Explain what should happen in the next Halving with the Stock to Flow.

The next halving will take place in the year 2024. In the next having the reward of mining a block will reduce to 3.125 BTC and by then 656,250 BTC (3.125BTC x 210,000) will be added to the current circulating supply of BTC.

Now let's calculate stock to flow for this.
SF = Stock/Flow........... (Eqn a)

Stock in the next halving = Current stock + The one that will be added
= 18,882,000 + 656,250
Stock in 2024 = 19,538,250

Flow =Reward in 2024 x Block added in a year
Flow = 3.125 x 52,560
Flow = 164,250

Substituting these values in the (eqn a) above, we have,
SF = 19,538,250 /164,250
SF = 118.954

Now let's calculate Stock to Flow model
Stock to Flow model = 0.4 x SF^ 3.
Stock to Flow model = 0.4 x (118.954)^ 3.
SF Model = 0.4 x 1683205.53
SF Model = 673,282.21

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As we can see, the Stock to flow model in 2024 would experience increase from 75,962.26 BTC to 673,282.21 BTC. Also the table displayed above also show an increase in the chart of stock to flow model.


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Conclusion

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Puell Metric Indicators is an important indicator which help us to know current mining pool and helps traders to know when miners will be willing to buy an asset and time when they will be ready to dispose it. Hash rate indicator helps to determine the computational operation of miners. And the stock to flow model is also a powerful indicator that helps us to know the price of BTC at each halving.

In this task I have been able to explain the Peull Multiple indicator with the chart of BTC and identify the the current value of Puell indicator for BTC. More so, I also performed technical analysis of LTC with the use of this indicator.

Also, I explain the term halving and how it is important in blockchain. Lastly I explain the hash rate indicator and the stock to flow indicator with relevant calculations.

Special thanks to Professor @pelon53 for this great and wonderful lecture.

Thank you for reading.

Cc: @pelon53

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