With an investing philosophy centered around innovation, CEO Cathie Wood and her firm Ark Invest are natural fans of Bitcoin (BTC 1.08%). Given that Bitcoin is the most decentralized, secure, and valuable cryptocurrency on the market, Ark believes it has the potential to revolutionize finance.
Every month, Ark publishes a report showcasing various blockchain-based metrics, investor behavior trends, and macroeconomic factors. This analysis provides valuable context about Bitcoin's status and potential trajectory. Here's what Ark's most recent report (from Aug. 31) had to say.
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Realized cap recovery
One of Ark's favorite metrics to follow is realized capitalization, or realized cap for short. Compared to the more commonly used market capitalization, which is calculated by multiplying the current price per Bitcoin by its total circulating supply, realized cap sums up the value of all individual Bitcoins based on their last transaction prices.
Typically, the realized cap is much lower than the market cap, but as a metric, it has other benefits, such as being more resilient to short-term price volatility and reflecting actual economic activity more accurately.
In Ark's most recent report, the continued recovery of Bitcoin's realized cap was a significant point of emphasis. Since bottoming out in November, realized cap has grown 4% this year alone. While that might not sound like much, any progress is beneficial, considering that its recent decline was the worst since 2012.
Lack of liquidity
Likely as a result of investor fatigue after a brutal crypto winter, there has been a pronounced decline in liquidity and trading volumes across the Bitcoin market. There are multiple ways to quantify this, such as deriving trading volumes from exchanges, but Ark took a more crypto-based approach in its report to highlight the lack of activity. Due to their role as a tool for sidelining value without completely exiting the crypto ecosystem, Ark decided to analyze trends in the stablecoin market to evaluate the liquidity trend.
Unsurprisingly, the total stablecoin market cap has consistently decreased since May 2022, losing nearly one-third of its value. Ark surmises this decline serves as a proxy to highlight the lack of activity not only in Bitcoin, but also across the entire crypto economy. Encouragingly, though, there has been a recent trend of inflows into stablecoins, which Ark views as bullish momentum.
A much-needed reset
As a result of near-record-low trading volumes, Bitcoin's volatility this year has been uncharacteristically low as well. But volatility came roaring back in mid-August. On Aug. 17, rumors began circulating that Elon Musk's SpaceX had sold its Bitcoin holdings. In a knee-jerk reaction, Bitcoin tumbled more than 10% in a matter of hours.
Ark believes the drop was overdue and more pronounced than it should have been due to pent-up open interest in the Bitcoin futures market. Futures contracts allow traders to speculate on Bitcoin while using leverage, and while not recommended, they play an integral role in Bitcoin's short-term price movements.
The aftermath of the price shock resulted in the fifth-largest single-day decline in Bitcoin futures open interest, and brought a wave of volatility back. While Bitcoin fell to levels not seen since June, Ark viewed it as a "cathartic sentiment correction" to rebalance markets.
Time to zoom out
While August was a less-than-stellar month for Bitcoin, Ark is still bullish about the crypto for the long term. Measuring liquidity volatility helps gauge Bitcoin's immediate health, but Ark remains optimistic due to several important network metrics. Even as Bitcoin oscillates between bear and bull market territory, trends in miner difficulty, miner revenue, and active users are all up over the past year.
It will likely be a slow and choppy path for the foreseeable future, but this is typical for Bitcoin as it tries to shake off a brutal bear market. Despite some lackluster short-term trends, Ark believes Bitcoin will rebound just fine and continue to treat patient investors well in the future.
