BTC has seen green 1-week candles for the last six weeks, leading some to speculate that cryptocurrencies are on their way up.

I don’t like technical analysis. It’s imprecise at best, and I prefer to base my investments in sound reasoning.

I can tell you that if it is in a bull market, BTC won’t be there long. It doesn’t take TA or reading tea leaves to figure this out.

The Finger Trap Effect

Bitcoin is in a perpetual bull trap. Actually, it’s more like a finger trap – the further BTC goes, the deeper it gets stuck.

Here’s the cycle:

1. Price increases attract speculators
2. Speculators create transactions
3. Transactions fill blocks
4. Full blocks cause high fees
5. High fees alienate speculators, and merchants leave

When speculators sell BTC, its price declines. When merchants leave, BTC’s value declines. A currency’s value comes from its use as a medium of exchange.

Devoid of actual use, BTC trades even lower. Once it goes down, it can’t climb back up through speculative transactions without triggering panicked buys that set off the same cycle.

This continues with BTC in a death spiral and no fundamental value to bring its price up.

It ends once Bitcoin scales. That could be on-chain or off-chain, but right now it doesn’t look like BTC will do either.

Adoption’s Effect on Price

While Bitcoin Core developers actively advocate for less transaction space, other cryptocurrencies’ communities are focused on adoption as currency.

This is the focus cryptocurrency communities should have. Used as a medium of exchange, cryptocurrencies must increase in price – over time, the market demands a higher value for these currencies.

We see this through the equation of exchange. Don’t worry – it’s not complex. I explained it to my grandma over Christmas.

The equation of exchange is the most important equation for cryptocurrency valuation. Eat Sleep Crypto’s public articles on cryptocurrency valuation are a good intro, but we explain the applications of this framework and many others for valuing cryptocurrency in the Eat Sleep Crypto newsletter.

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