Key considerations before investing in Bitcoin

Updated: Jun 17, 2019

Cryptocurrencies are now more than ever all linked to bitcoin, so it is worth focusing on BTC to check the overall health of the sector and the likelihood of a trend reversal.

Bitcoin's dominance as % of total crypto-assets market cap

Bitcoin dominiance as a % of total crypto-assets market cap

Source: BQ Intel

A focus on bitcoin

Bitcoin is incrementally claiming back the ground it lost to the emergence of altcoins throughout 2017. Its predominance had fallen as low as 30% and is now back to 55%. There are no indications that it will not continue to regain lost ground, and it is worth examining why.

Peer-to-peer money is still as cool as it was ten years ago. The value proposition is still to store, and exchange value using a means the government or large corporations do not control that. This view is still as attractive as it was in the beginning, maybe, even more, considering the measures regulators have taken to put more compliance pressure on exchanges (e.g., KYC)—thereby effectively ensuring a clear distinction between the “free world” and the constraint-laden, establishment-favored, tax-intensive world.

More than ever, bitcoin is about providing freedom to whoever wants to conduct business without intermediaries or third-party surveillance. Therefore, cryptocurrencies that focus on anonymity have an exciting future; but as the legacy cryptocurrency, bitcoin is more than ever here to stay.

Almost unanimously, bitcoin holders and crypto pundits believe that a price bottom will occur in the first quarter or first half of 2019. However, even if this happens, prices would need to hold for another 9 or 12 months for this view to be confirmed.

Hereafter are some metrics on bitcoin’s health:

  • The hashrate has progressed from 18 Ehash/s in January 2018, to 40 Ehash/s one year later: this shows continued interest by miners, despite the profitability issues they face.

  • Wallets containing anything from 100 to 1,000 bitcoins owned 23.3% back in September, whereas now they own 21.4% of all coins. Conversely, the five wallets containing anything from 100,000 to 1 million BTC—which belong to crypto-exchanges (and their customers)—own today 3.3% of all coins, an increase from the 0.7% share in September.

  • The average cryptocurrency payment in 2018 was 680 USD, while in 2017 it was half that, 340 USD.

  • Bitcoin volume, expressed in bitcoin, increased drastically during 2018, as we saw earlier.

  • Transaction fees over the network are back to their high levels.

  • The number of bitcoin ATMs is said to have passed 4000 units, and the pace of installation is accelerating. ATM operators are currently living on the earnings from their business, which is already good progress.

A couple of other considerations

  • Some people have noticed that bitcoin’s price witnessed huge increases on two occasions following the coin’s block reward halving (in both cases, around a year after the halving occurred on November 28, 2012, and July 9, 2016). Whether it’s related or not, the 4-year interval also corresponds to the inter-peak period of the price between 2013 and 2017. This may be an interesting fact to keep in mind.

  • Bitcoin and its PoW consensus mechanism are still the best of what has been proposed in terms of security of the network to counter attackers. PoS scales a little more, but it is challenging to prevent new kinds of intermediaries overseeing the network. One should not forget that it all started to create a decentralized currency system.

  • Even in the event of a 51% attack, the loyal bitcoin community would still be able to maintain a chain of valid transactions—but just.

  • For scalability, one should note that it is always possible to tokenize bitcoin on another chain—paradoxical perhaps, but a potential solution, nevertheless.

Without a doubt, bitcoin remains “the king of cryptocurrencies,” and its future seems as bright as ever.

Check the full version of Blockchain Quarterly (Q1 2019) report for more Insights.

7 views0 comments

Recent Posts

See All