So the value of all cryptocurrencies has now crossed $2T and now it’s the fifth-largest currency by value in the world.
I always had these questions:
What’s the true value of any cryptocurrency?
How to measure them?
How much of it is overinflated?
Bitcoin is not like stocks, there’s a lot of things we can relate to stocks like various ratios, numbers, models to identify what is the true value of the stock is? To decide whether to buy now or wait. When it comes to bitcoin or cryptocurrency it’s sort of this elusive idea that cryptocurrencies are not like companies they are more like commodities that are closer to gold and oil.
In this article, I would like to show you the fundamental analysis 😅 of bitcoin that can help you make better decisions about buying bitcoin now or waiting until later. It might be complicated, but it’s definitely worth the read and at the end, you get a light bulb moment 💡.
Hi, welcome back to GigaByte. Hope you’re doing good.
Before we talk further on I want to get something out. I’m not a pro-expert and I don’t look at charts all day long. If you read this article all the way through, you should be able to do it. Because I made this article specially for you.
Let’s start with the fundamental analysis and macro data. Now fundamental means factual data that we can measure to try to see if something is over or underpriced. The macro is taking all the stuff we know and putting together a narrative of where something might go in the future.
Metrics 📏
The 1st metric we’re going to take a look at is smashing the like button ❤️. If the button is red, the fundamentals are good, if the button is not then the fundamentals are not great.
The metric we’re going to look at is Transaction volume. So the transaction volume is a measurement of how much people are transacting on the bitcoin network.
And why is that important? It’s important because it tells how much people are using this technology rather than just speculating on the price when it’s at an all-time high. This can include everything from me sending you a bitcoin or you sending me a bitcoin through WazirX.But if you go to blockchain.com, this is an amazing resource. It’s free please use it. It shows you a ton of different charts, but one of the most interesting charts is the transaction volume. And this might not be the accurate measurement of what bitcoin is worth as it is going like a roller-coaster where there’s a lot of hype, FOMO.
So, it looks a little all over the place. But if you look at it from the beginning to today in 2021 it is slowly increasing. This is good. This tells us the bitcoin network effect taking on a life of its own and it started to grow and widely accepted.
Here’s another interesting metric to take look at. Wallet data. When you buy bitcoin for the first time through WazirX or Binance, you are given a unique wallet address. The unique wallet addresses have grown all up to 78.9 million wallets and this is important because it is increasing the network effect of bitcoin.
The reason I emphasize the network effect is that it is something the critics of bitcoin don’t fully understand. For example, they say things like bitcoin are not unique and can be copied. Maybe they’re true and you can your bitcoin (IDK how). But what can’t be copied is the network effect (# of wallets, the number of people using bitcoin, the number of businesses using bitcoin, the security, the hash rate, the transaction volume, the brand loyalty, the trust) all of that stuff can’t be copied. So anyway the number of wallet addresses are increasing it’s contributing to the growing network effect.
Another metric we can take a look at is what makes bitcoin a safe transfer of value. Let me show you something that makes bitcoin the safest transfer of value on this planet. The Hash Rate.
Now the hash rate is the measuring unit of the computing power. There are roughly 42 million millionaires out there and there’s a total supply of 21 million bitcoins in all of existence. So the question becomes how much of bitcoin price is inflated and how much of it is real?
Let’s look at what happened to the hash rate. Over the last 12 years, the hash rate has grown exponentially, which is great because that’s how new technology gets adopted. It never grows linearly, it only grows exponentially. Bitcoin network is capable of doing 151 terahashes per second. The more people we have, the more miners we have the more secure the network becomes. When we compare everything with the max supply of bitcoin we just realise we don’t have enough bitcoin for everyone.
To know when to buy bitcoin, you have to go one step further. To get the full broad perspective of what bitcoin is and where it is going, we have to look at the broad macro perspective. This is where I’ve spent most of my time trying to understand, what the heck is this technology?
It gets a little deeper from this point on, let me try and compare bitcoin with other technologies this world has created in the past using something called the S-curve. Let it be a refrigerator, a microwave, or a cell phone or the internet everything goes through the S-curve. When anything to the point of infection that’s when adoption gets exponentially faster.
It took automobiles roughly 80 years for people to adapt.
It took the telephone roughly 50 years for people to adapt.
It took refrigerators roughly 25 years for people to adapt.
It took the internet roughly 20 years for people to adapt.
When it comes to bitcoin it gets adopted far faster. That’s because as technology improves that S-curve squeezes because of the social media we’ve which can escalate it all.
On this S curve, bitcoin is somewhere here. Which is the inflexion point, the early adopters' phase. Believe it or not, last year bitcoin did 1 trillion dollars on-chain. transaction volume. That is massive, it is more than Paypal, Apple-pay and Venmo (US equivalent of PhonePe, G-pay) all combined. It next upcoming years it going to enter into the early majority phase from the early adopters’ phase.
There might be a few catalysts that can help us get there.
More companies adding bitcoin to their balance sheet.
Countries adopting bitcoin to facilitate businesses.
Bitcoin ETF. All these already happened.
Favourable regulations.
Now that you know everything, I want to show you one thing that’ll help you decide whether you should wait or buy now.
Bitcoin “Rainbow” price chart 🌈
Let me introduce you to the rainbow chart, it’s interactive, it’s fun and most importantly it’s helpful.
It uses something called logarithmic regression, which is a way of looking at the price in the backwards perspective using logarithmic scales. Interesting is that depending on the time frame and the price we are in, it’ll show you a different kind of analysis.
But please use this for entertainment purposes only, this is not a bit of investing advice.
Which comes to the question you’ve been waiting for?
The question of this article.
Should you buy bitcoin now or wait? 🚀🌑
I would dollar cost average into the market over time enough to not feel like I had FOMO, but not too much money where I’ll get this sinking feeling every time the price drops.
Buy something every month if not every week. I might put 10% of my monthly income into bitcoin and I’ll treat it like a retirement account that I’ll not touch. Let’s say that 10,000 grew into 50,000. I might sell that initial 10,000 and all I have now is the money to play with.
That’s a little mental trick you can use.
But on a serious note, even at $65,000 per bitcoin I still feel we’re very early.
If you've come this far, thank you. I hope you’ve learned something new today.
Buy bitcoin.
People I like to follow in the bitcoin space 💥.
Random Fact 🤔
US-listed IPOs have raised more than $268B so far this year, more than all other full years on record.