Bitcoin is the most transparent and auditable asset today, according to a new report.
Ark Invest, a company specialized in disruptive investments, and Glassnode, specialized in blockchain analysis, establish in the first of a series of three publications a new method of fundamental analysis of Bitcoin.
The publication argues that Bitcoin has been criticized by institutional investors as a volatile, unpredictable and unstable asset, since its frame of reference from the traditional financial system prevents them from understanding and adopting this cryptocurrency.
Actually, Bitcoin has a huge range of data that allows it to successfully analyze its fundamentals. “Market participants can visualize data from the Bitcoin blockchain more deeply than with any other traditional asset,” they say.
Among the elements that provide transparency and auditability to Bitcoin, the publication mentions the simplicity and traceability of its accounting system, based on outputs (UTXO). They also argue that Bitcoin’s codebase has been highly audited, “more than any other free software.”
These qualities are in stark contrast to the nature of traditional assets, which very rarely can they be audited as completely as Bitcoin in order to determine their market dynamics.
In addition, they mention bitcoin nodes, which verify the integrity of the network and “are much more cost efficient than the nodes of alternative cryptocurrency networks,” they say. Anyone can run a node and have access to this information without having to trust anyone, unlike what happens in the traditional system.
“Not all blockchains are the same. The more open and transparent a blockchain is, the easier it will be for market participants to analyze its critical data. The most useful blockchains for the public offer easy access to analysis tools of your network. As of today, anyone can download the Bitcoin client, install a node and extract interesting data with relatively little impediment.
As indicated, the proposed analysis method, will allow investors to increase confidence and understand the fundamentals of Bitcoin, because the cryptocurrency is more auditable than any other asset today.
“In these publications we aspire to unveil the power of on-chain data and describe tools and techniques that enable investors to turn this information into executable investment decisions,” they say.
Healthy product, healthy investment
The method proposes a three-level pyramidal system, where the base level is occupied by the health of the network; the second consists of analyzing the behavior of buyers and sellers and finally, the upper level analyzes the relative valuation of the asset.
The various levels of Bitcoin analysis depending on the investment strategy that is executed. Source: Ark
In this first publication they detail the first level “The health of the network.” In the post they explain the criteria for evaluating “the health of the network” based on three categories: Integrity of money, Security and Use.
Regarding the first item, it is sought to confirm that the Bitcoin supply and issuance rate are in order, as the monetary policy programmed in this protocol. To do this, they establish a relationship between the circulating amount of BTC and the daily issue rate.
This analysis takes into account that the reward per block of the chain, as well as the daily issuance of coins, is reduced by half approximately every 4 years, in an event known as halving (the last one happened last year).
In contrast, in the market for gold and other precious metals, it is impossible to determine and authenticate their total global supply, nor is there reliable information on their daily production volumes
As they specify, the data on the cryptocurrency is accessible from any blockchain explorer, and the data does not require further manipulation to be presented, being relevant for all those who analyze or observe the Bitcoin network and its market.
The second item corresponds to the network security. To evaluate the behavior of miners, who are a fundamental part of Bitcoin security, the hash rate of the network and the profitability of the miners are related.
Regarding the profitability of mining, they assure that since the creation of Bitcoin, miners have already have generated 18.5 million BTC, equivalent to 600 billion dollars approximately based on current prices.
Regarding the hash rate of the network, Ark points out that it is directly related to the security of Bitcoin. Notably, they comment that the hash rate has been increasing steadily and faster than the price and the size of the market.
“Interestingly, in just the last few months bitcoin has surpassed its all-time highs in price, reached in 2017; but since that year, the hash rate has increased by 950%, ”they say.
As we reported in CriptoNoticias, although the price of bitcoin falls, the hash rate and processing power continues to increase, guaranteeing greater security each time for the network.
Finally, to understand the use and adoption of the network (third item), the number of active addresses, the number of transactions, and the volume of transactions are related to the total market capitalization. With this data, they point out, it is possible to know some market dynamics that are not obvious at first glance, such as the rate of distribution of bitcoins among all the addresses of the network.
It is expected that in the next few days Ark and Glassnode will continue to publish the approximation they make of the data collected in Bitcoin, with a focus on facilitating more traditional investors the execution of a successful investment strategy based on the most transparent asset in the world.