Bitcoin and the five keys to its success
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Bitcoin and the five keys to its success
Bitcoin and the five keys to its success
Bitcoin recently broke through the 50k line, at least in US dollars, and the community is celebrating. Bitcoin means a lot of different things to a lot of different people. It enables portable savings, censorship-resistant global payments, and immutable data storage.
It’s more than just a price on a chart; it’s an open-source network with millions of users, thousands of developers, hundreds of companies, and several ecosystems built on top of it.
When investing in bitcoin as an asset, we need some set of metrics with which to evaluate the progress of the investment thesis and, by extension, the health of the Bitcoin network.
I have a handful of key metrics that I personally look at when assessing the health of the Bitcoin network. This article walks through them and sees how the network is doing in terms of each one. Market Cap and Liquidity
Number of Conversion Points
Technical Security and Decnetralization
Quality of the User Experience
Legal Acceptance and Global Recognition
Let's have a look at them.
Market Cap and liquidity
Some people say the price doesn’t matter. “1 BTC = 1 BTC” is how they like to put it. It’s not bitcoin that is volatile; it’s that the world is volatile around bitcoin, man.
And there’s indeed some truth to that. Bitcoin has a fully diluted supply of 21 million bitcoin (technically 2.1 quadrillion sats, which are the smallest denomination of on-chain bitcoin), created and distributed in a pre-programmed decreasing pattern, produces blocks on average every ten minutes thanks to an automatic difficulty adjustment, and has operated with remarkable consistency since its inception. I don’t know what the dollar supply will be next year, but I know what the bitcoin supply will be and can directly audit its exact supply at any time.
The Bitcoin network itself might be serving as a heartbeat of clockwork order in a world of chaos, but price is nonetheless a measure of its adoption. Bitcoin is competing in the global marketplace of monies now, against more than 160 different fiat currencies, gold, silver, and various other cryptocurrencies. As a store of value, it’s also competing with non-monetary assets like equities, real estate, or other things we can own with our limited resources.
Perhaps In some years, bitcoin holders can buy a lot more property, food, gold, copper, oil, S&P 500 shares, dollars, Swiss Francs, or whatever else compared to what they could buy in the prior year. Fortunately, bitcoin’s price keeps making higher highs and higher lows, cycle after cycle. It’s one of the best-performing assets in history. And I would say it has held up rather well given the aggressive tightening of central bank balance sheets and the sharp rise in positive real rates over the past couple of years.
And then there’s liquidity. How much daily trading volume is happening on exchanges? How much transaction value is being sent around on-chain?
Bitcoin has been ranking very well in this metric too, with billions or tens of billions of dollars worth of daily trading volume against other currencies and assets, which puts it on par with Apple (AAPL) stock in terms of daily exchange liquidity. And unlike Apple, where the vast majority of volume is on the Nasdaq exchange, bitcoins trade on many exchanges and currencies around the world, including some peer-to-peer marketplaces. There are also billions of dollars worth of on-chain transfer volume in a given day.
A way to think about liquidity (and it’ll likely make you more bullish when you realize it), is that liquidity begets more liquidity. For money, that’s a big piece of what the network effect is.
Want to learn more: Join our SwissFinTechLadies Angel Training. Bitcoin is part of the curriculum. https://swissfintechladies.com/angel-training/
Also read our next chapter on bitcoin, which is about the value of the number of conversion points on Presseportal.
Investors club https://emotional-agility.dg1.com/vc4diversity/pages/memberships
Webseite https://swissfintechladies.com/
Karen Wendt
President of SwissFinTechLadies