Are you investing in bitcoin (BTC-USD) or companies related to the Bitcoin network? It’s crucial to have a set of metrics for evaluating the progress of your investment. This is not just about the price on a chart; it encompasses an open-source network with millions of users, thousands of developers, and several ecosystems. Understanding these metrics is essential for fundamental research.
Have you ever used a bitcoin wallet, taken self-custody of the asset, or engaged with it in various ecosystems? These actions can provide invaluable insight for comprehensive research.
Bitcoin serves different purposes globally, enabling portable savings, censorship-resistant payments, and immutable data storage. It has significance for a wide array of individuals, and understanding its diverse use cases is vital for thorough analysis.
As we evaluate the health of the network, it’s essential to consider the various methods employed. How we perceive Bitcoin’s performance can significantly impact our conclusions.
If you’ve delved into studying monetary history and the technical details of the protocol, you likely have a specific set of key metrics for assessing the health of the Bitcoin network. Let’s walk through these metrics and explore the network’s status in each area.
1) Market Capitalization and Liquidity
There are some who claim price doesn’t matter, arguing that “1 BTC = 1 BTC”. They assert that volatility stems from the world revolving around bitcoin, rather than inherent volatility within bitcoin itself. While this sentiment holds some truth, price serves as a crucial signal over the long term.
Bitcoin’s price fluctuates in the global marketplace of money, competing against various fiat currencies, precious metals, and other cryptocurrencies. As a store of value, it vies with non-monetary assets like stocks and real estate. Thus, its price movements indicate levels of adoption and its standing as a global asset.
While the dollar may fluctuate in price around bitcoin, it is, in fact, the younger, more volatile, and less liquid network in comparison. Consequently, it is subject to more pronounced fluctuations in price. These fluctuations directly impact the purchasing power of bitcoin holders and offer insight into the asset’s appeal and utility.
Fortunately, Bitcoin’s price has consistently trended upwards, solidifying its position as one of the best-performing assets in history. Amidst aggressive tightening of central bank balance sheets and a sharp rise in positive real rates, it has demonstrated resilience and continued long-term adoption and growth. Yet, vigilance is imperative.
Liquidity, indicated by daily trading volume on exchanges and on-chain transaction value, is another crucial aspect. Bitcoin has exhibited robust liquidity, with daily trading volumes reaching billions of dollars, comparable to the liquidity of Apple (AAPL) stock. Liquidity tends to perpetuate itself, fostering further market activity.
With the advancement of both price and liquidity, Bitcoin continues to garner strength as a global asset, drawing attention from an increasing swath of investors and stakeholders.