Analyzing The Cryptocurrency Market Changes Of An Evolving Ecosystem, Starting With Bitcoin
Cryptocurrency And The Changes In The Past Two Years
Since the introduction of bitcoin and other cryptocurrencies over the past years, the world has witnessed the meteoric rise and subsequent leveling out of the price in past months.
Does Bitcoin still have the same buying power now? Is it still being viewed as the trading currency of the future?
Whilst there may have been doubts in the minds of some that the rise of Bitcoin in 2017 could never be equaled, as Consensus week ends, and double-digit increases have again been witnessed in a single day during the past week.
Was The Sudden Rise In The Bitcoin Price Positive?
This question was asked in 2017 and whilst the dramatic increases witnessed, gave much-needed media attention to the crypto industry, it did see the demise of many of the smaller projects that were looking to ‘climb on the bandwagon’ and sadly failed, costing many investors huge sums of money.
The positive spin-off to this was that the metrics – or fundamentals – of the crypto industry have been revisited and are now more stable and more relevant than those first introduced in 2017.
Weighing Up Technical Against Fundamentals:
In this current era of having information easily available to all, investors use the fundamentals to determine what the network is offering and to study the viability of the network. Do investors base their decision on the metrics of these fundamentals?
In the equity markets, the role of fundamentals is of utmost importance, and valuation models are available to investors to determine just where the investment focus must be directed. These models have been developed over a period of many years, long before the age of computer science.
There is not always a consensus amongst analysts as to what should be inserted into the models as the assessment of what the input should be is largely determined by a number of factors, one of the major factors being the announcement of earnings. The announcement could have a considerable effect on the stock price resulting in a stock price far off what was estimated by analysts.
With crypto markets being a relatively new innovation, the focus on fundamentals appears to be on a lower scale than it is in the equity market. An article written by analyst Christ Burniske gives some insight into the development of valuation models and how these fundamentals can be used to set a price the cryptocurrency.
Despite his intensive research into the valuation models, he is of the opinion that with the crypto market still being in its infancy, traders and investors tend more to make a decision on a subjective basis rather than an objective one based on fundamentals and analysis.
Investors who are non-professional and who buy and sell through their broker or even savings accounts see the technical analysis as a more popular choice. These investors, commonly known as retail investors, make up the larger majority of the crypto market while those investing in equity markets, make decisions based on sound analysis of the investment using fundamentals.
Will The Choice Of Fundamentals Or Technical Change In The Future?
Research shows that with the growth of the crypto market and the increasing change of direction to this form of currency, so will the role of fundamentals. Analysts, both professional and non-professional, will look to making more decisions on the crypto market, based on objective rather than subjective findings.
The models in the equity markets developed over many, many years, but the same will not be seen in the crypto markets where faster models are being created and developed on an ever increasing basis.
How Do The Fundamentals Of Bitcoin Work And The Effect Of The Hash Rate
Whilst the crypto market prices are very much based on the trend; there is also huge emphasis placed on the benchmark for proof-of-work chains such as Bitcoin by using the hash rate displayed on the network.
The hash rate is used by miners use the hash rate to determine the power being used by investors to attach transactions to the blockchain. The higher the hash rate, the more investment is required to attack.
Hash rates differ between proof-of-work chains as each mining innovation changes the study of these algorithms provide for interesting information of how hash rates have developed over time.
The Lightning Network allows for a two-way payment channel in addition to the Bitcoin network. These provide users with a speedy to send fees at a lower rate. The Lightning Network is also still a relatively young network but the value held within this network and Bitcoin has increased by 100% in the first three months of 2019.
A second side chain to Bitcoin is The Liquid side chain operating on a similar basis to the of The Lightning Network but without the same guarantees as do the Bitcoin blockchain.
The Growth Of Bitcoin
The platform for the use of Bitcoin is increasing daily with big conglomerates such as Gemini and Microsoft announcing that they will be using Bitcoin as a base for their identity management systems. Another company offering account holders an alternate form of investment with Bitcoin is BlockFi.
Will the price of Bitcoin reach its previous highs? That question remains to be asked, but what is certain is that the Bitcoin market has a more solid foundation than when it hit the markets and with the support and the wider distribution of the hash rate, the network is stronger and more powerful than it was in 2017.