How to make fundamental analysis of Bitcoin?

10 000 question challengeCategory: Profits (trading, ICO, mining)How to make fundamental analysis of Bitcoin?
HowToToken Team Staff asked 3 years ago
1 Answers
HowToToken Team Staff answered 3 years ago

The user Dean, a fouder and an author for Cryptorials, explained most important measures that have to be taken into consideration by a Bitcoin Beginner.

• Inflation & Monetary Supply
“We do have a good metric for changes in monetary supply through the number of new coins generated per day. When people talk about inflation and deflation in relation to BTC they are almost certainly referring to inflation in the monetary supply. This monetary supply inflation started off at a very high level in the early days of the network, and will decline geometrically until it eventually hits zero at the maximum supply cap of 21 million coins. This decline happens in discrete jumps, with the block reward (which determines the average number of coins generated per hour) cut by 50% in each jump. This happens approximately every four years. The number of coins currently being generated per day can be found via a block explorer.

It is often useful to suggest that monetary supply inflation represents the amount of new investment which needs to be made into the Bitcoin economy in order for the price per coin to remain the same. For example, if 3000 coins are generated and the exchange rate is $230 per coin, then 3000*230 = $690,000 of new investment is needed to maintain a stable price.”

• Transactions
There are three main metrics that have to stay in focus of your attention: the number of transactions, the volume of transactions and the number of transactions excluding popular addresses. If all three show positive modest dynamics, it means that the usage of BTC rises as more and more agents use it in its daily payments.

• Measuring Bitcoin Adoption
Together with previous measures, number of unique addresses used per day, days destroyed (sum of balances of inactive addresses) and a ratio of trade volume to transaction volume give a full picture of how the currency is being adopted.

• Network Utility
It is important to understand how valuable is usage of crypto currency to its users. Does it have any competitive advantages compared to usual payments? Such measures as average confirmation time, absolute cost per transaction and percentage cost per transaction shows how effectively can the network cope with its main target: fast transferring of bitcoins from peer to peer.

• Network health
The following measures are mostly important for miners, however investors might also pay attention to it in order to check stability of the network

Average Block Size: There is currently a cap on the maximum allowable block size, although a debate is raging on making changes to that cap so by the time you read this it may already have been changed. If the average block size approaches or reaches the limit then transaction fees may rise and payments may take longer to be confirmed.

Hash Rate: Hashes are the ‘proof of work’ calculations which secure the network. A high hashrate means that there is plenty of mining and a secure network. A significant and sudden drop in hash rate may have a short term impact on confirmation times and fees (making them rise) and if large enough may have implications for network security.

Network deficit: eventually, the full cost of mining will need to be borne by users paying fees. The network deficit measures the difference between the cost of mining and the income generated by miners from fees, and may therefore be used to give an long term factor to forecast how well the network will be able to maintain itself through reductions in coin generation.”