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Revisiting Fundamentals

It is fairly easy being a crypto columnist these days, especially if you are the bullish sort. Start with a broad statement, around crypto spring, or the bulls being back or some such. Throw in a few technical analysis graphs, basically some lines on a graph going up one way and intersecting another group of lines, with the whole concoction being given some name such as a ‘head-and-shoulders’ pattern or a ‘cup-and-saucer’ pattern. Most of the superficial ‘pseudo-technical’ analysis that is bandied about as gospel truth by breathless commentators, without anyone bothering to backtest or validate claims in-depth is’ second only to how the constellations are defined in their utter indecipherability. Once this is done, mention a few announcements of upcoming blockchain launches by traditional institutions. To spice things up a bit, add a dash of potential regulatory headwinds, and call them out as ham-handed/ill-advised/innovation-unfriendly, etc, to taste (they most likely are, but that is beside the point).

The above tirade notwithstanding, we continue to see an upturn in the markets. Bitcoin has appreciated by about 90% since the beginning of this year and ETH has gone up by more than 100% from its lowest level of $80 towards the end of 2017. The prices have even shrugged off the negativity in the press due to the Bitfinex/Tether debacle. (Let us for a moment ignore theories around how Tethers are being converted into BTC, even though the belief that they are being converted is probably as powerful a driver in the short-term).  We are still of the opinion that price movements are highly unpredictable and extremely sensitive to a variety of extraneous factors which may or may not reflect the true underlying fundamentals of Bitcoin. It, therefore, makes sense to revisit fundamental metrics that speak to the health of the Bitcoin ecosystem.

Revisiting Bitcoin Fundamentals

Transactions Per Day Chart

Confirmed transactions per day have shown a consistent increase in the past year, growing by more than 2x from the nadir of 171k in Apr’18. The current level of 350-360k transactions per day is closer to the all-time high of 410k transactions per day recorded during the 2017 mega bull run.  

Source: blockchain.info

Hashrate Chart

Bitcoin network’s hash rate decreased significantly towards the end of last year as the prices fell to 3k and mining profitability decreased. However, hash rate since then has increased by about 50% and currently stands at less than 5% below the highest level of 52 TH/s.  

Source: blockchain.info

Number of Unique Addresses Used on the Blockchain

The total number of unique addresses used on the blockchain is at an 18-month high and up by nearly 25% since the beginning of this year.

Source: blockchain.info

There has been persistent growth in all of the above metrics over the past 12-15 months. The metrics point to fundamentals that are in decent shape and heading in the right direction slowly but steadily. Especially with increased institutional acceptance, lightning network progress, and upgrades with the Ethereum protocol as well, crypto has not felt this bullish since the beginning of 2018. All it needs for the price of BTC to retest 20k again would be a couple of traditional institutions announcing moves in custody, or asset management, on the sidelines of Consensus week. It would be too soon to 20k for sure, but the markets have been known to become irrational faster than you can explain with logic, with apologies to Keynes.

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Satoshi&Co Daily Crypto Newsletter

By Ramani Ramachandran and Rohit Alluri

ZPX - Daily Crypto Update