Editor's Note: This article comes fromBlockVC（ID：blockvcfund）, author: BlockVC industry research team, reprinted by Odaily with authorization.
Editor's Note: This article comes from
, author: BlockVC industry research team, reprinted by Odaily with authorization.
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Only when a nation has a group of people who look up at the starry sky can they have hope.
- Hegel
At the beginning of 2020, in addition to the raging new crown virus epidemic, Tesla, founded by Elon Musk, has also attracted a lot of attention in the financial market. Its stock price has risen from a stage low of around $190, and it has soared to $100 within a few months. At about $970, it set off a heated debate in financial markets. The violent rise of Tesla stock has also been compared by many media to the price trend of Bitcoin in 2017, and the founders of both are well-deserved brightest stars in their respective fields of expertise.
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Someone commented: Bitcoin is the only one that can absolutely beat Tesla, not one of them. Tesla founder Musk also said: "Bitcoin is NOT my safe word".
Regardless of the performance of the market outlook, the success of Tesla and Bitcoin in the capital market has undoubtedly provided a strong footnote to its value. Especially the latter, although its founder Satoshi Nakamoto disappeared from the public eye shortly after founding the project, but Bitcoin has been used for the first time since its birth in 2008 to buy pizza with an exchange price (approximately $0.0025) , to the peak of the big bull market in 2017 (the highest price was more than 19,000 US dollars), the increase was more than 7.6 million times, and it still maintains an increase of about 3.81 million times. However, to this day, most people still don’t know anything about Bitcoin after a million-fold increase, and denounce it as a “new tulip bubble” or “rat poison.”
The third halving of Bitcoin in 2020 is coming, and Bitcoin is also going further and further on the road to match or even surpass gold. Looking back at history, we can find that although Bitcoin has created many myths about wealth and freedom, it is far from a simple machine for making money. Bitcoin not only bears Satoshi Nakamoto's original ambition: the first peer-to-peer electronic cash system that can complete global payments without going through an intermediary financial institution, but also has become an emerging asset category that cannot be ignored, and will soon stand in history The big stage to meet the pursuit of capital from all over the world.
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Bitcoin behind the million-fold increase
So, behind the ten-year increase of millions of times, what is Bitcoin? Is it really a "tulip bubble" that will eventually burst, or is it a new thing that subverts most people's thinking inertia and cognitive framework?
1. The first truly global peer-to-peer electronic cash payment system
First of all, Bitcoin is technically a distributed database that organizes data through a chain structure. According to its initial positioning, it mainly includes the following keywords, namely "electronic cash", "peer-to-peer" and "global payment", among which:
Point-to-point: When using Bitcoin for payment, although it is conducted through the network, both parties to the transaction can complete the entire payment and ownership transfer process without the help of any intermediary financial institutions (such as Alipay or banks), that is, P2P payment (person-to-person, Peer To Peer);
Global payment: In theory, both parties who can complete information transmission, no matter where they are on the earth, only need to be able to access the Bitcoin network at the same time to be able to make payment transfers. In fact, if interstellar exploration enters into practical development in the future, we can even complete bitcoin payments across Odaily or even galaxies through network forwarding facilities located in the universe (such as the moon) or on the earth.
From the basic properties of Bitcoin, it can be found that this is a new payment method that fully matches the contemporary global Internet, making up for the lack of functions that the Internet can only complete point-to-point transmission of information, but cannot complete point-to-point value transfer.
Bitcoin's Chain Block Structure Bitcoin White Paper
2. Continuously evolving distributed open source platform
Bitcoin inherits the excellent characteristics of open source software, allowing the community to upgrade and transform it in the form of forks. So far, the more famous Bitcoin forks include Bitcoin Cash (BCH, forked from Bitcoin) and BSV (forked from Bitcoin Cash). Through open source code and allowing forks, Bitcoin can achieve rapid evolution, and at the same time explore possible development directions as much as possible, for example, reduce block data size through segregated witness, or increase transactions through large block capacity processing power, etc. However, this mechanism cannot avoid malicious forks at the same time. To a certain extent, there may be a risk of splitting the core community. Forks and hashrate events. The main fork events in the history of Bitcoin are shown in the figure below.
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Bitcoin's fork history map BlockVC research and bitcoinmagazine
3. The world's most successful decentralized economic system
Bitcoin is one of the most successful truly decentralized economic autonomous systems to date. Generally speaking, with the success of the project, its core leaders are often too powerful to make the project truly decentralized. However, the uniqueness of Bitcoin is that its founder himself belongs to a cypherpunk who pays great attention to privacy. The self-dissolution of the "super node" also promotes the operation of Bitcoin in a decentralized form. As of now, Bitcoin has been working safely and normally in this way for more than 10 years, which is a miracle.
At present, the Bitcoin system is mainly composed of three types of members, namely miners, developers and users, among which:
Developers, developers mostly collaborate in a distributed manner, mainly maintaining and researching the Bitcoin code. Most of the core developers are early players of Bitcoin and also hold a large amount of Bitcoin;
Users, the group that uses the functions of the Bitcoin system and conducts transactions and transfers through Bitcoin. In order to serve the vast number of Bitcoin user groups, a complete industrial chain with exchanges as the core has been formed, including wallets, browsers, etc.
In terms of the node distribution of the Bitcoin network, it is mainly distributed in North America, Europe and East Asia, with a total of 10,591 nodes, of which the nodes in the United States account for more than 20%. Although Bitcoin has formed a loosely coupled decentralized organization through its basic network mechanism (POW consensus mining), over time, the three major groups have formed mine pools, core Develop a "three pillars" pattern with the three major organizations of the development member and the exchange as the core. This trend of increasing centralization has brought potential threats to the security of Bitcoin, such as collusion attacks by interest groups.
A map of the global distribution of Bitcoin network nodes bitnodes
4. A whole new asset class: cryptoassets
In 2017, Coinbase, a world-renowned compliance exchange, and ARK Invest published a research report, comparing Bitcoin with data related to traditional assets (such as S&P 500, U.S. bonds, gold, U.S. real estate, crude oil, etc.) It is found that Bitcoin is becoming an emerging asset class.
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Correlation coefficient between Bitcoin and traditional assets Coinbase & ARK Invest
In addition, the research report assumes that in the past 3 years (2013.12-2016.12) 1000 US dollars of scale investment in major asset categories, through the comparison of the Sharpe ratio, it is found that in addition to US securities/bonds/real estate in the 3-year investment in Bitcoin performance In addition to being better, the return on investment of Bitcoin is significantly better than the return on investment of other assets.
Bitcoin vs. Traditional Assets Sharpe Ratio Coinbase & ARK Invest
5. Rapidly Evolving Adaptive Value System
In 2018, Morgan Stanley, an international financial institution, published a research report on encrypted assets including Bitcoin "Update: Bitcoin, Cryptocurrencies and Blockchain", and proposed a "Rapidly morphing thesis" theory on encrypted assets. The report stated that, The value connotation of Bitcoin has been in a process of rapid evolution, and it can be expanded according to new environments and needs, including:
Electronic cash (2009-2016)
The Antidote to the Existing Financial System (2010-2017)
Payment System Alternatives (2010-2017)
New Fundraising Mechanism (2015-2018)
The Sanctuary of Crashing Fiat (Spring-Summer 2018)
New Types of Institutional Investment Assets (2017-present)
Obviously, from the above research, it can be found that the functions and value connotations carried by Bitcoin have been evolving spontaneously with the changes in the world economy and local regional situations. Changes with time or events. For example, in an environment where the fiat currencies of Venezuela and Turkey have depreciated sharply, Bitcoin has served as a refuge for the local collapsing fiat currencies, thereby gaining massive popularity. In addition, in the event of the outbreak of local wars, Bitcoin will also serve as a temporary asset refuge.
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The Times 03/Jan/2009, Chancellor on brink of second bailout for banks.
“Rapidly morphing thesis” by Morgan Stanley Morgan Stanley
Bitcoin valuation model/reference indicator
Bitcoin's economic model
Morgan Stanley's research fully considers the value support provided by Bitcoin under market conditions. However, the value of Bitcoin not only comes from external actual demand, but also comes from its unique internal economic model, which is centered on halving Unique Bitcoin minting and distribution mechanism. As satirized by Satoshi Nakamoto in the Bitcoin genesis block, economies around the world have been sinking deeper and deeper into the quagmire of long-term inflation caused by excessive money printing. Whenever there is an economic crisis, the central banks of various countries will always launch a new round of quantitative easing policies to rescue the economy with a booster. In view of this, on the basis of considering the actual demand, when Satoshi Nakamoto designed the economic model of Bitcoin, he adopted the deflation mechanism of "fixing the total amount of issuance and halving the output every four years", which gradually reduces the increase rate , which can be briefly summarized as:
Bitcoin can only be generated through the block rewards obtained by participating in "mining" through the POW consensus;
The total amount of bitcoins does not exceed 21 million, and the initial block reward is 50 BTC, which is halved approximately every four years.
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Since Bitcoin is an emerging asset investment category, how to reasonably value Bitcoin has become a key issue. Since Bitcoin has no cash flow, it is not suitable for discounted cash flow (DCF) valuation. So how to predict the price trend of Bitcoin to provide a reliable reference for investment behavior? In view of this, many Bitcoin valuation models/reference indicators have appeared on the market, but most of the valuation models have unavoidable failure ranges. This article will briefly introduce some valuation models/reference indicators.
Bitcoin NVT Model
The NVT model (Network Value to Transactions Ratio) is analogous to the traditional P/E model, which refers to the ratio of the Bitcoin network value to the number of transfers on the chain. This model follows the original design of Bitcoin and regards it as a pure payment network as a reference true value. If NVT is at a high level, it means that the price in the entire Bitcoin network is in an unsustainable bubble or investors are extremely optimistic about Bitcoin and increase their positions. Since this model ignores the fact that the current largest application scenario of Bitcoin is transaction rather than payment, and most of the transactions occur in centralized exchanges without leaving corresponding on-chain transfer records, so this model only It can be used as a reference index for extreme market conditions.
Bitcoin's NVT Model Woobull.com
Bitcoin network mining difficulty band index
The mining difficulty band index of the Bitcoin network is the Bitcoin Difficulty Ribbon. The difficulty band is composed of a simple moving average of the difficulty of the Bitcoin network, which shows the impact of miners' selling pressure on the price trend of Bitcoin. Generally speaking, miners will sell a certain percentage of newly mined bitcoins to obtain income due to the needs of daily operations. When the climbing slope of the difficulty band of the entire network decreases and overlaps, most miners are already shut down, and only strong miners will insist on participating in mining. Due to the strong financial strength of strong miners, they only need to sell a small proportion of bitcoins to maintain operations, which will reduce the selling pressure of bitcoins in the market, thus providing more room for price increases. Therefore, according to the index, the area where mining difficulty bands shrink or even overlap will be the best time to build a position in Bitcoin (as shown below, the blue line is the market value of Bitcoin, the red line is the difficulty moving average of different time spans, and the vertical red dotted line It is the halving time of Bitcoin), at this time, it means that most of the miners have shut down, and the time has entered the end of the mining disaster/end of the bear market, and the currency price may bottom out.
Bitcoin Mining Difficulty Bands Woobull.com
The Bitcoin Scarcity Index S&F is a method of assessing the rarity of an asset/commodity, which expresses the ratio between the number of commodities in stock and the annual production volume. Scarcity is also an important consideration when Satoshi Nakamoto formulated the Bitcoin economic model. For a long time, gold has been at the top of the scarcity index S&F. According to the research report "Megatrend Digitalisation: Is Bitcoin outshining gold?" published by Bayern LB Research at the end of September 2019, the S&F index of gold was as high as 58, while Bitcoin was at the time The S&F of Bitcoin is about 25.8, but after the third halving in May 2020, the scarcity of Bitcoin will further increase, and the S&F index will be as high as 53, indicating that Bitcoin is on the road to surpassing the scarcity of gold. According to the S&F index, the halving of Bitcoin will significantly increase the scarcity of Bitcoin, and according to historical experience, the market value of commodities is positively correlated with scarcity, that is, the higher the commodity scarcity index, the greater the market value.
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Bitcoin Market Cap Accelerator: Halving
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Market performance before and after Bitcoin halving Fitzner Blockchain
In fact, Litecoin (LTC), which has always served as the "test chain" and "experimental field" of Bitcoin, achieved an increase of about 594% in the halving market in 2019. Therefore, the halving market of Bitcoin is very worth looking forward to . Recently, Weiss Crypto Rating, a well-known rating agency, rated Bitcoin’s technology and market popularity as A, and raised its overall rating to A-. Will enter the historic growth space.image descriptionThe rating of mainstream assets Weiss Crypto Rating
"The halving market has just warmed up, and the return to the climax in February"
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"Bitcoin has actually come out of a clear bottom box shape, and while Bitcoin is in a sideways box, BCH/BSV/ETC and other halved leading currencies have simultaneously stepped out of the rising bottom and rising momentum. The fiery start is basically on the eve of imminent triggering."
References:
1、https://bitcoin.org/bitcoin.pdf
2、https://nakamotoinstitute.org/literature
3、Bitcoin Ringing the Bell for A New Asset Class，Coinbase & ARK Invest
4、Update: Bitcoin, Cryptocurrencies and Blockchain，Morgan Stanley
5、Megatrend Digitalisation: Is Bitcoin outshining gold?，Bayern LB Research
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