It is a virus and like any bacillus, it reproduces in phases. The adsorption is already completed and we are in full penetration phase. Can The Bitcoin Virus Reach USD 20,000? (Part I)
It is not remembered a financial asset that, since its inception, generated so much controversy and noise between believers and detractors. From those who bet on a total change of economic paradigm, to those who talk about ponzi schemes, passing through all those intermediate figures that represent investors, opportunists, speculators, governments and even celebrities.
However, in this incipient market that cryptoactives represent, it turns out that price formation not only responds to a random system of high emotional implications, but also to certain principles of value resulting from the economics and effects of networks.
In this context, the fact that it does not have an intrinsic value does not mean that it does not exist. Bitcoin is a commodity whose characteristics of scarcity, durability and acceptance already give it value for itself, being totally normal in this type of money.
Before advancing towards the possibility of seeing or not, the 20000 USD in the case of the BTC, it is convenient to clarify which is the investment thesis that, in my case, prevails at the time of facing an allocation of resources.
I see investment in cryptoactives as the way to participate in the next generation of computational infrastructure. Unlike what happened in the late 90’s with the dot com, where the right thing was to invest in the applications that were developed (Google, Amazon, etc.), what matters now are no longer those surface layers, but the infrastructure (in this case Blockchain) and the so-called “middleware” that sustains the current revolution.
These elements, necessary for the development of all the activity, are intended to replace third parties with software. It is possible to transmit property, value and execute “Smart contracts” in an open way and without the need of intermediaries.
A new Ecosystem
This means a new ecosystem that opens the doors to lots of new businesses, reduces costs and simplifies much of the current operation.
Let’s not forget that these assets have high volatility because they are high risk. In other words, we are facing a market in a very early stage of development and, consequently, high risk. And the latter is what generates volatility and not the other way around.
Taking positions in this part of the chain also means reducing the high risk incurred without losing exposure. Logically and in this sense, the percentage of the portfolio allocated to this investment must be consistent and very limited as a way of managing this implicit risk.
Finally, within this investment thesis, cryptoactives are a way of being able to participate in this revolution. In a manner of speaking, they are the gasoline necessary for them to work and it is the part in which the greatest value can be captured.
As I said some time ago, Bitcoin (BTC) is still the main asset to understand and under the idea of a reserve of value. The ether (ETH) follows because it is the main base on which value can be created and, finally, we would have those cryptoactives with Smart contracts protocol that are created on one or multiple Blockchain.
The Price
There is a direct relationship between the price of the bitcoin and the activity associated with the network in which it is located.
In this way, price variations not only respond to changes in momentum and investor interest (being a market dominated 85% by retail investor), but are also correlated with variations in the number of users over time and by their activity on the network, being consistent with a Gompertz growth function.
This means that, from that point of view, the price variation is consistent with the growth in the number of users over time.
This situation may be similar to what happened with Facebook and this type of networks. In this respect, and using Timothy F. Peterson’s study, the Facebook network is compared with the bitcoin network to see if it would apply some kind of valuation metric such as Metcalfe’s one.
The author points out that using 10 years of data and taking as a premise that both are innovative (although not really original as Digicash and MySpace existed previously), both suffer prohibitions in China and their evolution depends on the degree of adoption that is achieved.
The price of Facebook has followed a calculated evolution in relation to the increase in users.
And the same can happen in the case of certain cryptoactives and bitcoin in particular, although we must not fail to mention the manipulation and high “noise” that still exists in this immature market, which must be eliminated as far as possible, in order to make some serious calculations.
At this point, it must be admitted that using fundamentals to evaluate cryptoactives and cryptocurrencies is not easy.
For this reason, other sources of valuation must be added, ranging from certain technical indicators to those of market sentiment.
A study by several authors at Yale University indicated, in this regard, that there was empirical evidence of the effect of these variables on the price of bitcoin (BTC) or ether (ETH).
You can continue reading at: Can The Bitcoin Virus Reach USD 20,000? (Part II)
