Any industry has its preferred set of numbers to track. Keeping an eye on these figures can help you determine how well (or how badly) a sector is doing in the overall marketplace. Bitcoin is no different. And the beauty of Bitcoin, being decentralised from any particular institution or central body, is that these metrics are freely available. But sometimes a deluge of data can confuse matters. What should you be reviewing – and why?
That’s where I’ve done some work to provide you with what I consider the more important Bitcoin numbers to track, and provided some insight as to why these are critical values for investors.
Let’s take a look, shall we?
To preserve some level of accuracy beyond the publication date, I’ve rounded up certain numbers. After all, this is a system that moves incredibly quickly.
Unlike fiat currency, with an unlimited supply, bitcoin is finite. There will only ever be 21,000,000 bitcoins available. This finite supply gives bitcoin a quality of scarcity, which adds to its value as a commodity.
The existing circulation represents roughly 72% of the total anticipated supply. At present, new bitcoins are introduced into supply at a rate of 25 bitcoins per block successfully added to the blockchain, which happens approximately every 10 minutes.
But bitcoin is also deflationary by design.
For every 210,000 blocks added to the blockchain (about every 4 years or so), the rate of reward for the miners halves. In other words, as soon as we reach the next 210,000 threshold, the reward will drop to 12.5 bitcoins per block added.
By my estimates – based on the current transactions and hash rates – this may happen as soon as July this year. As we continue to edge towards this change, and bitcoins become an increasingly scarce commodity, we can anticipate the price to escalate accordingly.
The number of user wallets is one of the primary metrics that can give us a sense of mainstream adoption. I say ‘sense’ as this isn’t exact. There are two important caveats to consider.
Firstly, individuals can hold as many cryptocurrency wallets as they wish. There’s no rule or regulation that prevents a single user from holding numerous wallets. Secondly, many wallets aren’t actively used, and simply lie dormant. This means that the reported number isn’t an exact measure of unique, active users. It can, however, give us a broad overview of usage and adoption, most especially when viewed in terms of the speed of growth.
Quarter on quarter growth remains strong, and over the last 2 years we’ve seen an increase in wallet numbers of 786%.
Naturally, the more readily bitcoin is adopted, the better for investors.
Individuals looking to use bitcoin as an alternative to fiat currency need to be able to purchase a wide range of everyday goods with the currency. The only way for this to happen is if merchants and retailers are willing to accept bitcoin as a means of exchange. This symbiotic relationship is crucial to widespread adoption of bitcoin.
2 years ago there were only 12,208 reported merchants accepting bitcoin. Today that number is 106,000, a 786% increase. While we’re certainly nowhere near to the numbers that represent majority participation, the growth trend is still encouraging.
The biggest hurdle on this front is education. Merchants need to be made aware of the benefits of accepting bitcoin. Benefits such as drastically reduced transaction fees and the elimination of chargebacks, both of which have a negative impact on business owners, most especially in the SME sector.
Another valuable metric to consider when looking at the adoption of bitcoin is the volume of daily transactions.
This is currently sitting around the 250,000 mark. If we compare this to 2015’s average of 125,099 and 70,352 in 2014, it’s evident that this is another area we’re seeing exponential growth.
The growth, however, is considerably lower than the increase in the number of wallets being generated. This may be indicative of a ‘buy-and-hold’ mentality on the part of investors, opting to retain their bitcoin, rather than spend them.
When looking at the potential longevity of a new technology, a good place to look is the level of developer interest. This will point to the time, resources and investment developers and engineers are making in terms of building applications or interfaces to streamline technology interaction for end users.
Modern developers make use of GitHub, a central repository for development information. The number of ‘commits’ is an indication of how many applications or interfaces are being worked on for a particular technology. The more commits, the more development in progress. When looking at ‘bitcoin’ as a commit, we can see steady and growing interest, up from just over 1,800 in November 2013 to 7,335 today, showing a 288% increase.
Venture capital investment is a signal of confidence from commercial players, looking to invest in the technology itself or by way of investment in related businesses. Without this investment, efforts to move the technology mainstream would lag and face greater obstacles.
Fortunately, in the case of bitcoin, venture capital investment remains strong with a total of $1b reported to date. This is a considerable number - more than the VC investment into the Internet at the same time in its lifecycle - and a clear indication of continued belief of notable profitability over the medium- to long-term.
Bitcoin’s price has faced considerable volatility since its inception. Many focus on the fact that in November 2013 bitcoin’s price eclipsed that of an ounce of gold at around £720, before enduring a negative path throughout 2014 and eventually dwindling down to the £110 mark in early 2015.
The fact is that this level of volatility is perfectly acceptable, expected even, for a disruptive technology finding its place within the global ecosystem. When plotting its price against Gartner’s Hype Cycle, we can see that bitcoin has already moved through a peak of inflated expectations and the trough of disillusionment.
The latter half of 2015 shifted Bitcoin into the slope of enlightenment, with the price making steady, incremental gains throughout the period and finishing the year at £320 - its highest value in approximately 18 months.
Fluctuations are bound to happen on a daily, weekly, even a monthly basis and this is why we advise against frequent trades and rather encourage people to consider Bitcoin as a long-term investment.
Despite all the climbing values in terms of adoption, usage and interest, Bitcoin’s market cap is still low. Remarkably so, when compared to the likes of PayPal at $43b, Western Union at $9b.
The impressive growth in the innovation is only now starting to be factored into and reflected in the price, and as such it’s my opinion that we’ll see a continual, gradual rise, cementing the formidable case for significant return on investment.