Most investors and users of bitcoin are looking at the long-term growth of bitcoin as a technology, protocol, network, and a store of value. Not a large population of users are relying on bitcoin to make a fortune out of short-term surges and price trends.
In online bitcoin communities and at roundtable discussions, investors often demonstrate their concerns in regards to the performance of bitcoin, sustainability of its value and the long-term health of bitcoin. Some worry that bitcoin could be overtaken by an alternative cryptocurrency (altcoin) in the future.
There exists six main performance indicators shared by investor and journalist Trace Mayer investors and users can refer to in evaluating the performance and well-being of the bitcoin network. These indicators include bitcoin transactions, price, hashrate, bitcoin wallets, trading volumes, volatility.
Transactions, Wallets & Volatility
Over the past two years, the rate of volatility of bitcoin significantly decreased. As emphasized by experts including Mastering Bitcoin author Andreas Antonopoulos in the past, low volatility is crucial for bitcoin to establish itself as a currency.
Currently, bitcoin is used and perceived as digital gold. A large number of users are utilizing bitcoin as an efficient store of value that enables the facilitation of large transactions in a secure and decentralized ecosystem. To put it simply, the vast majority of users view bitcoin as a financial network which makes previously inefficient, expensive and impractical transactions easier.
For bitcoin to gain mainstream adoption and to be used as an actual digital currency, it needs to reflect low volatility rates as seen in reserve currencies. At the moment, bitcoin is yet to maximize its monetary supply so the value of bitcoin will increase exponentially in the future. An increase in price is still considered volatility, as it means it is fluctuating in price. As Antonopoulos stated before, “Volatility is bad even when it’s going upwards.”
It can also be claimed that the decreasing volatility in bitcoin and increase in stability has led to a larger user base of bitcoin. This explains the exponential increase in the number of bitcoin wallets, as the world’s most popular bitcoin wallet service provider Blockchain.info is set to reach 12 million wallets in the upcoming months. Just last year, there were less than 5 million wallets in circulation.
The increase in the number of bitcoin wallets naturally led to larger sums of transactions. In comparison to around 200,000 daily transactions in early 2016, transaction volumes in February are close to 360,000, 1.8x larger than daily transaction volumes of last year.
Hashrate, Price, Trading Volumes
The vast majority of traders and investors of bitcoin are captivated by the short-term growth of bitcoin that they often fail to recognize the long-term performance of bitcoin price.
While the price of bitcoin plunged to $785 earlier this year, currently, the average trading value of bitcoin is $1,020. That is a price 25% higher than the second highest peak reached in 2016 and nearly 6% higher than the highest price reached last year.
Although the price of bitcoin slumps when government agencies like the People’s Bank of China issue warnings or other forms of harsh regulations on bitcoin, it consistently bounces back. This can be attributed to the continuous increase in trading volumes in the bitcoin exchange market. As seen in the provided by Trace Mayer, the trading volumes of bitcoin have increased significantly over the past three years.
Conclusively, increasing demand, user base, trading volumes, and price of bitcoin is being supported by the exponential growth of the bitcoin network’s hashrate.
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