While Bitcoin (BTC) is far from a traditional asset that can be analyzed using conventional structures, the blockchain still offers many ways to analyze an asset. stated Katie Woods Ark Invest in a recently published whitepaper.
In a document titled A Framework to Evaluate Bitcoin the firm substantiated the need to evaluate the number one cryptocurrency as an investment asset at three levels, each of which is related to a different class of investors:
- assessing the state of the Bitcoin network;
- assessment of the behavior of the buyer and seller;
- bitcoin valuation.
The Ark Invests whitepaper was written by the firm’s in-house analyst, Yassin Elmanjra, in collaboration with Bitcoin network researcher David Puell.
Tweeting the document, Elmanjra called it the definitive manifesto on the power of web data and said it represents the culmination of years of work to develop a framework for evaluating the foundations of bitcoin.
Layer 1: Network Status
The document says that starting from the first level, this includes assessing things like network security in terms of hash rate, monetary policy, active addresses and the number of transactions.
This level is useful for anyone interested in observing and learning about bitcoin as an investment, the document states, saying that it can be seen as a basic newsletter about the network.
The document states that the data at this level is available to any blockchain search engine and is raw and simple and requires little or no manipulation.
In addition, the report also suggests transaction volume as a good indicator of the overall health of the network. As the investment company writes, divided by the number of coins in circulation, the transaction volume gives an idea of the annual rate of bitcoins.
Level 2: Buyer and Seller Behavior
As a second level of assessment, Ark Invest suggested that long-term holders and investors in particular might find it useful to look at what wallet addresses are doing, which is often referred to as buyer and seller behavior.
This could include more complex calculations based on data within the chain, such as the so-called HODL waves or realized bitcoin capitalization, which values bitcoin using the price of when each coin was last moved on the blockchain, the document says.
Level 3: asset valuation and trading signals
Finally, the last level in the Ark Invests structure uses the first two levels to provide relative valuation metrics that allow one to identify what the document calls short and medium term inefficiencies in the price of bitcoin.
This layer is especially useful for active investors and traders, according to the report, explaining that it can generate direct buy and sell signals, similar to how valuation metrics are used in the stock market.
Meanwhile, speaking more broadly of Bitcoin as an investment asset compared to other cryptocurrency networks, the Arks report says it’s important to note that no other network can rival Bitcoin in transparency.
The report argues that this makes Bitcoin the most analyzed and fundamentally reliable network in the crypto space.
He added that he views bitcoin’s auditing, openness and transparency as a result of the fact that it has a simple UTXO-based accounting system, verifiable code that has been studied more than any other open source code, and network nodes. which are much more cost-effective than alternative cryptocurrency network nodes.
Ark Invest, led by renowned technology investor Katie Wood, is known today as one of the most advanced bitcoin asset managers. Speaking at a panel discussion hosted by the derivatives market Cboe in early 2021, Wood talked about bitcoin, claiming that we were just getting started. [USD] 1 trillion is nothing compared to where it will ultimately be.
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