Bitcoin Value Indicator – July 2018
Story by: Hans Hauge
Summary
The Bitcoin Network’s hash rate, unique addresses in use and total transaction can be used to create a type of value indicator similar to the Shilller P/E.
Each indicator gives us unique insight into the current network value; taken as a whole they form what I call the Bitcoin Value Indicator.
Based on current network valuations using historical regression, the market is still overbought.
Upgrades to the network will enable scaling orders of magnitude beyond the 2017 peak.
What Is The Bitcoin Value Indicator?
Some of you may have read my recent article about the three metrics that I think give us powerful and unique insight into Bitcoin’s current market cap (or Monetary Base if you prefer). See the table below for a refresher if you missed my previous post.
I have found three very strong correlations between the Bitcoin market cap and the data that we can parse from the network. Each of these were derived from log transformations and regression analysis.
| Indicator Name | Unique Addresses | Network Hash Rate | Total Transactions |
| Strengths | Good gauge of actual network activity on a monthly basis. | This metric is less subject to speculation because of the real world implications of mining at scale (moving dirt, laying power lines etc). | Gives a ratcheting up point of view in which Bitcoin’s price is either forced up over time or has to fail completely. |
| Weaknesses | Can be thrown off by batching and volatility in transaction fees due to dust consolidation | Indicator can be thrown off by advances in computing and can lag the market because of the gap in time between investment and operations of large mining facilities. | If people completely stop using Bitcoin, this figure would break down because it would simply flatten out instead of showing the market cap drop to zero. |
| Reasoning | Metcalfe’s Law (the network effect) | Miner CAPEX may reflect future expected earnings of industry insiders | Longer blockchains are more secure and closer to immutability |
| Correlation (monthly sample) | 0.9708 | 0.9567 | 0.9676 |
| P-Value | 3.1501E-58 | 1.4915E-50 | 3.2910E-56 |
Original story: https://seekingalpha.com/article/4185235-bitcoin-value-indicator-july-2018
by 