"Going Beyond Technical Analysis via Data Platform that Delivers Blockchain Fundamentals"
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Our weekly report summarizes the underlying activity of cryptocurrency networks, highlighting ‘fundamental’ data and metrics (such as hash rate and on-network transaction volume) that help inform the price behavior of a given currency.
Technical analysis uses various tools and techniques to asses and forecast price behavior. It is exclusively concerned with market price and exchange volume data as input metrics. Fundamental analysis looks at data that reveals how an underlying business or platform is performing, in order to determine an economic value and assess whether prices reflect that value. In equities, fundamental analysis looks at the financial statements of a business and specific metrics such as growth in quarterly revenue or free cashflow to derive a value for the stock price. With blockchain networks, a similar fundamental analysis is also possible. Blockchain networks provide data about their activity, which in turn can be analyzed and used to determine their value as well as predict future growth.
Please note that the ‘fundamental’ metrics we focus on, such as the daily transaction volume on the Bitcoin network, are separate from market data that take place on cryptocurrency exchanges (such as Bitcoin’s daily price and volume on Coinbase). When we talk about transaction volume, we are referring to the transaction volume on the underlying blockchain network itself, often referred to as “on-chain” or “on-network” transactions. This has nothing to do with exchange volumes. This is a very important distinction; one is a measure of the utilization of a network itself, while the other is simply a reflection of supply and demand for the currency or token at any given time on an exchange.
Blockchain networks like Bitcoin, Ethereum, Litecoin, ZCash, and others exist to facilitate various kinds of transactions. Transactions on a blockchain network typically incur a fee, which is paid to the operators of the network (the “mining operators”). Transaction volumes and fee revenue are two fundamental metrics that can reveal whether a given network is gaining or losing adoption, the rate of adoption, and reveal information about how a network is being used.
In addition, networks also depend upon the investment of compute power to function properly. “Miners” are computers on a given network that perform specific mathematical hashing calculations, and thus provide “hashing power”. The level of investment and ongoing allocation of compute power reveal additional information about a network’s value, whether real or perceived. The “difficulty rate” and “hash rate” are examples of two common metrics that track the allocation of computational power to a given network, and therefore track important trends related to valuation and price behavior.
The Swatt Report focuses on metrics such as on-network transaction volume, transaction fee revenue, difficulty rate, and hash rate and looks for interesting trends in the data.
Current Industry Highlights
Bitcoin transaction volumes fell to 147,000 per day, their lowest point of the year, in mid-February 2018. Volume has steadily increased since then to around 240,000 transactions per day.
The average fee per transaction is at the lowest level in over 7 years, below the levels of early 2015, amidst the last bear market.
Network Difficulty Rate
Bitcoin shows the most consistent growth in difficulty rate, while other networks such as Dash, Litecoin and Ether have shown weakness. Dash’s rate has been in a decline since December, though it shows recent signs of a rebound. Litcoin’s difficulty rate peaked on May 25th and has steadily declined since. Ethereum peaked on August 8th but declined back to April levels.
The Ethereum network reveals a potential network congestion issue, as transaction volume has declined at the same time that per transaction fees have increased. This trend has been developing since Ether reached a high price in mid-January.
DISCLAIMER The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.