Compared with tried-and-tested bond and equity valuation calculations, there are no equivalents for pricing cryptocurrencies. News and technical analysis (drawing lines on charts) have been driving factors of price action in the past. There are different ways of looking at how to put a price on the world’s first unique, counterfeitable digital token that can be owned by anyone. Bitcoin Pulse is a good website which tracks a number of wallets, merchants and venues, chatter among other things and is well worth a look. There are also more overarching metrics and comparisons:
VC Investment on Bitcoin Companies
Total VC investment at cryptocurrency startups to date amount to USD 320 million, with a 41$ increase between Q2 and Q3 2014. The investment has been largely concentrated in the US, but Q3 saw further broadening of the investment to other parts of the world. In Q2, US and Canadian companies took 78% of the share of investment, while as of end of Q3, this figure decreased to 71%. On the other hand, Europe saw a spike in the share from 13% in Q2 to 17% in Q3, and six more countries around the world (Germany, Denmark, India, Japan, Luxembourg and Panama) saw their first VC-backed Bitcoin startups in Q3.
The increase in the amount and widespread nature of the investment indicates that Bitcoin and its technology is here to stay. Constant research will bring more advancement to the technology and competition among Bitcoin startups will encourage innovation.
Github Forks on Bitcoin
This is a very important metric as this shows how much interest developers have in Bitcoin. More github forks mean more development in progress in Bitcoin, which will lead into more useful applications through improved versions of the technology. Interest in the protocol should correlate with a better overall product, which should correlate with price, to some degree.
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The value of Bitcoin depends a lot on the security of the network, meaning how hard is it for a bad actor to subvert it and re-write the ledger to his own tastes. Hash rate is the unit of processing power of the miners auditing the Bitcoin network. Without significant hashing power, a blockchain can be easily attacked and manipulated. Hence, the higher the hash rate, the more secure the Bitcoin network is, assuming miners do not collaborate to subvert their own blockchain.
The number of media mentions will generally increase the awareness and spur interest in Bitcoin. There are also research papers aimed to study the correlation between Bitcoin prices and its publicity. A recent paper discovered that ‘returns tend to be more elevated when newspaper articles mention Bitcoin more frequently…’. The data showed that 1% increase in the number of articles mentioning Bitcoin raises returns by around 30 basis points. Thus, Bitcoin prices tend to be ‘driven by its popularity and the transactional need of the users’.
Comparison with Commodities Such as Gold
Both Bitcoin and gold are scarce (Bitcoin itself is scarce, limited to 12 million bitcoins; whereas cryptocurrencies in general are not: as anyone can start a cryptocurrency with as many units as they wish). However Bitcoin is extremely useful on a global scale for payments, whereas gold’s utility is mainly in jewelry (and it’s only used in jewelry because it’s valuable and doesn’t tarnish). Some investors consider a scenario where investments in gold were diversified towards bitcoin, and try to calculate the price effect of that migration. Here is a good paper on the topic and an infographic comparing Bitcoin and gold.