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Fundamental analysis for Bitcoin

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First, we will focus on the fundamental elements of Bitcoin and consider the reasons for the sharp rise in Bitcoin.

Fundamental analysis: An analysis method that analyzes the future value of a financial product based on the factors that indicate the future potential of the financial product corresponds to the analysis of financial status and business performance of stocks.

The fundamental factors of Bitcoin or virtual currency (cryptographic assets) are mainly the future of blockchain technology and the penetration rate of virtual currency itself.

Future potential of blockchain technology

First is the bitcoin fast profit that forms the basis of the virtual currency system.

Blockchain is a technology that establishes a role as a currency without having an issuer, and is a system that is paired with the existing currency mechanism that has an issuer such as a central bank.

A system that does not have an issuer such as virtual currency is called a distributed ledger. The advantages of this blockchain technology are as follows.

Benefits of blockchain technology

  • Since there are many minors who are managers all over the world, it becomes risk diversification
  • No maintenance cost or development cost of the main management system
  • Since the transaction history is published on the Internet, clean transactions are possible
  • Financial instruments like this have never been more innovative.
  • It is probable that people who invested in that potential bought virtual currency, and as the price increased, the popularity of virtual currency also increased.

Impact of financial markets

Generally, it is said that the prices of stocks and gold show an inverse correlation.

This is said to be because, when the stock market is weak due to the recession, many investors sell the stock and release the money to gold whose price is stable.

On the other hand, when the economy is booming, holding stocks leads to an increase in assets; so many investors sell gold and buy stocks.

Virtual currencies, like gold, tended to have an inverse correlation with stock market trends because they were less affected by the global economy. Therefore, around the end of 2017, when stocks were globally weak, it is considered that investors’ funds gathered in virtual currencies and Bitcoin, which is the key currency, was bought.

Virtual currency spread to general investors

The big rise in cryptocurrency prices was largely due to the entry of people who only had cash assets, in addition to the investors who bought virtual currencies to escape the assets they owned as stocks.

To purchase virtual currency, you need to go through the virtual currency exchange. Cryptocurrency exchanges have existed before the cryptocurrency boom, but have rapidly increased in number with the rise in Bitcoin in 2017.

More and more people are investing in virtual currencies, offering services with easy-to-understand UIs and apps that make it easy for those who were unrelated to investment to enter.

Eventually, the fact that the virtual currency became widely known, such as being advertised on TV commercials, is also considered to be one of the reasons why the bitcoin price increased.

Will the entry of large investors also have an impact?

Investors are generally divided into individual investors and institutional investors.

An individual investor refers to an investor who conducts investment activities individually, and an institutional investor refers to an investor belonging to an organization that manages investment trusts.

The funds that institutional investors are starting from are the funds that ordinary investors bought such as investment trusts, and they are managed based on those funds. Since the originator is not a personal asset, there are restrictions on investment from the perspective of risk aversion, and in many cases the target for investment is limited.

Cryptocurrencies, which are new financial products, were of course not targeted by institutional investors, but their limits have changed over time.

One of the main reasons the restrictions are changing is that the US has applied for Bitcoin ETFs. ETFs are listed investment trusts, and Bitcoin ETFs show price movements linked to the Bitcoin price.

If the Bitcoin ETF application is approved, institutional investors will be able to buy Bitcoin as well as existing financial instruments such as gold and wheat.