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Bitcoin is a sleeping giant.
This feels weird to write because of how much coverage there has been of the nascent asset, but hear me out. There are two components to Bitcoin — (1) the digital asset that can be held by investors and (2) the transaction settlement network that is run by miners.
Almost all of the press coverage to date has been focused on the digital asset, with very little attention being paid to the transaction settlement network. The network has quietly grown into one of the most interesting stories across technology and finance though.
Traditional networks, such as Facebook, Twitter, Visa and Mastercard, are run by centralized companies that capture revenues on a single set of financials. By looking at the financial performance of the centralized entity, investors can quickly evaluate the health of the business, while assigning a revenue multiple to arrive at a valuation.
In the decentralized world, there are thousands (or millions) of separate people/entities that coordinate resources in a unique way to run a network. For example, just like Visa and Mastercard are running a transaction settlement network, thousands of Bitcoin miners around the world are working together to run a transaction settlement network too. The revenue and financial performance of each miner is captured by thousands of different sets of financials, which makes it incredibly hard to evaluate or arrive at valuations.
Diar, a cryptocurrency research firm, has published new data that shows Bitcoin miners were paid a total of $5.8 billion in revenue in 2018 for running the Bitcoin transaction network. While it it would be difficult to get the full P&L statements for so many different mining operations, we are still able to take this top line revenue figure and put it into context.
As you can see from the numbers above, the Bitcoin network is currently sitting in the middle of the pack when it comes to revenue multiples for some of the largest networks in the world. Additionally, Bitcoin’s revenue multiple is actually lower than both Visa and Mastercard — the two transaction settlement networks that are most commonly compared to Bitcoin.
This doesn’t necessarily mean that Bitcoin should be valued by a revenue multiple, but it is a single data point that adds context around the current performance and value of the transaction settlement layer. Additionally, a counter argument would be that much of miners’ revenue in 2018 came during Q1 and today those running the network are being paid much less.
This is a fair argument. As of yesterday, miners made $6.95 million in daily revenue, which would put them on a $2.5 billion annual run rate. Keeping the current market cap constant, this puts Bitcoin’s revenue multiple at 25x. While higher than any of the other networks, it is still reasonable given the fast growth rate and historical premiums given to early companies/networks in an attempt to price in untapped potential.
Bitcoin, the transaction settlement network, did over $410 billion in on-chain transaction volume in 2018 and is likely to continue with $3+ billion in daily transaction volume in 2019. Rather than being fanatically focused on the exchange price of Bitcoin as a digital currency, more people should be paying attention to the sleeping giant — the transaction network.
Today, it is 1/4th the market cap of Mastercard and 1/6th of Visa, but it wouldn’t surprise me if Bitcoin surpasses both within the next 36 months. The legacy networks were built for a world that we no longer live in and the decentralized network is built for the future.
I know which one I’m betting on :)
-Pomp
The “Off The Chain” podcast has been downloaded 400,000+ times in 160 countries. You can listen to the latest episode with Halsey Minor, Co-founder of Salesforce now: Click here for Off The Chain podcast
THE RUNDOWN:
Bakkt's New Acquisition Will Speed Its Plan to Streamline Consumer Payments: Bakkt aims to make Bitcoin trading safe for Wall Street. Now, a new acquisition confirms that the cryptocurrency trading company is speeding its plans to revolutionize the way people pay for everything from coffee to cars. On Monday Bakkt, which was launched by the owner of the New York Stock Exchange, announced the acquisition of assets owned by Rosenthal Collins Group, a century-old futures commissions merchant. Read more.
Draper Associates Leads $5 Million Funding Round for Blockchain-Based ID Platform: Iceland’s blockchain-based identity verification platform Authenteq has raised $5 million in a funding round led by Draper Associates and Capital300. Following the two-week funding round, the company revealed its intention to conduct the second closing of the Series A financing for additional investors in the coming weeks. Read more.
Israel’s Top Cargo Shipping Firm Zim Opens Blockchain Platform to All Clients: Israel’s largest cargo shipping company Zim has opened its blockchain platform for electronic bills of lading (eB/Ls) to all clients in selected trades. Following a successful pilot of its blockchain-powered eB/Ls platform that lasted for over a year, the shipping firm has claimed that blockchain can not only replace the currently existing paper-based processes, but also improve the workflow conducted via email, fax, and other channels. Read more.
Banking Giant HSBC’s Blockchain Platform Processed $250 Billion in Forex in 2018: International banking giant HSBC settled $250 billion of forex trades using blockchain technology in 2018. Through its proprietary blockchain platform dubbed “FX Everywhere,” HSBC handled 3 million transactions, which translated into 150,000 payments since it launched in February. The technology allows HSBC to “conduct thousands of foreign exchange transactions within the bank, across multiple balance sheets, in dozens of countries,” FT quoted Richard Bibbey, acting global head of currencies as saying. Read more.
Danish Tax Agency to Collect User Data from Crypto Exchanges: The Danish Tax Agency has got the green light to collect trader information from local cryptocurrency exchanges to see if they are paying their dues. The agency, in Danish called the Skattestyrelsen, announced this is the first time the country’s Tax Council has given it access to crypto traders’ data – information that includes trades, names and addresses, and central person registration number. Read more.
Deep-dive research provided by 51 Percent Research: You can read about Dfinity, Decred, Monero/Zcash/Grin/Beam, Ethereum’s Serenity, Tezos, Ripple, MakerDAO, Crypto ETF, 0X, Ethereum Miners and Developers, and Crypto Custody.
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Nothing in this email is intended to serve as financial advice. Do your own research.
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