VII. PRICING BITCOIN PRIVATE IN THE MID TO LONG-TERM

When attempting to evaluate fundamentals in cryptoassets, community is one facet that cannot be ignored. The Bitcoin Private hard fork is unique in the sense that it already has an established community supporting it from the Zclassic project, whereas most forked coins grow a community afterwards — which can take time. Bitcoin Private is also unique from a comparison standpoint, being classed as both a Bitcoin hard fork and a privacy coin resulting in a couple potential avenues to analyse mid to long-term price action.

Privacy Perspective

The argument could be made that a legitimate Bitcoin hard fork providing inherent value can provide a possible advantage over staple competitors. Looking at cryptocurrencies that feature privacy technology and have large market capitalisations such as Dash (~$3.7 billion, rank: 11), Monero (~$3.7 billion, rank: 12), and Zcash (~$1 billion, rank: 24) who have been around for years, it may be hard to envision. But while trying to be reserved about valuations, take Litecoin (LTC) as an example: an alternative cryptocurrency that started in 2011 and has been marketed as a cheap and fast way to transact digitally. Still, Bitcoin Cash — a cryptocurrency only created August 2017 — has consistently had a larger market capitalisation than Litecoin whilst being marketed with a similar premise. It could be further argued, once again, that because Bitcoin is such a dominating cryptocurrency, users that held it did not want to sell for an alternative cryptocurrency such as Litecoin but still wanted exposure to a cryptocurrency that offered fast transactions with low transaction fees. Hence, receiving the free Bitcoin Cash airdrop was the most favourable option.

Likewise with Bitcoin Gold, it is not the first cryptocurrency concerned with the apparent centralisation through ASIC mining. Vertcoin (VTC) — a cryptocurrency originating in 2014 — has also been resisting ASIC mining through producing algorithms that favour GPU miners. Nevertheless, the market capitalisation of Vertcoin has always paled in comparison to Bitcoin Gold where they currently stand at $106 million and $1.3 billion respectively as per CoinMarketCap data.

It appears that the Bitcoin hard fork airdrop mechanism and name adoption is an attractive way of providing exposure of features Bitcoin lacks to users that could also accrue market value. There is no information available right now to suggest that Bitcoin Private can reach similar market capitalisations to Dash and Monero. However, a more sensible comparison can be applied against Zcash; a privacy coin with a lower, albeit very respectable, market capitalisation that is a direct competitor to Bitcoin Private as they sport the same privacy technology. In addition, Bitcoin Private potentially has a competitive advantage in that it assumingly garners a fraction of the Bitcoin user-base. This is not to definitively say that Bitcoin Private will surpass the market value of Zcash, but with enough exchange support it certainly could be in contention.

Despite having a significantly lower market capitalisation than the main privacy players, an intriguing detail about Zcash is that over the majority of the past year its blockchain network has been roughly on par with the Dash network and superior to the Monero network in terms of the number of transactions processed. It demonstrates that zk-SNARK privacy technology is a genuine option for conducting private transactions.

Bitcoin Forks Perspective

After initial sell-offs from traders and investors who were not prepared to speculate on the potential value of Bitcoin Cash and Bitcoin Gold, both cryptocurrencies have managed to grow substantially in market value as mentioned prior.

Blockchain network usage is one characteristic that can be used as a basis to attempt to rationalise the financial value of cryptoassets. Looking at the last six months of the top 3 Bitcoin cryptocurrencies (a timeframe long enough where all their blockchains have been simultaneously active), Bitcoin Cash and Bitcoin Gold do not come close to the amount of transactions Bitcoin processes.

Examining the 30-day simple moving average chart (of transactions) shown in Figure 9, it can be observed that Bitcoin currently processes 185,328 transactions per day whilst Bitcoin Cash and Bitcoin Gold are processing 19,580 and 3,101 respectively.

This translates to the Bitcoin Cash and Bitcoin Gold blockchain networks operating at a fraction of Bitcoin’s, roughly at 11% and 1.7% respectively. The results of using these percentage values as the sole values to extrapolate the market value of Bitcoin Cash and Bitcoin Gold against the current BTC value (1 BTC, $8,761.68) are shown in the Table 3.

Interestingly enough, the actual BTC and USD values of BCH — 0.12BTC, $1,007.9 — are reasonably close to the values expressed in the table. On the other hand, the actual BTC and USD values of BTG — 0.0086BTC, $75.05 — are roughly 50% lower than the values expressed in the table and the case could be made that BTG is in fact undervalued. It should be taken into account that showing market value of a cryptoasset only through the amount of transactions processed can be simplistic but it certainly is a significant aspect of the value.

It is difficult to directly compare Bitcoin Cash and Bitcoin Gold to Bitcoin Private because their aims are different, nonetheless there are still instances for comparison. Bitcoin Cash is overtly competing with Bitcoin, marketing itself as providing transactions that are faster and cheaper than Bitcoin and proclaiming to be “the real Bitcoin”. Contrastingly, Bitcoin Private wants to bring widespread adoption of privacy on the blockchain. With this in view, Bitcoin Private can still perform similarly in the fact it verifies and validates 2MB blocks every 2.5 minutes, equivalent to Bitcoin Cash verifying and validating 8MB blocks every 10 minutes. Additionally, it would not be entirely unreasonable to assume that Bitcoin Private performs similarly to Zcash as both cryptocurrencies, in large part, use the same blockchain technology which allows for the conservative extrapolation of Zcash blockchain data to Bitcoin Private. Subsequently, analysing the transaction fees of Zcash against Bitcoin Cash results in Zcash being the cheaper way to transact (which has always been the case), though Bitcoin Cash does process almost more than double the transactions.

Figure 10 Bitcoin Cash v Zcash average transaction fee.

In the case of Bitcoin Gold, their main concern is providing ASIC-resistant mining through the Equihash algorithm, the same algorithm Bitcoin Private is utilising for its mining process. Once again, extrapolating Zcash data to Bitcoin Private, Bitcoin Gold comes short against Zcash in terms of transactions processed and average transaction fee.

Figure 11 Zcash v Bitcoin Gold average transaction fee.

BTG also processes transactions slower as it has 1MB blocks mined every 10 minutes like Bitcoin.

Bitcoin Private is able to offer similar, if not the same characteristics as Bitcoin Cash and Bitcoin Gold, and therefore the possibility of market share being taken from both is plausible. Bitcoin Gold has a greater chance of suffering value wise due to the introduction of Bitcoin Private as its only selling point is being a Bitcoin-based ASIC-resistant mined coin. The ability to transact privately is just as, or more valuable than GPU mining; thus, it is possible to conceive Bitcoin Private being worth more than Bitcoin Gold in the long-term and becoming the number 2 Bitcoin hard fork.

It should be noted that at the time of the Bitcoin Cash hard fork, the climate within parts of the community for Bitcoin to take whatever steps necessary to revert to a cheap and fast transacting digital currency was extremely tense, bringing about the Segwit2x propasal. Bitcoin Cash took advantage of this climate through aggressive marketing and proclaiming to be “the real Bitcoin” which certainly assisted in propping up its value. The climate for privacy coins are not as tense as for a cheap and fast digital currency but users are increasingly being made aware of the importance of privacy with the growing concern around blockchain scrutiny.