Bitcoin Rating Update Report

TI Research

TI-Bitcoin Rating Update Report


  1. According to the table of changes in asset values in May 2019 from China International Capital Corporation (CICC), Bitcoin has been categorized into an alternative asset and been far ahead on value increase. While the stock market, large commodities and other traditional assets suffered a universal slump in value, Bitcoin showed a development tendency totally differently. The categorization of Bitcoin conducted by CICC reflected its recognition of Bitcoin’s properties as an alternative asset and advantages over traditional assets.
  2. Since appearing at the beginning of 2018, Bitcoin futures have been catching daily intense attention. Until May 28th, 2019, the open interests of Bitcoin futures in Chicago Mercantile Exchange (CME) reached a record-high 5,190, the daily average trading volume also growing significantly. The rise of these indexes symbolized a thriving market of Bitcoin futures and an increasing acceptance degree of using Bitcoin to allocate alternative assets.
  3. Intercontinental Exchange (ICE) planned to cooperate with Bakkt, building Bitcoin-related one-stop shops which will not only act as an exchange but also as a platform for business activities across America. This project reflected the hot demand for Bitcoin as the object of asset allocation as well as for related platform.
  4. Bitcoin market suffered a heavy blow in 2018, cap as a whole diminishing by over 75% from $318 bn to $57.3 bn. Especially, the daily confirmed trading volume in Q1 was cut by more than half. However, since May 2018, it had been recovering steadily and peaked in May 2019, with a year-on-year growth of 114%. From 2018 to 2019, Bitcoin market fell in the beginning and rose afterward, recovering significantly.
  5. During the lean season of Bitcoin capitalization in 2018, the average 24-hour trading volume stayed at $4.2 bn after a drop period. But by the end of 2018, its steady increase characterized a warming Bitcoin market. It should be noticed that even though Bitcoin capitalization in 2019 has not yet returned to its peak at the beginning of 2018, the 24-hour trading volume has already climbed to $30.7 bn, far higher than that corresponding to peak capitalization, which positively signaled a warming market.
  6. By the end of April 2019, the average time for confirming Bitcoin transaction was cut by 10 minutes from the original 127 minutes and tended to be stable. Considering the status quo of Bitcoin development, as its function gradually transformed to store of value and daily payment function weakened, the current transaction confirming time and its optimized efficiency were roughly adequate to meet the requirement of transaction.
  7. By overall consideration, TokenInsight adjusts BTC’s rating grade from A to AA, with a stable prospect.

1. Status Quo of Development

As the first blockchain digital token entering public sight, Bitcoin has a profound impact on the financial industry in aspects of value store, exchange, and others since being issued in 2009. The latest year showed a clearer tendency of using Bitcoin as an alternative asset for asset allocation. Added support from traditional institutions, Bitcoin has become an indispensable new emerging force in the financial market.

At the beginning of 2019, the cryptocurrency market revealed a sign of warming. As the cryptocurrency taking up 1/2 cap of the cryptocurrency market, Bitcoin gained a further acceptance from the market, which was reflected in the aspects of its steady increase in market value, trading volume and acceptance degree of being taken as an alternative asset to allocate assets, etc.

During 2018, the market cap of Bitcoin came a gloomy way from $318 bn to $57.3 bn, its price as a whole shrinking by 80.5%. The same tendency could be seen on the daily confirmed trading volume in Q1 which diminished by 56%. But it should also be noticed that even though Bitcoin market cap kept going down during the early period, the daily confirmed trading volume had been recovering steadily since May 2018 and reached a peak of 452,646 until May 2019, with a year-on-year rise of 114%1.

During the lean season (2018.5-1018.12) of market cap, the average 24-hour trading volume stayed still at $4.2 bn after a drop period. But since January 2019, its steady increase revealed a warming Bitcoin market. It should be noticed that even though Bitcoin capitalization in 2019 has not yet returned to its peak ($318 bn) at the beginning of 2018, the current 24-hour trading volume has already climbed to $30.7 bn, exceeding the $14.5 bn which corresponded to the peak capitalization.

In the meantime, the Bitcoin’s payment, transaction and other functions on network platforms and cryptocurrency exchanges are gradually recognized by traditional industries. Up to now, with Bitcoin, users can purchase food, cosmetics, and other specific commodities. And for different commodity types, Amazon provides services in cooperation with many cryptocurrency platforms. In cases like this, Bitcoin is an important intermediate in the combined development of cryptocurrency platforms and traditional industries. Besides, recent years witnessed a growing number of transaction and payment platforms supporting Bitcoin. For instance, NASDAQ, the stock exchange with the second largest global trading volume, planned to issue financial products in the first half of 2019 in order to realize direct purchase and transaction of Bitcoin. The increase of those platforms also objectively offer support for Bitcoin’s ecological development2.

Bitcoin market’s steady improvement and combination with traditional industries lay the foundation for Bitcoin’s current development. And with gradually maturing blockchain technology and deepening research and development, Bitcoin’s acceptance as an alternative asset for asset allocation will correspondingly increase.

2. The Reason for Rating Grade Adjustment

2.1 Bitcoin’s acceptance as an alternative asset for asset allocation increase

Bitcoin gains wide-spread increasing acceptance as an alternative asset for asset allocation. A few days ago, CICC launched a comparative analysis of the return situation of main asset categories in the current market. Bitcoin led the race with its returning rate over 60%.

The birth of asset allocation products such as Bitcoin trust fund, futures and options, and other derivatives are a symbol of increasing acceptance3. Taking the futures issued by Chicago Mercantile Exchange Group (CME Group) as an example, until May 28th, 2019, the open interest of Bitcoin futures increased to record-high 5,190. Meanwhile, its average daily trading volume also broke the historic record, reaching around 14,000. Increase in open interest and daily trading volume revealed a thriving market of Bitcoin futures and an increasing acceptance degree of using Bitcoin to allocate alternative assets.

The advent of Bitcoin trust fund changes the complexion of a single method for Bitcoin-based asset allocation, providing endorsement for the acceptance of Bitcoin as an alternative asset for asset allocation. The set price and market cap of trust fund also correspondingly reflect the development of Bitcoin itself. By analyzing the development tendency of Bitcoin trust fund, buyers can get an insight into Bitcoin market’s future trend and accordingly design asset allocation strategies.

Another symbol is the Bitcoin-related products listed in the issuance plans of famous exchanges, Bitcoin futures contract being the most representative. NASDAQ, the second largest stock exchange in the world, recently announced to issue futures contracts for Bitcoin transaction in the first half of 20194. Bitcoin futures contract refers to the automatic contract in which buyer and seller set the price in advance for the transaction of a certain amount of Bitcoin in a future period, enabling both sides to conduct financial activity more conveniently and transfer risk more quickly. NASDAQ’s project also reflects the demand orientation of Bitcoin market as well as Bitcoin’s increasing acceptance as an alternative asset for asset allocation.

Moreover, in August 2018, Intercontinental Exchange (ICE), the parent company of New York Stock Exchange (NYSE), planned to cooperate with Bakkt to establish Bitcoin-related one-step shops which will not only act as an exchange but also offer platforms that support Bitcoin transaction and payment for various commercial activities across America. This project led by the second largest futures exchange in America reflects investor’s hot demand for Bitcoin as the object of asset allocation as well as for related platform.

2.2 Market heat significantly increases

The increasing market heat is concretely reflected in the aspect of growing active user population, improving token liquidity and dropping actual volatility. Until December 2018, there are 32 million Bitcoin addresses, but while some users will have multiple addresses to conduct transaction and transfer, the actual number should be smaller. Meanwhile, Bitcoin’s active users add up to 7.1 million, accounting for 34% of total users. It is noticeable that approximately 6.4 million users hold Bitcoin in order to obtain a long-term return, and they account for 30% of total users and are still expected to increase.

2.3 Convenience to exchange and purchase significantly increases

The global number of installed Bitcoin ATMs keeps growing and until May 2019, 4,714 ATMs5 have been deployed across the world. The establishment of infrastructure facilitates the exchange of Bitcoin with cash or credit card and encourages users’ Bitcoin-based asset allocation and purchase.

2.4 Transaction processing speed is optimized

Along with rising trading volume, transaction processing efficiency also steadily increases. By the end of April 2019, the average confirming time of Bitcoin transaction was 10.29 minutes which diminished by nearly 91.9% compared with the original 127 minutes. And as technology constantly mature, transaction process speed tends to be stable. Compare with the original highly volatile processing speed, the average transaction time since 2019 has been basically staying at around 10 minutes. Especially, during the rising period of daily trading volume since January, the average transaction time still maintained stable, and transaction processing and confirming efficiencies kept improving. Details are illustrated below6:

Figure  2-2 Average Transaction Confirmation Time

Source: statista,TokenInsight

2.5 Value volatility lowers

According to Forbes investigation7, the actual volatility of Bitcoin value is predicted to in four months drop to the lowest level since the middle of November 2018, which means that in consideration of both return and risk, investment organizations and individuals are more likely to favor Bitcoin in a future period. Details are illustrated below:

Figure 2-3 Bitcoin Volatility

Source:Buybitcoinworldwide, Tokeninsight

3. Future Prospect

3.1 Bitcoin has good alternative asset properties

Due to the latent alternative asset properties, Bitcoin can diversify asset portfolios and thus effectively balance risk and return8.

Firstly, along with the rising profitability of asset allocation, its riskiness correspondingly increases. Therefore, various investment organizations are prone to recommend asset portfolios to clients in order to diversify their asset, balancing risk and return. A good asset portfolio can obtain a certain return while burden proper risk and the participation of Bitcoin will effectively improve its diversity9.

And apart from diversifying asset portfolios, as has a development trend different from traditional assets, such as stocks, securities, and others, Bitcoin and traditional industries can complement each other during the lean season of their respective markets. Here are the details: the cryptocurrencies, with Bitcoin as representative, are less influenced by the low tide of the traditional market and therefore have a different tendency; when the values of stocks, securities, and others drop during the wholesale downturn of traditional market, Bitcoin can be added to the asset portfolios to effectively balance risk and return, reducing market’s negative impact on asset return, and vice versa.

Secondly, with lower store and transaction service fee, Bitcoin is advantageous over traditional assets. As a cryptocurrency, unlike gold and other traditional assets, the store of Bitcoin requires no service fee, which to a certain extent reduced the large store service fee probably produced after large-scale asset allocation. At the same time, due to its incentive mechanism during transaction, the gap between the values of input and output can be taken as transaction service fee. Therefore, the nodes providing services will be encouraged and will endeavor to become honest nodes to acquire more possible tokens. Compared with other assets, Bitcoin has lower transaction service fee, which alleviates the hindrance to its acceptance of being an alternative asset for asset allocation10.

3.2 Bitcoin holding and investing increase

High liquidity, strong market demand and simple transaction requirement of Bitcoin will encourage more holding and investing in the future.

Compared with traditional assets like gold, national debt, and others, Bitcoin has higher liquidity which allows its global transactions on various digital platforms and in securities exchanges. More and more exchanges add Bitcoin to their tradable list, for example, NASDAQ issued assorted products on its platform to realize direct purchase and transaction of Bitcoin. The measures of these exchanges and platforms objectively offer guarantee for Bitcoin’s liquidity, ensuring good development for its investing and circulating ecology and at the same time offering investment orientation for individual investors and investment organizations.

As to market demand, the total cap of Bitcoin is 21 million of which 80% has already been excavated out and the rest kept decreasing. Considering the functions of payment, store, and others, its acceptance degree of being an alternative asset for asset allocation constantly climbs up. With adequate market demand and optimistic development trend, Bitcoin hopefully becomes a popular investment choice in the future.

4. Conclusion

As the earliest blockchain project, Bitcoin project has the highest original goals, the best technology foundation and the most profound industry experience in the blockchain industry, ranking first in all mainstream blockchain projects rating lists. It takes up a relatively large market share and undergoes good development, having a vast and bright prospect.

Viewing from the status quo of market development, Bitcoin market is getting warmer. Though its market cap has not yet returned to the peak level, both the 24-hour trading sum and daily confirmed trading volume increase steadily. As the active user population keeps growing, Bitcoin’s functions of payment, transaction, and others are more and more known to the public, and its alternative asset properties also make it a popular object for asset allocation. Therefore, Bitcoin has a good general development condition and obvious tendency to improve steadily.

As to the development prospect: firstly, with the increasing number of installed infrastructures related to Bitcoin exchange and purchase such as ATM, the Bitcoin-related transaction and exchange mechanisms are gradually perfected; secondly, as the transaction process accelerates and the speed tends to be stable, the Bitcoin-related technological problems are gradually solved. These all provide favorable support for Bitcoin’s further expansion on scale and growth in social influence.

Bitcoin has a stable prospect in future development, and its excellent alternative asset properties are daily recognized. Its effect in balancing risk and return of asset portfolio, and the advantages in liquidity and market demand, make it a good option for asset allocation in the future.

Based on the consideration above, TokenInsight decides to upgrade the rating grade of Bitcoin (BTC) from A to AA, with a stable outlook.












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