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Growspace Research: Bitcoin (BTC)

Updated: Dec 13, 2022


Bitcoin is the first successfully implemented cryptocurrency, created by a mysterious figure/group named Satoshi Nakamoto. The Bitcoin whitepaper was published on October 31st, 2008. It was designed to provide the world with an alternate decentralized peer-to-peer payments system not controlled by any government or corporate organization, with predefined rules and economic policy. But, as time passed, it has become more of an asset, a store of value to be precise, than a currency. Bitcoin created the first mechanism that enabled sending value across borders at the speed of information, without the need of any trusted mediators, along with complete reliability and high security.

How does Bitcoin work?

The Bitcoin blockchain is quite analogous to a shared/distributed ledger that keeps an updated record of all transactions in the form of multiple copies. Coming to the specifics, a blockchain does not have a central point of failure or storage, it's stored across multiple systems/computers called nodes. Each node's copy of the blockchain contains the same data and is updated every time a new validated change is made to the blockchain. A blockchain contains transactions arranged in a chronological order forming an immutable chain of blocks (the data structures which store the transaction data). Blocks have limited storage capacity. Note that each block contains a link to the previous block, effectively chaining them in order. When new transactions are verified, new blocks are added to the blockchain by a process called 'Mining'. At a very high level, bitcoin miners have to solve computationally complex mathematical problems. The first one to solve the problem gets to validate transactions and collect the block rewards and transaction fees (more on this later). This is also how new bitcoins enter into circulation. New transactions waiting to be verified wait in a virtual place called 'mempool'. Every transaction has a mining fee, and the transactions with the highest fees are generally processed first.

A key element which enables bitcoin transactions is a bitcoin wallet. A wallet has a public key and a private key. The public key acts like your public address, similar to an email address. Anyone willing to transact in bitcoin with you would need your public key. The private key is what you need to access your bitcoin wallet.

Value Proposition

Bitcoin was the first electronic payment method that enabled any 2 willing parties to transact directly without needing a trusted mediator/third party like banks. Bitcoin has all the characteristics of money, namely:

  1. Durability- Bitcoin doesn't have a single point of failure. It can't be destroyed unless you can switch off the internet forever (not a practical scenario).

  2. Fungibility- Each Bitcoin is equivalent in value.

  3. Scarcity- There are only 21 million Bitcoins that will ever exist, and no more can be created.

  4. Acceptability- Bitcoin adoption has skyrocketed since its inception. Today you can easily exchange Bitcoin for other cryptocurrencies or fiat currencies.

  5. Portability- You can easily carry all your Bitcoin holdings on a smartphone.

  6. Divisibility- Bitcoin is more divisible than fiat currencies. A single Bitcoin can be divided up to eight decimal places. The smallest unit of Bitcoin is called Satoshi.

1 Satoshi = 0.00000001 BTC

Today, Bitcoin has become more of an asset than a currency due to exceptional appreciation in its value.


The first Bitcoin block, the 'Genesis block', was created on 3rd January 2009. Today (5th September 2022), there are 19,141,856 bitcoins in circulation. Bitcoin's total supply is algorithmically capped at 21 million, i.e., only 21 million Bitcoins could ever exist.

Bitcoin's tokenomics depends on two main supply forces: block rewards (inflationary) and halving (deflationary). Block rewards refer to the Bitcoins a miner gets on successfully adding a new block to the Bitcoin blockchain. This is also how new Bitcoins enter into circulation. These block rewards get halved after the creation of 210,000 new blocks (roughly every four years). This process of periodic reduction in the block rewards by half is called Halving. Since the last halving, which happened in May 2020, miners have been getting 6.25 BTC for successfully mining a new block. This halving of block rewards reduces the selling pressure of Bitcoin as miners will have lesser and lesser Bitcoins to sell as time progresses. Bitcoin has already gone through 3 halvings since 2009 and will continue to go through this process until all 21 million Bitcoins have entered into circulation. Post this, there will be no block rewards for validating transactions. The last block of the Bitcoin blockchain is expected to be mined around the year 2140.


Above chart displays the halving process, represented by the sharp reductions in block rewards (red).


The above chart shows the number of Bitcoins in circulation vs time. As more blocks are mined, the circulating supply is rising but at a slower rate because the block rewards are getting halved close to every 4 years.

Business Model

Miners are the key players in the Bitcoin ecosystem. The process of mining Bitcoin is energy-intensive and thus costly. So, miners are compensated for validating transactions through block rewards and transaction fees.

Miners' revenue = Block rewards + Transaction fees

An important point to note is that the inflationary block rewards are reduced through each halving and will become zero when all the 21 million bitcoins have entered into circulation. Post this, transaction fees will be the only source of revenue for bitcoin miners.


Although technically Bitcoin does have competitors in the store of value category (like Bitcoin cash, Litecoin, Dogecoin and more) which offer functionalities similar to BTC, no currently existing cryptocurrency has the level of adoption and brand value as that of Bitcoin. In the real sense of the word, Bitcoin is the indisputable king of the crypto world. Out of the ~$970 million market cap of crypto (as of 5th September 2022), Bitcoin alone represents over 38% of it, and no other cryptocurrency comes even close to that. Ethereum is the runner-up representing nearly 8% of the total crypto market cap (as of 5th September 2022).


Key Metrics

1. MVRV ratio

Source: Glassnode

MVRV ratio is the ratio of Bitcoin's Market capitalization to its realized capitalization. It has been a good indicator of the market's overall condition as Bitcoin represents a significant portion of the whole crypto market cap (~ 40%).

Bitcoin's MVRV<1 has historically coincided with crypto market downturns, indicating good times to scoop up BTC at low prices.

2. Number of addresses with non-zero bitcoin

Source: Glassnode

The above chart shows the growth of unique wallet addresses with non-zero BTCC, indicating Bitcoin's growing adoption.

3. Bitcoin miner revenue chart


The above chart shows the cumulative revenue of Bitcoin miners, consisting of block rewards and transaction fees. Periods of high fees indicate peak usage as out of total revenue's two components, block rewards and transaction fees, block rewards stay constant for a period of ~4 years till the next halving. The variability in revenue is coming due to the transaction fees component, which increases when more users compete to get their transaction added into the blockchain (thus are willing to pay more fees than the others).

4. Transaction Fees

Source: Token Terminal

The above chart shows the monthly transaction fees paid by Bitcoin users, a part of bitcoin miners' total revenue.

5. Bitcoin/Gold ratio


The Bitcoin to gold ratio has been on an overall increasing trend since inception.

Growspace Thesis

  • Bitcoin is at the absolute top of the cryptocurrency market hierarchy, with it alone representing almost 40% of the total crypto market capitalization.

  • Bitcoin is the cryptocurrency with the highest retail and institutional adoption. It's held by 38 public companies and countries including El Salvador, Ukraine, Finland, and Georgia (as of 17th August 2022). Even the big institutional players' (like Blackrock, the world's largest asset manager) involvement in the digital assets space is mostly focussed on Bitcoin and related products for it being the most mature and secure digital asset (Bitcoin has never been hacked, not even once).

  • Bitcoin is a great store of value, even beating gold on some parameters like absolute scarcity and portability. Gold is scarce, but we do not have an exact figure for how much gold actually exists, whereas Bitcoin is algorithmically capped at 21 million BTC and no more can be created). Also, Bitcoin is much easier to carry and transfer than gold, giving it the status of 'Digital Gold' in the crypto community.

  • Only a fixed amount of Bitcoins could ever exist (= 21 million BTC), and the inflationary pressure over time will decline due to the halving of block rewards, resulting in reduced BTC selling pressure. This would be making Bitcoin relatively more valuable than before as time passes.

Bitcoin has the strongest brand value and trust among all digital assets. With the increase in the number of investors allocating a portion of their portfolio to digital assets, Bitcoin will almost always be the starting point for them before adding any other cryptocurrency. Because of this, the value appreciation of Bitcoin is very clearly visible as crypto gains more adoption.

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