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Bitcoin is back, back, back, baby
Take a look at the front page of CoinDesk today and you could be forgiven for thinking that our site is all about Bitcoin.
Just look at the headlines: BTC is above $50,000. What options traders bet on $75,000. Bitcoin’s market capitalization is back above $1 trillion. Bitcoin ETFs have been piling up $11 billion since it was approved in the United States in January. It is the Fear and Greed Index, a measure of market sentiment into “extreme greed” territory.its most effervescent moment since BTC’s all-time high in September 2021. Bitcoin is even a campaign meme.
Bitcoin is dominating narratives, dominating media coverage and dominating mindshare among investors, especially institutional ones. Of course, important projects like Solana (SOL) and Chainlink (CONNECTION) they are also increasing in value. But this is largely a bitcoin-driven market. Bitcoin “dominance,” a measure of BTC’s edge relative to the rest of cryptocurrencies, remains at around 50%, making claims that bitcoin would reduce its relevance as cryptocurrencies expand laughable. In November 2022, BTC’s share fell below 35%.
Of course, Wall Street money flows into exchange-traded funds (ETFs) are the driving factor here. The prospect of ETFs has been an enticing catalyst throughout 2023, as U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler inadvertently confused the market by delaying approval. Bitcoin has benefited from being one of the few digital assets clearly classified as non-security for regulatory purposes. Almost all other assets suffer from some regulatory uncertainty.
And then there’s the upcoming “halving” in April, when the rewards for mining bitcoin blocks will be halved. Halvings have historically increased the price of bitcoin, although the last one (in 2020) was less positive in this sense compared to previous ones (in 2016 and 2012).
This year’s halving may be more encouraging, given the sense that the Bitcoin network is becoming more useful and broader-based.
“Despite near-term miner revenue challenges, fundamental on-chain activity and positive market structure updates make this halving different on a fundamental level,” crypto asset manager Grayscale She said in a research note last week. “Although it has long been heralded as digital gold, recent developments suggest that bitcoin is evolving into something even more significant.”
By “fundamental on-chain activity,” Grayscale researcher Michael Zhao means ordinal inscriptions and BRC-20 tokens, which allow users to embed data (and art) on the Bitcoin blockchain, offering a use case that goes beyond its traditional role as digital gold. This activity generated more than $200 million in cumulative commissions for miners, reducing the pain they will suffer when rewards are halved in April.
Projects like BRC-20 have divided the Bitcoin community between those who want to keep Bitcoin as a digital gold network for relatively cheap monetary transactions (these people hate higher transaction fees) and those who want to build new features on the Bitcoin blockchain, as OP_CAT AND Drive chains.
We’ll see how these divisions play out in the coming months (the role of Wall Street’s new players in this debate will be fascinating to watch). But, for now, Bitcoin is doing well: an open source blockchain with hundreds of millions of users, from the smallest HODLers to the largest financial institutions trading BTC-based derivatives. Not bad for a project that started as a hobby 15 years ago.