Crypto

Is Bitcoin lagging behind? – Opinion

*By Christian Gazzetta

In the dynamic crypto landscape, Bitcoin (BTC) can seem sluggish. Especially in such a busy year for Ethereum (ETH), with Merge, the first zk-rollups and several launches with NFTs, but without big headlines about the technology of the main cryptocurrency.

But the giant is in no hurry: after thirteen years of validation and improvements, Bitcoin has reached levels of validation and demand unparalleled among crypto assets.

In addition, the development of complementary technologies and the regulatory scenario help to build a favorable position.

Next, we will see the factors that justify optimism about the future of Bitcoin.

Value offer

Bitcoin is a digital payments platform. Its decentralized technology allows anyone to transfer values ​​over the internet at any time, regardless of access to traditional financial services.

Furthermore, Bitcoin has characteristics of a good store of value. Its offer expands in a predictable and decreasing way, becoming scarce with the growth of demand; transaction fees are independent of transferred amounts, being especially advantageous for high volume transactions; and the transparency of its registration makes it easy to audit BTC values.

These and other characteristics seem to justify a growing demand for bitcoin as a store of value. In the chart below, the pink area illustrates the share of bitcoins sitting for at least 2 years, currently close to 45%. The growth of this portion signals the use of the asset as a store of value for the long term.

Tabela 1 2
Source: Hashdex

Long-term demand has contributed to impressive results: bitcoin was one of the only global assets – and the only crypto asset – to reach US$1 trillion in market value, taking just 12 years to reach that mark (Google and Apple took 21 and 42 years, respectively).

Validations

Back in 2008, it was hard to believe that a forum of computer scientists and mathematicians could propose a coin with the impact and scale of today’s Bitcoin.

But, in the last more than 13 years, the network has shown what it came to. It remained active for 99.98% of the time; proved to be immune to hacking attempts and the failure of large companies in the sector; and it took just 6 months to overcome a 56% drop in mining computational power (hash rate) after mining was banned in China (graph below).

Tabela 2
Source: Hashdex

Cryptocurrency has also overcome the incredulity of rulers, regulators and market benchmarks such as Warren Buffett and Jamie Dimon. After years of being criticized as a pyramid, an asset with no intrinsic value, a useless speculative asset, and even a Chinese device to fight US hegemony, Bitcoin is no longer controversial as it once was.

Even environmental criticisms, centered on the energy consumption of its mining, are losing steam: studies reveal that the Bitcoin network consumes 56 times less electricity than the traditional payment system – you can learn more about Bitcoin’s environmental impact in this article.

Institutional scenario

The exhaustion of criticism seems to coincide with the advance of institutional adoption: since 2020, two countries have adopted Bitcoin as legal tender; several ETFs and ETPs have been launched in countries such as Brazil, USA, Switzerland and Canada; asset manager BlackRock ($10 trillion under management) launched a BTC trust for institutional clients; and different options for retirement funds invested in cryptocurrency emerged.

Tabela 3
Source: Hashdex

And there’s still room to grow: the long-awaited regulatory clarity is coming for investors around the world, with the highlight being the relative speed of regulators in Latin America and Europe.

In the US, the crypto sector may be affected by authorities’ questioning of stablecoins, tokens governance and utility, but Bitcoin is already recognized as a commodity – which frees it from any problems if it were considered a security.

Complementary technologies

Another important factor for Bitcoin to continue to grow is the development of its ecosystem. While the first blockchain continues with its simple proposal, to process digital payments, there is a list of complementary technologies bringing more usability to the platform.

One of the highlights is the Lightning Network, which leverages Bitcoin’s technical capability through payment channels. The solution already has more than 15,000 active participants and 80,000 channels, with a payment capacity of over US$100 million.

The Bitcoin network can still be used to circulate other assets, with the implementation of the Taro protocol and the stablecoins backed by BTC made possible by Fuji Money.

Conclusion

Bitcoin is a network on the rise. Despite the relative simplicity of its technology, it has been adopted by many of the largest institutions on the planet and evolved into its emerging digital store of value thesis.

In this scenario, increasing regulatory clarity and the development of complementary technologies are paving the way for their mass adoption. Meanwhile, investors with a long-term focus tend to benefit from the growing demand for the market’s leading crypto asset.

These and other arguments were explored in depth in the article “Old but Not Obsolete: The Importance of Bitcoin in the Dynamic Crypto Landscape”, by Hashdex Research.

*Hashdex editor with a degree in Economics from UFRJ, he has been dedicated to learning and teaching about crypto since 2017. In recent years, he has led study groups and lectured at events such as Bitconf, in addition to organizing debates and lectures with representatives of entities such as IBM, CVM, ITS Rio, Bitcoin Market and Foxbit.

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