This is an op-ed by Chen Fang, COO of BitGO, a Bitcoin-focused regulated custody and financial services firm.
Challenge 2022 prompted Bitcoin skeptics to gleefully say “I told you so” and declare Bitcoin dead and buried. But, much to their dismay, they ended up having their victory lap premature. Bitcoin bounced back in 2023, ending these early celebrations and clawing back some of its losses in 2022 on a massive scale. annual gains of more than 60% As of this writing so far in 2023.
Here are three reasons why Bitcoin is back in 2023:
First: the disruption of the banking sector and the timely reminder of the value of Bitcoin
In March 2023, turmoil from the banking sector in the wake of the Silicon Valley bank collapse rocked the market with the kinds of problems not seen since the Great Recession. This was not a night flight operation. At the time, Silicon Valley Bank (SVB) was it Sixteenth largest bank in the United States And the bank of choice for many venture capitalists and startups.
This widespread collapse and the lack of proper risk management in SVB has led many individuals to question how safe their money is. Finally, the Federal Reserve I intervened to make the depositors of the bank completeBut the event still calls into question the health of the banking system.
While not everyone is in a rush to withdraw their money from banks, many people are now at least aware of the risks of a single point of failure and are moving to diversify their assets by splitting them up among several banks or even diversifying into alternatives such as Bitcoin and other cryptocurrencies for the first time.
The allure of a completely decentralized asset like bitcoin is that there is no CEO or management team in charge who could jeopardize the solvency of the bitcoin network by making a bad decision or bad judgement. Bitcoin users do not have to trust a company or management team to use Bitcoin; Instead, they can check out the open source code that governs the Bitcoin network. Any transaction made on the Bitcoin blockchain can be viewed by anyone, giving the network unparalleled transparency.
Bitcoin surged in March in the aftermath of the crisis, and in late April, renewed troubles at First Republic Bank, which reported that It lost more than $70 billion in deposits during the previous quarter It pushed bitcoin prices higher again, showing that investors and savers are clearly looking at it as a port in the storm amid the current uncertainty.
Second: adopting dollars on a global scale
In addition to the specific problems highlighted by the banking crisis, confidence in the dollar itself appears to be waning globally. Bitcoin is not the only indicator here; Precious metals such as Gold and silver are on the rise While the US dollar reserve currency held by other countries is at its lowest level in decades: from 73% in 2001 to 55% 20 later, in 2021, and fell to 47% by April 2022, According to economist Stephen Jane. yuan now The most traded currency in Russia While China and Brazil recently concluded an agreement to settle deals in yuan and real instead of dollars. Meanwhile, Malaysia is making similar deals with both India and China.
Former chief economist of Goldman Sachs Jim O’Neill – Who created the acronym BRICSreferring to the emerging economies of the time – Brazil, Russia, India, China and South Africa – which recently called on these countries to Challenge the dominance of the dollar in a new original currency. That ambition is probably a bridge too far at this point in time. As a commodity importer, China’s economic goals Not in line with commodity exporters such as Brazil and Russia. In addition to, Tensions between China and India It is suspicious that this may come together. However, it is another sign on the way towards de-dollarization globally. It’s not just the BRICS that are exploring their options — US allies like French President Emmanuel Macron recently warned that Europe should reduce its dependence on the US dollar To avoid becoming “affiliated”.
While none of this means that the end of the dollar’s era as a global reserve currency is guaranteed or imminent, it does paint a picture that individuals and countries are clearly looking for alternatives other than the dollar to diversify into.
The long-term effects of de-dollarization and the impact of the banking crisis on bitcoin are still being written, but it has made more people aware of bitcoin as a viable alternative to the current system, and has certainly acted as a catalyst for the price of bitcoin. bitcoin. In the immediate aftermath of the crisis, bitcoin jumped from Just under $20,000 on March 10, 2023 to over $30,000 just one month later on April 13, 2023, Gain 50% and add $200 billion to market capitalization in the process.
Third: Developing the ecosystem of the second layer
Alongside the rise of the Ordinals, Bitcoin has benefited from the further development of its Layer 2 ecosystem, with projects like Stacks and the Lightning Network. Stacks areLayer 2 companion chain for smart contracts Focused on Bitcoin (BTC) … allowing the creation of related financial products. At the time of this writing, Stacks Its market capitalization is nearly $1 billion It is close to the top 50 cryptocurrencies in market capitalization.
Recent upgrades to Stacks enable Stacks users to pledge their tokens to secure the network to earn rewards in a similar way to how networks like Ethereum enable participants to earn rewards by pooling their holdings. In this way, Stacks can end up bringing DeFi to Bitcoin.
In addition to Stacks, other Bitcoin Layer 2 protocols such as Lightning continue to grow. Lightning is focused on making Bitcoin more scalable. Recent research from Glassnode found that Lightning 1000 times cheaper than using legacy payment processors such as Visa and Mastercard. Glassnode’s James Check found that the fee for sending 1 BTC via the Lightning Network was 3,000 satoshi (the smallest unit of bitcoin), which equates to a $0.84 fee for sending $28,000 in dollars, or a fee as negligible as 0.0029%. The Strike payment app uses the Lightning Network to Facilitate transfers without fees From the United States to other countries, including Nigeria, Kenya, Ghana and will Soon to be introduced to the Philippines.
Bitcoin’s best days lie ahead
In addition to these macroeconomic factors, the next Bitcoin halving will come in 2024. Halvings occur approximately every four years and reduce the rewards for new Bitcoin mining by 50%, essentially increasing the mining difficulty score and reducing the supply of Bitcoin over time. Halvings have historically been bullish catalysts for bitcoin.
In the year 2023, between the changing macroeconomic landscape and the technical and developmental advancements surrounding the Bitcoin network, Bitcoin has proven that not only has it come back from the dead, but that its best days are likely still ahead of it.
This is a guest post by Chen Fang. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
