Is Bitcoin Dead? Here’s What The Fundamentals Show

The price of bitcoin
BTC
is down 55.55% year-to-date, leading to speculation that it is dead and its price will never recover. Over the past year, it has fluctuated between a high of $68,789 and a low of $17,708, confirming its extreme volatility and giving Bitcoin critics plenty of evidence to back up their claim that Bitcoin is not more viable.

According to Bitcoin content website 99 Bitcoins, 17 credible news sources and celebrities have announced that Bitcoin is dead in 2022, with the latest article coming from the left-leaning American magazine Jacobin.

If the price of oil – another raw material – collapsed by 55.55% in six months, would you say that oil is dead? Any reasonable oil market stakeholder would consider oil market fundamentals such as demand, supply, government policies, competing energy sources, etc. Should all factors turn out to be relatively positive, the price decline would start to look like an opportunity. So what are the most important Bitcoin fundamentals to keep in mind?

Bitcoin hash rate

This refers to the total amount of computing power used by the Bitcoin network. It helps Bitcoin stakeholders estimate the level of network decentralization and security. According to digital asset company Blockchain.com, the Bitcoin hash rate has been trending up and it hit an all-time high on June 12, 2022.

This indicates that the amount of computing power dedicated to supporting the Bitcoin network is near an all-time high and the Bitcoin network has never been more secure.

When Bitcoin’s price fell below $20,000 two weeks ago, some miners were mining Bitcoin at a loss, according to cryptocurrency ranking platform CryptoRank.io. In other words, the cost of mining a bitcoin was significantly higher than the price of bitcoin. So why would miners push the hash rate to an all-time high when the value of each bitcoin mined was near or below the cost of production?

Bitcoin supply

Bitcoin supply is limited to 21 million coins. Bitcoin’s total supply, however, is just over 19 million, with the remaining two million yet to be mined. Around one million bitcoins mined by Satoshi Nakamoto never left their initial wallet and are believed to be locked forever.

People have misplaced the private keys to their Bitcoin wallets over the years. If the keys are never retrieved, the Bitcoin stored in these wallets may be lost forever. This means that there are many more Bitcoins out of circulation. This makes Bitcoin the most difficult asset to obtain as it is expensive to produce more (read mining), and there is a market capitalization of 21 million.

Institutional adoption of bitcoin is on the rise, and more and more institutions are looking to add some level of bitcoin exposure to their balance sheets. This is an indication that the supply will tighten.

The Bitcoin Lightning Network

This refers to a second layer built on top of the Bitcoin network that allows Bitcoin transactions to take place outside of the blockchain. It speeds up transactions and reduces transaction costs. The Lightning Network solved Bitcoin’s scalability problem. The world can use the Lightning Network to execute millions of Bitcoin transactions per second and make micropayments at extremely low transaction fees.

According to Arcane Research’s The State of Lightning Volume 2 report, the Lightning layer is rapidly becoming the technology behind bitcoin becoming the native currency of the internet as the number of users increases dramatically. exponential and the number of flash transactions approaches 4,000 Bitcoin.

Paco De La India, an Indian traveling 40 countries in 400 days using only Bitcoin, is one of the best examples of the power of the Lightning Network. He is currently on day 282 and frequently uses Bitrefill to spend Bitcoin on the Lightning Network. Bitrefill is a fintech company that lets you buy products and pay for services by taking your Bitcoin equivalent and paying the seller in their native currency.

Regulation of digital assets

Governments around the world are easing their stance on digital assets and putting in place regulatory frameworks to capitalize on this technology. While some governments, like El Salvador and the Central African Republic, pursue wide-scale adoption, others simply regulate cryptocurrency exchanges and tax cryptocurrency earnings.

The most notable regulations are Australia’s two bitcoin ETFs (exchange-traded funds), Binance’s license in Dubai, spot bitcoin ETF The Purpose in Canada, and the European Union’s current legislative package to govern digital assets.

The majority of companies looking to add Bitcoin exposure to their balance sheet are unable to do so due to their respective government’s ban on Bitcoin transactions or lack of regulatory framework.

As more jurisdictions establish a regulatory framework for digital assets, more institutions and individuals will have the confidence and appropriate structures to adopt Bitcoin and other digital assets.

The factors mentioned above have not reasonably changed negatively to support a massive price drop. There are other factors affecting Bitcoin such as the correlation with stocks which could be used to explain the massive price drop, but the fundamentals relating to the Bitcoin network and its uses seem to be improving over time. Obviously, the factors discussed above indicate that Bitcoin is not dead.

Cryptocurrency exchanges may also have contributed to the massive price drop by practicing rehypothecation and selling paper bitcoins to unsuspecting customers. Recent moves by major crypto exchanges limiting the ability of customers to withdraw their assets indicate that customer claims on exchanges exceed assets held by exchanges.

Disclosure: I own bitcoins and other cryptocurrencies.

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Is Bitcoin Dead? Here’s What The Fundamentals Show


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