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 American left-wing based magazine Jacobin.
If the price of oil – another raw material – collapsed 55.55% in six months, would you say that oil is dead? Any reasonable stakeholder in the oil market would consider the fundamentals of the oil market, such as demand, supply, government policies, competing energy sources, etc. If all factors turned out to be relatively positive, the price drop 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 decentralization and security of the network. According to digital asset firm Blockchain.com, the Bitcoin hash rate has been on an upward trend, reaching an all-time high on June 12, 2022.
This indicates that the amount of computing power dedicated to supporting the Bitcoin network is trending close to its all-time high and that the Bitcoin network has never been more secure.
When the price of Bitcoin dropped below $20,000 two weeks ago, some miners were mining Bitcoin at a loss, according to cryptocurrency ranking platform CryptoRank.io. That is, 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 close to or less than the cost of production?
The supply of Bitcoin is limited to 21 million coins. However, the total supply of Bitcoin is just over 19 million, with the remaining two million yet to be mined. About a million bitcoins mined by Satoshi Nakamoto never left his initial wallet and are supposed to be locked forever.
People have lost the private keys to their Bitcoin wallets over the years. If the keys are never recovered, the Bitcoin stored in those 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 because it is expensive to produce more of (read mining), and there is a strict market capitalization of 21 million.
Institutional adoption of Bitcoin is on the rise, with more institutions looking to add some level of Bitcoin exposure to their balance sheets. This is an indication that the offer is going to be reduced.
Bitcoin Lightning Network
This refers to a second layer built into the Bitcoin network that allows Bitcoin transactions to take place outside of the blockchain. Speed up transactions and reduce transaction costs. 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, Lightning Layer is fast becoming the technology behind Bitcoin becoming the Internet’s native currency, as the number of users grows exponentially and the number of lightning transactions increases. close to 4,000 Bitcoin.
Paco De La India, an Indian who traveled to 40 countries in 400 days using only Bitcoin, is one of the best examples of the power of the Lightning Network. He is currently at day 282 and frequently uses Bitrefill to spend Bitcoin on the Lightning Network. Bitrefill is a fintech company that allows you to buy products and pay for services by taking your Bitcoin equivalent and paying the provider in your native currency.
Regulation of digital assets
Governments around the world are softening their stance on digital assets and establishing regulatory frameworks to capitalize on this technology. While some governments, such as El Salvador and the Central African Republic, pursue large-scale adoption, others simply regulate cryptocurrency exchanges and tax cryptocurrency earnings.
The most notable regulations are Australia’s two spot Bitcoin ETFs (exchange-traded funds), Binance’s Dubai license, The Purpose Bitcoin spot ETF in Canada, and the current European Union legislative package to regulate digital assets.
Most corporations 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 a regulatory framework.
As more jurisdictions establish a regulatory framework for digital assets, more institutions and individuals will have the trust and proper 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 correlation with stocks, that could be used to explain the massive price drop, but the fundamentals related to the Bitcoin network and its uses seem to be improving over time. Clearly, the factors discussed above indicate that Bitcoin is not dead.
Cryptocurrency exchanges may also have contributed to the massive price drop by remortgaging 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 are higher than assets held by exchanges.
Disclosure: I own bitcoin and other cryptocurrencies.