In the short term, the trend of holding bitcoins and not trading bitcoins is becoming more and more obvious.
20,000, 30,000, 40,000, 50,000, 60,000...BTC is making history again. When Bitcoin was born in 2009, its concept was almost utopian, and even traditional banks called it "technical populism."
In the past few years, Bitcoin has continued to improve the network (such as increasing transaction speed, reducing fees, increasing privacy and security), showing a completely different situation from the 2017 high in terms of growth and technical status. This article analyzes why Bitcoin's 2021 high point will be different from 2017 through a multi-dimensional analysis of technology, law, and on-chain indicators.
1. Bitcoin technology maturity and acceptance
The birth of any new technology, especially a disruptive technology like Bitcoin, will initially be accompanied by hype. After the hype has subsided, the technology can be fully evaluated and reintroduced into the market.
In 2017, the $20,000 worth of Bitcoin was mainly caused by hype and FOMO sentiment. Early adopters were very interested in new technologies, but most of the interest came from speculators. After several years of consolidation and re-growth, whether from a legislative or technical point of view, Bitcoin has passed the initial hype period and is now in a mature stage. Bitcoin and the open source technology stack it relies on should not be regarded as "static technology", and the development of Bitcoin is continuous, and some will even greatly change the characteristics of the network.
The figure below is a typical life cycle of Bitcoin. Bitcoin has not been adopted by most early adopters, but it has stimulated the interest of early users, who now have richer stories to evaluate Bitcoin technology and its value proposition.
The traditional technology life cycle is embodied by four stages:
(1) Research and development stage;
(2) The rising stage, that is, the self-funded cost has been recovered, and the technical strength has begun to be accumulated;
(3) At the mature stage, the technology has stabilized;
(4) In the recession stage, after the technical availability is reduced;
Due to the unity of technology and the decentralized nature of the project, the current status of Bitcoin can be positioned in the ascending phase: the initial challenges have been solved, and the technology is relatively mature, which can prove its value. In fact, everyone can make suggestions for improving the Bitcoin network, which will be evaluated by the community. If a consensus is reached, it will be implemented on the network.
2. Legislative clarity and institutional investors
Legislative clarity and institutional investors are mutually reinforcing, and legislative clarity is an alternative investment in Bitcoin.
(1) Legislation of legalization
In 2017, with a few exceptions, legislation surrounding cryptocurrencies was almost non-existent. At present, more than 130 countries have issued laws or policies on Bitcoin, and cover the impact of cryptocurrency, from the classification and definition of terms, warnings to potential investors, payment restrictions, and supervision of ICOs.
Nevertheless, most national regulations are in the preliminary stage, and they are working hard to establish a comprehensive cryptocurrency legislation framework. On a global scale, in countries such as Malta, Switzerland, and Singapore, the most favorable legal framework for the development and growth of the blockchain ecosystem can be found.
(2) Institutional investors and Bitcoin
In 2017, cryptocurrency is considered to have a strong anti-system narrative, and its appeal to investor groups is rather small. On Wall Street, no one really talks about Bitcoin as an asset or investment. Many prominent investors such as Buffett, Bill Gates, and Jamie Dimon continue to describe Bitcoin as "rat poison" and therefore worthless.
Since its development, Bitcoin has been very different: a report by Grayscale (2020) depicts a completely different picture from 2017. The report shows that more and more investors are familiar with Bitcoin, and the annual growth rate has increased by 11%, even It is believed that Bitcoin is slowly being accepted by the mainstream. In 2020, more than 62% of users surveyed claimed to be “familiar” with Bitcoin.
While retail investors are paying more and more attention to Bitcoin, there are also more and more tools for institutional investors. Grayscale launched the Bitcoin Trust Fund, which allows investors to trade shares in the Bitcoin pool.
Of course, not all investment tools are the same. Options and futures are speculative on future prices and do not give investors ownership of Bitcoin. On the contrary, Grayscale and MicroServices directly purchased Bitcoins, have full ownership of them, and contribute to the supply and demand dynamics of the Bitcoin network. In the following list you can find all companies that invest directly or indirectly in Bitcoin.
Different investment tools will cater to the different risk exposures of each type of investor, contribute to a virtuous circle of benefits, and increase the availability of Bitcoin to traditional investors.
In addition, more and more investment tools, coupled with clearer legislation, have led to fundamental changes in investors’ perceptions of Bitcoin, which has contributed to the entire derivatives and credit market, as well as reducing the complexity and safety of Bitcoin holdings. Risk provides the possibility. Now, from a regulatory and practical perspective, it is much easier for institutional investors to hold and invest in Bitcoin . In the next few years, this trend is likely to continue, and Bitcoin will soon be seen as a "mainstream" alternative asset.
3. Bitcoin on-chain indicators
Since the issuance of Bitcoin is constant (6.75 BTC per 10 minutes on average), increased attention from retail and institutional investors is likely to lead to a substantial increase in demand and prices. In this context, this section mainly talks about the indicators on the Bitcoin chain, such as demand and supply, the number of Bitcoin holders, and the overall advantages of Bitcoin and altcoins.
(1) Bitcoin's dominance and altcoins
Bitcoin will increase by more than 160% in 2020, and it will extend to other cryptocurrencies. In the 2017 bull market, the driving force of Bitcoin price increase came from the phenomenon of ICO speculation. New coins were minted out of thin air, and most of them did not have any value proposition. Especially in December 2017 and January of the following year, the market value of the entire cryptocurrency market appeared. Irrational growth. During the peak of the hype in 2017, the annual market value of Bitcoin accounted for approximately 82% of the entire crypto market, and it was as low as 40% during December. Although Bitcoin has reached new highs, most other cryptocurrencies have not recovered from the bear market, and their valuations are now much lower than in history.
In view of the special properties of Bitcoin, Bitcoin has now split from other currencies. Cryptocurrency users have reached a silent consensus: Bitcoin is a currency, but other currencies are completely different.
(2) The Bitcoin network continues to grow
The Bitcoin network is stronger than ever, and its reputation status has been confirmed accordingly.
a. The hash rate of the Bitcoin network has reached a record high, which represents the total computing power provided by miners to maintain the network. As a decentralized peer-to-peer network, Bitcoin relies on electricity provided by miners to operate, and a high hash rate is a sign of the health of the Bitcoin network. The higher the hash rate, the more difficult it is for malicious actors to carry out 51% attacks on the network.
b. The number of bitcoin addresses continues to reach new highs. Today, there are more than 33 million wallets holding bitcoin balances, a 16% increase from the 28 million in January 2020.
4. Bitcoin holders VS traders
Another interesting indicator is the Bitcoin transaction balance. In a nutshell, it can be compared with the accumulated balance on the Bitcoin network, that is, the amount remaining after the transaction is executed.
According to the data, the average holding time of Bitcoin is 3.1 years. In addition, more than 21.9% of bitcoins (4 million BTC) have not moved in 5 years, 11.92% (2.2 million BTC) have not moved in 3-5 years, and 13% (2.5 million BTC) have not moved in 2-3 years .
Therefore, 64% of total Bitcoin addresses (>21 million) are considered holders, who have not moved their Bitcoins for a year, 24.5% (8 million) are considered hot money, and only 11% (3.7 million) Address) Bitcoin users are considered traders (<1 million). The overall trend shows that the trend of holding bitcoins and not trading bitcoins in the short term is becoming more and more obvious.
5. Bitcoin: a scarce and deflationary commodity
Over time, the finiteness of Bitcoin is often underestimated and is increasingly seen as a scarce commodity. Bitcoin's output is halved every four years. The most recent halving occurred in May 2020. The reward for miners for processing bitcoin transactions was reduced from 12 bitcoins per block to 6.75 bitcoins. Therefore, this also increases the cost of electricity production for a single Bitcoin. In order to make up for it, the reduction in supply is now being met by the increase in demand, which comes from retail investors and institutional players who have bought large amounts of Bitcoin.
Due to the characteristics of partition, portability, and scarcity, Bitcoin, as a store of value, is often compared with gold. Due to its deflationary nature, Bitcoin is also a safe haven. It can be used for remittances, international trade, or to pay for necessities. If traditional fiat currencies continue to experience high levels of inflation and volatility in the future, then more people will regard Bitcoin as a safe asset, and wealth will be protected from economic fluctuations and inflation.
To sum up
Bitcoin has a history of 12 years. It is the most secure financial network in the world. It has a normal operation time of more than 99%. It has never been hacked. It is increasingly legalized by regulatory agencies and used as an alternative Assets have attracted the attention of retail and institutional investors.
The technology stack behind Bitcoin is very atypical: open source, decentralization, and encryption. This is the foundation of network decentralization and privacy protection. One point that needs to be emphasized is that whether it is technology, legislation, or the application of Bitcoin as a technology and currency, it is always in progress. It cannot be considered that Bitcoin is immutable. Doing so seriously underestimates its flexibility.
There is no way to predict the future adoption or price of Bitcoin. On the contrary, it can be predicted that the world will gradually become accustomed to Bitcoin. In the end, countries will slowly pass through the cycle of rejection and acceptance, recognize the value of Bitcoin, and formulate corresponding legislative frameworks; the network will be in speed, security, and practicality. Continuous improvement in the area, creating more investment tools, covering all investors.
Lead image: Unsplash
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