Three Reasons Behind Bitcoin’s 2023 Resurgence

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This is an opinion editorial by Chen Feng, COO of BitGo, a bitcoin-focused regulated custody and financial services firm.

A challenging 2022 prompted bitcoin skeptics to gleefully say “I told you so” and declare that bitcoin was dead and buried. But, much to his chagrin, his victory lap ended prematurely. Bitcoin Is Back in 2023, Ending These Premature Celebrations and Massively Reclaiming Some of 2022’s Losses Gains of over 60% year-on-year So far in 2023 as of this writing.

There are three reasons behind the 2023 resurgence of bitcoin:

One: A timely reminder of the turmoil in the banking sector and the value of bitcoin

In March 2023, the banking sector turmoil in the wake of the collapse of Silicon Valley Bank rocked the market with the kind of issues it had not experienced since the Great Recession. This was no fly-by-night operation; At that time, Silicon Valley Bank (SVB) was 16th largest bank in the United States And the bank of choice for many venture capitalists and startups.

This high-profile explosion and the lack of proper risk management at SVB led many to question how safe their money was. Finally, the Federal Reserve Steps taken to make the depositors of the bank wholeBut the incident still raised questions about the health of the banking system.

While not everyone is rushing to get their money out of the banks, many people are now at least aware of the risks of a single point of failure and are better off splitting their assets between multiple banks or in alternatives such as bitcoin. Moving forward to diversify. and other cryptocurrencies for the first time.

The appeal of a completely decentralized asset like bitcoin is that there is no CEO or management team in charge who can jeopardize the solvency of the bitcoin network by making bad decisions or bad judgment calls. Bitcoin users do not need to trust any company or management team to use Bitcoin; Instead they can verify the open-source code that governs the bitcoin network. Anyone can view any transaction made on the bitcoin blockchain, giving the network unmatched transparency.

The price of bitcoin soared in March in the wake of the crisis, and in late April there was renewed trouble at First Republic Bank, which reported that it Deposits lost over $70 billion during the last quarter Bitcoin price has moved higher again, indicating that investors and savers are clearly viewing it as a port of call amid the current uncertainty.

Two: Demonetization on a Global Scale

In addition to the specific problems exposed by the banking crisis, global confidence in the dollar itself appears to be waning. Bitcoin is not the only indicator here; precious metals like gold and silver are up While the USD reserve currency held by other countries is at its lowest level in decades: from 73% in 2001 to 55% 20 later, in 2021, and to 47% by April 2022, According to economist Stephen Jane, yuan is now Most traded currency in Russia While China and Brazil recently entered into an agreement to settle trades in yuan and real instead of dollars. Meanwhile, Malaysia is striking similar deals with both India and China.

Jim O’Neill, former chief economist at Goldman Sachs Who coined the acronym BRICSReferring to the then emerging economies of Brazil, Russia, India, China and South Africa – these countries were recently called Challenging the Hegemony of the Dollar With a new domestic currency. This ambition is likely to be a bridge too far at this point. As a commodity importer, China’s economic goals Not aligned with commodity exporters like Brazil and Russia. Ahead, Tension between China and India Question the possibility of it coming together. Still, it’s another sign on the road towards global demonetization. It is not just the BRIC countries that are exploring their options – US allies such as French President Emmanuel Macron recently warned that Europe should reduce your dependence on the US dollar To avoid becoming a “vassal”.

While none of this means that the end of the dollar’s reign as the global reserve currency is guaranteed or imminent, it paints the picture that individuals and nations are clearly looking for non-dollar alternatives to diversify. Looking for.

The long-term effects of dedollarization 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 it will certainly act as a catalyst for the price. Works in bitcoin. In the immediate aftermath of the crisis, bitcoin soared More than $20,000 on March 10, 2023 At least one month later More than $30,000 on April 13, 2023 gaining 50% and adding $200 billion to its market capitalization in the process.

Three: Layer 2 ecosystem development

Along with the rise of Ordinals, bitcoin has benefited from the further development of its layer 2 ecosystem, through projects such as Stack and the Lightning Network. heaps”Layer 2 peer chain for smart contracts Focused on Bitcoin (BTC)… allowing the creation of related financial products. At the time of this writing, Stacks has a market cap of about $1 billion And is getting closer to the top-50 cryptocurrencies by market capitalization.

Recent upgrades to Stack enable Stack users to stake their tokens to secure the network in order to earn rewards, similar to how network participants like Ethereum do by staking their holdings. Enables you to earn rewards. In this way, Stack could eventually bring DeFi to bitcoin.

In addition to Stack, other bitcoin layer 2 protocols such as Lightning continue to grow. Lightning is focused on making bitcoin more scalable. Recent research by Glassnode found that Lightning is 1,000 times cheaper than using older payment processors such as Visa and Mastercard. Glassnode’s James Check found that the fee to send 1 BTC on the Lightning Network was 3,000 satoshis (the smallest unit of bitcoin), which in dollar terms equated to a $0.84 fee to send $28,000, or a tiny fee of just 0.0029%. . Payment app Strike uses the Lightning Network free transfer facility from the United States to other countries including Nigeria, Kenya and Ghana and will soon introduce it to philippines,

bitcoin’s best days are ahead

Apart from these macroeconomic factors, the next bitcoin halving is coming in 2024. Halving occurs every four years and reduces the rewards for mining new BTC by 50%, essentially increasing the degree of mining difficulty and reducing the supply of bitcoins over time. , Halvings have historically been a catalyst for bullish momentum for bitcoin.

In 2023, amid a changing macroeconomic landscape and technological and developmental advances surrounding the bitcoin network, bitcoin has proved that, not only is it back from the dead, but its best days are likely to come.

This is a guest post by Chen Fang. The opinions expressed are solely his own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.