Chapter 1 : Market outlook
carcity , lower inflation Chart 4 : Lightning Network capacity nears 5,000 BTC dule
alternative stores of value like gold . While gold contains many of the properties found in bitcoin like durability , fungibility and to an extent , portability ; there remain questions over its true scarcity . Recent discoveries , notably 31 million tonnes of gold ore in Uganda in June 2022 , aptly demonstrate that the earth may have far more reserves than natural scientists traditionally estimated .
Neither has gold been a particularly effective inflation hedge : in the most inflationary period for over 40 years in most western economies : between March and September 2022 , the precious metal lost 15 % of its value .
Lightning strikes twice
Source : Tradingview
Source : ETC Group
Bitcoin ’ s use cases from store of value to cross-border currency have shifted over the past few years as critics have come to appreciate that it is a truly groundbreaking work of computer science , comparable with the protocols that underpin the modern internet .
Recall the title of bitcoin ’ s whitepaper : A Peer to Peer Electronic Cash System .
To dismiss bitcoin as mere Veblen goods — those luxury , scarce , status symbol items where demand rises as their price rises — is to ignore another key element of bitcoin ’ s utility : as a way to send value over the internet nearinstantly . And quite apart from its store of value credentials , the cost to actually use the bitcoin network is at its lowest since 2020 .
Such criticism also conveniently ignores one of bitcoin ’ s key properties : divisibility . Unlike national currencies , bitcoin is divisible to eight decimal places , and can be divided into units as small as 0.00000001 BTC , which makes it perfect for online micropayments .
And just as ethereum has its own Layer 2 scaling solutions , such as polygon and optimism , that improve transaction throughput and reduce transaction fees , so too bitcoin has its own second technological layer .
This is the Lightning Network , which sits above the bitcoin base layer and dramatically expands its payments capability . The service
pulls computationally-intensive transaction processing away from the main bitcoin blockchain , drastically reducing fees to a mere fraction of a cent .
There remains much work to do . Even while the capacity of the Lightning Network has been growing rapidly , at almost 5,000 BTC it remains a fraction of the total 19 million BTC that currently exist .
But financing is starting to flood into this area . In May 2022 a16z , the largest venture capital funders in the blockchain space , added $ 175m of Series A financing to the David Marcus-founded development firm Lightspark . Investors may recognise Marcus as the co-creator of Meta ’ s now shelved Diem project .
There is further value-add in bitcoin ’ s utility that has not yet been explored to its full potential . And Bitcoin is not a simple static asset : it is a foundational technology layer upon which many new applications can be built .
So while the world will look much different in April 2024 , the next bitcoin halving will be upon us . Who would be willing to bet against its success ?
Tom Rodgers is head of research at ETC Group
Source : Bitcoinvisuals