Bitcoin’s 2023 resurgence has three reasons.
This is an opinion editorial by Chen Fang, the COO of BitGO, a Bitcoin-focused regulated custody and financial services firm.
In 2022, Bitcoin skeptics were quick to declare the death of Bitcoin and take a victory lap. However, to their chagrin, Bitcoin has made a roaring comeback in 2023, with a massive year-to-date gain of over 60% as of this writing, taking back some of its 2022 losses.
Here are three reasons behind Bitcoin’s resurgence in 2023:
One: Banking Sector Turmoil And A Timely Reminder Of Bitcoin’s Value
In March 2023, the banking sector experienced turmoil following Silicon Valley Bank’s collapse, which was the sixteenth-largest bank in the United States at the time. This high-profile implosion and the lack of proper risk management in place at SVB led many individuals to question how safe their money was. This event called the health of the banking system into question.
As a result, more people are diversifying their assets by splitting them between multiple banks or even diversifying into alternatives like bitcoin and other cryptocurrencies for the first time. The appeal of a fully decentralized asset like bitcoin is that there is no CEO or management team in charge that can endanger the solvency of the Bitcoin network by making a bad decision or poor judgment call.
- Learn from crypto’s decentralization ethos for AI governance.
- Michael Novogratz predicts Bitcoin will surge by year-end.
- Should a Bitcoin wallet have rights? – Condensed version.
The price of bitcoin surged in March in the wake of the crisis, and in late April, renewed troubles at First Republic Bank propelled bitcoin prices higher yet again, showing that investors and savers view it as a port in the storm amidst the current uncertainty.
Two: Dedollarization At A Global Scale
Faith in the dollar itself seems to be dwindling globally. Bitcoin isn’t the only indicator here; precious metals like gold and silver are surging while USD reserve currency held by other countries is at its lowest level in decades. China and Brazil recently struck an agreement to settle trades in the yuan and real instead of in dollars. Meanwhile, Malaysia is making similar deals with both India and China.
While none of this means that the end of the dollar’s reign as the global reserve currency is guaranteed or imminent, it does paint the picture that individuals and nations are clearly looking for non-dollar alternatives to diversify into.
The long-term effects of dedollarization and the banking crisis’ effect on Bitcoin is still being written, but it has made more people aware of Bitcoin as a viable alternative to the current system, and it has certainly served as a catalyst for the price of bitcoin.
Three: Development Of The Layer 2 Ecosystem
With the rise of Ordinals, Bitcoin has benefited from the further development of its Layer 2 ecosystem through projects such as Stacks and the Lightning Network. Stacks is a “Layer 2 companion chain for smart contracts focused on bitcoin (BTC) … allowing for the creation of related financial products.” At the time of writing, Stacks has a market value of nearly $1 billion and is approaching the top-50 cryptocurrencies in market capitalization.
Recent upgrades to Stacks enable users to pledge their tokens to secure the network to earn rewards in a manner similar to how networks like Ethereum enable participants to earn rewards by staking their holdings. In this way, Stacks could ultimately end up bringing DeFi to Bitcoin.
In addition to Stacks, other Bitcoin Layer 2 protocols like Lightning continue to grow. Lightning is focused on making Bitcoin more scalable. Recent research from Glassnode found that Lightning is 1,000 times cheaper than using legacy payment processors like Visa and Mastercard. Glassnode’s James Check found that the fee for sending 1 BTC across the Lightning Network was 3,000 satoshis (the smallest unit of bitcoin), which was the equivalent of an $0.84 fee to send $28,000 in dollar terms, or a minuscule fee of just 0.0029%. Payment application Strike uses the Lightning Network to facilitate no-fee transfers from the United States to other countries, including Nigeria, Kenya, and Ghana, and will soon offer it to the Philippines.
Bitcoin’s Best Days Are Ahead
In addition to these macroeconomic factors, the next Bitcoin halving is coming up in 2024. Halvings occur roughly every four years and reduce the rewards for mining new BTC by 50%, essentially increasing the degree of mining difficulty and reducing the supply of bitcoin over time. Halvings have historically been bullish catalysts for bitcoin.
In 2023, between a changing macroeconomic landscape and the technical and developmental advances surrounding the Bitcoin network, Bitcoin has proven that not only is it back from the dead, but its best days are likely still ahead of it.
This is a guest post by Chen Fang. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.