Bitcoin Leading The Market

The Blockchain Sector @ 2023-01-18

James Bachini

Jan 18, 2023

Bitcoin has been leading the market for the first time in a while this last week, as markets rallied. I think it’s worth revisiting why Bitcoin remains an important part of my digital asset portfolio.

The Bitcoin Revolution

The creation of Bitcoin in 2008, by an anonymous developer, was a response to the global financial crisis and a way to separate money from the control of governments and central banks. Bitcoin aimed to solve the problems of fiat currencies and the irresponsible management of fiscal monetary policy by central governments, which had led to greater wealth inequality and the erosion of value from fiat currencies.

There are a fixed supply of 21 million Bitcoins that can ever be produced, unless the code is edited, which is a point beyond contentious debate. While many cryptocurrencies have been launched since Bitcoin, none have achieved the same level of decentralization and censorship resistance as the original. In fact, there are very few things that governments can't shut down, but the Bitcoin network, with its extreme computing power and electrical usage, has evolved into a system that is now beyond censorship by any single entity.

One of the unique aspects of Bitcoin is its pureness and simplicity. It doesn't change, add new features, or follow a strict roadmap to compete with the latest developments in the industry.

Bitcoin provides a shared, decentralized data set of who owns what and allows users to transfer funds from one person to another. The development team has a strict policy of backward compatibility, ensuring that older clients will still run and work on the network even with minor upgrades. This dogma about the code base makes Bitcoin extremely resilient.

There is no other asset in the world that has behaved like Bitcoin, with its dramatic price fluctuations. When Bitcoin does its thing, it is a spectacle to watch the 1 minute candles.

The robustness of the Bitcoin network suggests that it may be around for a very long time, and even without continued adoption, the devaluation of fiat currencies due to inflation and quantitative easing means that the price relative to the US dollar could potentially appreciate over a sustained period of time.

It is still early days for the Bitcoin network, which was only recently recognized as a legitimate asset class by institutional investors. However, the industry has shot itself in the foot with the creation of Ponzi schemes and outright fraud, such as Terra and FTX, which have caused reputational damage and set the industry back. Despite this, Bitcoin is robust enough to withstand these short-term influences and, in 20 or 30 years, the drama will likely be forgotten and people will still be using it for transactions and as a store of value.

There are some legitimate questions about the long-term sustainability. Bitcoin can carry out a maximum of 3 transactions per second (less than the 7 often quoted according to a BTC core dev). As the halving reduces mining fees to almost zero the miners will only be compensated with fees which if you do the maths means either fees need to go up or throughput needs to increase.

Scaling is a contentious subject and the last attempt at increasing capacity through the increase in block size lead to a big falling out between network stakeholders and the fork of Bitcoin Cash in 2017.

Bitcoin is still too volatile to be used as a store of value for many market participants however over time the market cap will go up and the volatility go down. Fiat currencies will devalue which will make Bitcoin “go up in price” relative to the dollar which will increase interest and adoption creating cycle after cycle of appreciation.

The more mature the market and sector becomes the lower volatility we should see as well which will make it more attractive to everyday users looking for a non-inflationary store of value.

Bitcoin was built to separate state and finance. It was seminal to the entire industry that I enjoy working in today. It will always be elegantly simple and provide unrivaled decentralization and all the benefits that come with it.

Markets

BTC/USD is in an ascending triangle which looks like it wants to go higher with another leg up in the coming weeks. However the obvious trade means there are going to be a lot of stops under the 20k support level which could provide an attractive target.

Market sentiment seems to have shifted and now any remaining side-lined participants waiting to buy at $12-$14k are going to be feeling some FOMO. A dip back and wick into that $20k stop liquidity would provide a interesting entry as there’s arguably an additional support level at $19k which could provide a risk defined trade.

Markets are already up 37% from the bottom in November 2022, let’s hope that the new year brings a new bull run. I still think it will ultimately be up to the Federal Reserve and we may be getting a bit ahead of ourselves as the SP500 sits at resistance.

More about the macro influence on crypto markets here: https://jamesbachini.com/crypto-market-thesis-2023/

Solidity Developers

I wrote up a blog post and done a video about debugging Solidity smart contracts. It’s one of the areas where I think we will see a lot of improvement over the coming years.

https://jamesbachini.com/debug-solidity/