Why Bitcoin is not dying …
Bitcoin is a B-, up from the C+ that originally set off the great firestorm of protest among Bitcoin lovers all over the world.
So, don’t be surprised if you hear a similar uproar next week. Maybe even outcries like “I told you so” or “Weiss has finally caved.”
Baloney! Our C+ rating wasn’t a bad grade to begin with. And our B- is not such a great grade, either. On our numerical score, the difference between them is just a few decimal points.
Plus, at the risk of sounding like a broken record, let me repeat what we’ve said since the very first day:
1. Our ratings can change frequently — in both directions. So, don’t be surprised by future upgrades and downgrades.
2. Our ratings are designed primarily for investors. Therefore, the grades also reflect risk and reward metrics, based on relative price volatility. It’s not the primary driver of each grade. But it isthe primary driver of ratings changes.
Relative to other coins, Bitcoin’s price pattern has been more stable in recent weeks. Plus, there’s one technology/fundamental reason as well, although only a small piece of the puzzle: We note an increase in Lightning Network adoption.
Last month, in our Bitcoin whitepaper, we explained it this way: “In any scenario we’re aware of, we see some roadblocks to Lightning Network adoption. While we continue to monitor its progress with interest, our Technology Index is not designed as a crystal ball of future upgrades, but as a tool to evaluate the state of the art as it stands today. Thus, as soon as the Bitcoin network becomes more efficient, our ratings model, updated daily with new performance data, will reflect the improvement.”
Lightning now adds elements of privacy. This improvement is not a dramatic one, and the technology is still far from cryptospace mainstream. Nor does this mean we now consider Bitcoin a “privacy coin.” But this week, it was time to add points to Bitcoin’s score to reflect some progress that has been made on the Lightning Network mainnet.
Why Bitcoin (and Cryptocurrencies Overall) Are Not Dying
After getting burned and burned again, you’d think the naysayers would eventually learn that cryptocurrencies aren’t going away.
How many times have you heard so-called “experts” come out and declare that “Bitcoin is dead,” only to later eat crow or go silent?
Bitcoin Obituaries says it’s 263 times and counting.
As evidence for the “Bitcoin-is-dying” thesis, some like to cite falling numbers of Bitcoin transactions.
It’s the lowest it’s been in over two years, reports Bloomberg.
This means Bitcoin is going into a long-term bear market, they argue.
“Bitcoin is dying,” chimes in the chorus of naysayers once again.
The Real Data Behind Bitcoin Transactions
We were the first to cover this story when we published our Bitcoin whitepaper explaining the C+ rating we gave it at the time.
We pointed out that, as the price of Bitcoin falls, so does usage on its network. Bitcoin was being used mostly for speculation. So, when the bull market takes a break, we wrote, most investors will lose interest and move on. That’s what has happened.
But Bitcoin is NOT dying. It’s still an ultimate store of value. It’s still the benchmark for cryptocurrencies overall.
Meanwhile, I think the folks behind the Bloomberg story are looking at the data incorrectly. They rely on a chart that uses a seven-day moving average of transactions on the Bitcoin network:
Good for smoothing out data? Maybe. But when you do that, you can also lose what could be very important data points.
So, let’s use the same data source Bloomberg uses. And let’s look at the raw number of transactions on the Bitcoin Network:
The red circles highlight the lowest transaction levels we’ve seen in recent times.
The takeaway: When you use the raw data, it turns out that on-chain transactions for the Bitcoin network are as low as they’ve been since August 2017, not the lowest in “over 2 years.”
That’s not just a technical difference. It underscores a fundamental principle: Usage is holding at a base level despite Bitcoin’s real-world challenges we’ve pointed out and despite any attempts to resurrect the old “Bitcoin-is-dead” thesis.
You may be wondering: What happened in August 2017?
Another price decline! Nothing more. Specifically …
1. Bitcoin transactions set new highs in late May 2017.
2. Prices then topped out in early June.
3. Prices touched bottom in late July.
4. And then transactions recovered soon thereafter.
Interestingly, in that cycle back in 2017, prices recovered before transactions. So, what mostly drove people back into Bitcoin was a rising price. Not much else!
This time around, Bitcoin is again taking a breather. But its transaction and price behavior is similar to last time. And perfectly normal.
Bitcoin’s transaction and price behavior is in line with typical behavior we almost always see on the Bitcoin network.
This doesn’t wash away our concerns about Bitcoin, mind you. We still find it rather troubling to see such a high correlation between on-chain transactions and price action.
It continues to suggest the main use case for Bitcoin today is a vehicle for speculation. And we’d like to see more real adoption of this currency.
That said, we feel the need to call this to the attention of investors: This is NOTHING we haven’t seen before with Bitcoin. It’s same old, same old.