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The Bitcoin 2022 conference brought good news to proponents of bitcoin, with Lightning Network integrations the beginning of the end for the “it’s not a medium of exchange” argument.
- The first week of the second quarter was not without volatility, as positive news from the Bitcoin 2022 conference was overshadowed by Fed Minutes and a surge higher in interest rates
- Bitcoin and digital assets continue to be held hostage by macro sentiment amid rising correlations to the Nasdaq Composite
- The Bitcoin 2022 conference offered lots of good news for bitcoin investors, primarily the integration of Lightning Network and bitcoin as a payment option in major e-commerce and retailers across the US
THE BIRD'S EYE VIEW
The first week of the second quarter was not without volatility as positivity around the annual Bitcoin 2022 conference was overshadowed by a surge higher in interest rates following the release of the Federal Reserve’s March minutes.
While market participants have been aware of the Fed’s initiative to combat inflation, some members of the FOMC proposed a shrinking of the balance sheet to the tune of $60bn in treasuries and $35bn in MBS per month. This, along with an op-ed written by former NY Fed President Bill Dudley claiming “if stocks don’t fall, the Fed needs to force them,” was enough to send risk-assets in a spiral lower.
So for now, bitcoin, ether, and digital assets continue to trade on macro sentiment. With the 10yr treasury rising 32bps to 2.7% last week, bitcoin’s 30D correlation to the Nasdaq also returned to annual highs of 0.75. The tech heavy Nasdaq Composite declined 3.9%, while bitcoin declined 7% (to $43,125) and ether declined 5.8% (to $3,290) on the week.
The market’s focus on the Fed’s balance sheet run-off as well any implications for Tuesday the 12th CPI print ultimately overshadowed great news and remarks from the Bitcoin 2022 conference. Takeaways include:
- The rise and growth of renewable energy mining
- A presentation by (R-WY) Senator Cynthia Lummis outlining the bipartisan bill, The Responsible Financial Innovation Act, to further support innovation in the US
- Further legal tender status across the globe (Madeira and Prospera no longer pay capital gains on BTC, and a bill has been proposed in Mexico based on El Salvador’s law)
- Most importantly, retail and e-commerce integrations with the Lightning Network that make bitcoin a medium of exchange
Bitcoin’s “Lightning Network” (LN) is a layer two application that is built on top of the network and allows for fast and cheap payments through its architecture. Transactions occur on the Lightning Network and are only settled on the Bitcoin network when users withdraw their funds. This results in efficient and low-cost transactions of bitcoin that are settled nearly instantly.
Last week, Strike announced that LN is now integrated with Shopify (e-commerce platform), Blackhawk (payment processor), and NCR (the world’s largest point-of-sale system supplier).
Why’s this matter? Well, a medium of exchange can now be added to bitcoin’s use-cases.
Retailers and consumers do not need to own bitcoin to receive or accept the asset as a payment. These applications can swap fiat for bitcoin, use Lightning to transfer, and swap bitcoin back to the currency of the receiver’s choice.
With incentive for retailers to accept LN such as the avoidance of credit card fees, the impossibility of chargebacks, and more personal loyalty programs, this is the beginning of the end of the argument that bitcoin is not a “medium of exchange.” Retailers such as the ones below can now implement bitcoin payments in the coming months:
Tracking the performance and growth of Lightning Network can be done through monitoring the number of Lightning Network “channels” and its “capacity.”
Lightning Network “channels” enable users of the network to send and receive money to and from other participants. Any users can open channels to participate in the LN. Essentially, the Lightning Network is a web of these channels. If there is any channel route between two senders with sufficient capacity, payments can be sent through the network. There are nearly 83,000 channels to date.
Lightning Network “capacity” is the amount of bitcoin that is deposited into the LN and available for transactions. The larger the capacity, the more liquidity that is available for instant settlement. Currently, around 3,600 bitcoin is deposited into the Lightning Network, or ~$150,000,000.
While Lightning for now is better suited for smaller transactions, it complements Bitcoin’s layer one technology well, which has an average transfer size of ~$125,000.
BITCOIN HOLDING TRENDS REACH NEW HIGHS
While progress is being made on bitcoin as a medium of exchange, long-term holding trends also continue to strengthen.
Users continue to purchase bitcoin, remove from exchanges, and hold the asset in custody for longer and longer periods of time.
The percentage of supply held for longer than one-year has just hit an all-time-high of 63.7%.
A near all-time-high of 38.0% has been held for longer than three-years.
For long term investors, this reflects the continued and growing success of bitcoin as a “store of value.”
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Joseph Orsini, CFA
Director of Research
Key Market Data