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The robustness of the Bitcoin network is continuously strengthened, the consensus group is getting larger and larger, and it has the ability to quickly repair in a crisis.
Original title: “Interpretation | Bitcoin breaks $15,000: what can’t kill me will only make me stronger”
Written by: Ann Hsu, Chief Index Analyst, Chain Hill Capital
“If you can’t kill me, it will only make me stronger.”
This article was written in mid-October 2020. At that time, the price of Bitcoin was reported at 10,414 US dollars per coin. As of press time, Bitcoin has exceeded 15,000 US dollars per coin, and continues to hit new highs. Bitcoin is writing tenacious in a new chapter. vitality.
Taleb defines the meaning of “anti-fragility” in the book “Anti-fragility”, which refers to the characteristics of things that not only benefit from chaos and volatility, but also need such chaos and volatility to survive and achieve prosperity. Looking back on the history of Bitcoin, it has vividly demonstrated the powerful nirvana rebirth ability with repeated “death” events: the robustness of the Bitcoin network after undergoing regulatory suppression, plummeting, hard fork, and various doubts It has been continuously strengthened, the consensus group has grown larger, its value has been continuously recognized, and it has the ability to quickly repair in a crisis. These all reflect the anti-fragility of Bitcoin.
Bitcoin was killed more than 300 times
As early as 10 years ago, major media and some social celebrities would send obituaries to Bitcoin at regular intervals. Every time the price drops, there will be news of the death of Bitcoin in the market. For example, when Bitcoin is supervised by various countries, the media chants that Bitcoin should be returned to zero; when a black swan event occurs in Bitcoin, Bitcoin will appear again in the market. Voices of nothingness, Ponzi scheme, no value support, etc. In the past 11 years, Bitcoin has been declared “dead” by all walks of life accumulatively up to 377 times (data as of 2019).
The number of times Bitcoin was declared dead by the media (as of 2019), Source: Block Rhythm
Some cases where Bitcoin was declared dead, source: 99bitcoins
More than a decade has passed, how is Bitcoin now developing? How does the media claim that it is about to zero or die? We might as well observe the current development status of Bitcoin from the dimensions of the security of the Bitcoin network, the number of user groups, the attitudes of traditional investment institutions to Bitcoin, and the ability to repair Bitcoin prices.
Network robustness continues to increase
As of mid-October, Bitcoin’s entire network computing power has exceeded 140EH/s, setting a new historical high (Note: EH/s refers to the 18th power of 10 per second, and 140EH/s means having 14 per second Multiply the computing power by 10 to the 19th power).
Bitcoin network computing power, source: coinmetrics
The computing power of the Bitcoin blockchain network has experienced several short-term callbacks, and then the computing power has reached a new high. Behind the continuous investment of computing power by miners is the affirmation of the network consensus and recognition of future development potential. Computing power is the core of the security of POW cryptocurrency. The higher the computing power level, the more miners participating in maintaining the blockchain network, the more difficult it is for the network to be attacked, and the stronger the network’s robustness.
At present, there are more than 100,000 Bitcoin network full nodes (nodes that save the complete data of the Bitcoin blockchain) in the world, of which 10677 can be reached. These nodes are scattered in all corners of the world, and they are responsible for verifying transaction information on the Bitcoin blockchain. The more the number of nodes and the more scattered, the more robust the network.
Bitcoin global node distribution, source: bitnodes
The user base continues to expand
After the end of the last big bull market, a large number of high-level investors were forced to cut their meat and leave the market in the cold winter of the currency price. As a result, a large number of Bitcoin addresses were emptied, and the number of active addresses and non-zero addresses continued to decline. Since 2020, despite the violent volatility of Bitcoin under the influence of the new crown pneumonia and the global financial market, due to the arrival of the third halving and the deteriorating international economic environment, the demand for hedging has been boosted by more and more investors. Pour into the Bitcoin market.
We can see one or two from the growth status of the number of non-zero addresses. The increase in the number of non-zero addresses is an important concrete indicator of the expansion of user groups and the general bullishness of the market. The number of non-zero addresses is the number of unique addresses that hold positive (non-zero) coins. The growth of the number of non-zero addresses does not necessarily reflect a substantial increase in the number of users, but the large-scale growth of the user population is usually accompanied by an order of magnitude jump in the number of non-zero addresses . At present, the number of non-zero addresses of Bitcoin has exceeded 31 million, which has increased by tens of millions compared with the number of 21 million addresses at the end of 2018. It has a strong indication that the user base is expanding.
The number of bitcoin non-zero addresses, source: glassnode
Another important prerequisite for the growth of the user base is whether or not the regulatory authorities of various countries are friendly to Bitcoin, which determines the breadth of the Bitcoin user group. From the data of coindance, it can be seen that among the 257 countries and regions in the world, 129 countries or regions that are friendly to Bitcoin (legal) account for 50%; there are 120 countries or regions that restrict the development of Bitcoin. It accounts for 47%; and only 8 countries or regions that characterize Bitcoin as illegal, accounting for less than 8%; Obviously, the attitude of most countries to Bitcoin is allowed to develop, which is undoubtedly the Bitcoin user group Expansion provides good soil.
The legality of Bitcoin in various countries (green represents legal, orange is restricted, and red is illegal), source: coindance
Value recognition continues to increase
Traditional investors’ acceptance of Bitcoin has continued to improve, and their recognition of the value of Bitcoin has gradually transformed into practical actions. The cryptocurrency trust fund Grayscale’s investment in Bitcoin has continued unabated. In the third quarter, the amount of funds flowing into the Grayscale Bitcoin Trust Fund (GBTC) reached 719 million US dollars, with an average weekly inflow of 55.3 million US dollars. At present, the trust fund holds a total of more than 450,000 bitcoins, and the holdings account for 2.4% of the circulating bitcoins. Based on the current bitcoin-to-dollar price of 11,400 USD, the holdings are worth about 5.13 billion U.S. dollars.
Grayscale Bitcoin Trust Fund’s weekly inflow of funds in the third quarter of 2020, source: grayscale
Grayscale Bitcoin Trust holdings and Bitcoin price, source: pro.bybt.com
These investors participating in the investment of Bitcoin trust funds are mainly investment institutions in traditional fields, including mutual funds, hedge funds, venture capital funds, etc., including the famous Rothschild Investment Corporation. In addition, there are qualified investors, pension accounts, family offices, etc.
Grayscale Bitcoin Trust’s investor structure for the third quarter of 2020, source: grayscale
In addition to gray scale, overseas listed companies are also actively building positions and increasing their holdings of Bitcoin. The listed company MicroStrategy spent US$425 million to purchase 38,250 bitcoins, and Twitter’s brother company Square invested US$50 million to purchase 4709 bitcoins at a time. In addition, as early as the second quarter of this year, the Tudor Fund under the famous Wall Street fund manager Paul Tudor Jones announced its entry into the Bitcoin market. The “Medical Medal” fund under the famous quantitative fund Renaissance Technology won the regulatory authority to enter the bitcoin market. Futures license in the currency market.
Bitcoin holdings of public companies/institutions, source: bitcointreasuries.org
These financial institutions and listed companies in the traditional field have allocated their assets to Bitcoin, an alternative asset, which strongly reveals to the outside world a signal: Bitcoin is valuable. They are prejudiced to see the low or even irrelevant characteristics of Bitcoin and traditional assets, and they have the ability to withstand the risks of economic fluctuations in depth, especially the ability to hedge against the devaluation of the credit currency purchasing power of central banks.
Crisis quick repair capability
In March 2020, the cryptocurrency market was affected by the resonance of the global financial market. Bitcoin experienced a short-term and rapid decline, with a drop of more than 40% within 24 hours, becoming the biggest black swan event in the Bitcoin market this year.
However, it took less than 2 months to restore the price of Bitcoin to its pre-crisis level. From the perspective of the strength of the rebound, Bitcoin is more price elastic than traditional assets such as gold, U.S. stocks (S&P 500 Index, Nasdaq 100 Index), and real estate trust funds, not only taking the lead in recovering the decline , The rate of return even outperformed the above-mentioned categories of assets. As of October 10, 2020, Bitcoin’s annual growth rate has been 58%. During the same period, the Nasdaq 100 index was only 34%, the S&P 5007 index was up 7.6%, gold was up 27%, and the real estate trust fund market’s average growth rate was- 10%.
Annual trend comparison between Bitcoin and traditional major assets, source: Tradingview
Three types of factors cause people to misunderstand Bitcoin
Facts have proved that not only did Bitcoin fail to die as planned according to the media’s intentions, but it developed smoothly. Bitcoin has vividly demonstrated its powerful nirvana rebirth ability with repeated “death” events. After undergoing regulatory suppression, plummeting, hard forks, and various doubts, the robustness of the Bitcoin network has been continuously strengthened, and the consensus group The greater the coming, the continued recognition of value, and the ability to quickly repair in a crisis are all manifestations of Bitcoin’s anti-fragility. There are three reasons why people have misunderstandings about Bitcoin:
We live in a centralized world. Most people’s wealth is kept by banks. Our credit needs a third party to prove it for us. Our knowledge system needs school diplomas or skills certificates to prove it. Our daily life has become accustomed to relying on the trust of a third party and has formed cognitive inertia, which has been accumulated over thousands of years. Once switched to the uncentralized Bitcoin world, many people cannot escape from the existing cognitive inertia.
For ordinary people, the threshold for learning Bitcoin is quite high. The underlying knowledge structure of Bitcoin involves economics, monetary science, computer science, cryptography, game theory, etc. For most people, a deep understanding of Bitcoin requires at least a relatively objective understanding of these fields at the same time. The threshold is quite high. People are lazy, learning difficult knowledge is tormenting, and anyone who can be comfortable does not want to be comfortable, so this is anti-human.
The reason why many investors choose to invest in Bitcoin after hesitating for a long time is not because they understand the ingenious design principles of Bitcoin and the deep-level economic logic behind it, but because friends around them are wealthy from investing in Bitcoin free. Because it has not formed its own cognitive framework, coupled with the inability to identify the risks, it is easy to form wrong judgments. Buying bitcoin at a high level in a period of time causes losses or strays into the scam set by scammers. One of the important reasons for the public’s serious misunderstanding of Bitcoin is one of their own investment mistakes or witnessing the investment mistakes of relatives and friends.
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