Three Factors Behind Bitcoin Resurgence In 2023

Bitcoin has made a remarkable comeback in 2023, defying the skeptics who declared its demise in the previous year. The resurgence of Bitcoin can be attributed to several key factors that have contributed to its significant gains so far this year.

One : Turmoil in the Banking Sector

A Timely Reminder of Bitcoin’s Value The banking sector experienced turmoil in March 2023 following the collapse of Silicon Valley Bank (SVB), a prominent institution that served as a banking choice for venture capitalists and startups. This event raised concerns about the safety of traditional banking systems and prompted individuals to question the security of their funds.

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The lack of proper risk management at SVB highlighted the risks associated with relying on a single point of failure. Bitcoin, as a decentralized asset, gained appeal during this period of uncertainty. Unlike traditional banking systems, Bitcoin operates without a central authority that can jeopardize its solvency through poor decision-making. The transparency provided by the Bitcoin blockchain allows users to verify transactions, eliminating the need to place trust in a company or management team.

As a result, more people have started diversifying their assets by exploring alternative options like Bitcoin and other cryptocurrencies, leading to increased demand and a surge in Bitcoin prices.

Two : Global Dedollarization

Diminishing Faith in the Dollar The faith in the US dollar as a global reserve currency has been dwindling on a global scale. This trend is not exclusive to Bitcoin but is also evident in the rising demand for precious metals like gold and silver.

Additionally, countries holding USD reserves have significantly decreased over the years. Former Goldman Sachs Chief Economist, Jim O’Neill, has called for emerging economies to challenge the dominance of the US dollar by introducing a new native currency. While this goal may face obstacles, it highlights the growing exploration of alternatives to the dollar.

The ongoing process of dedollarization, combined with the banking crisis, has made individuals and nations seek non-dollar alternatives for diversification. Although the end of the dollar’s reign is not guaranteed, this shift has increased awareness of Bitcoin as a viable alternative and has played a significant role in driving up its price.

Three : Development of the Layer 2 Ecosystem

Bitcoin’s resurgence has also been supported by the further development of its Layer 2 ecosystem, including projects like Stacks and the Lightning Network. Stacks, a Layer 2 companion chain for smart contracts focused on Bitcoin, allows for the creation of related financial products. The recent upgrades to Stacks have enabled users to stake their tokens and earn rewards, resembling the concept of decentralized finance (DeFi) seen in other networks like Ethereum.

Moreover, the Lightning Network, another Bitcoin Layer 2 protocol, aims to enhance scalability. Research has shown that Lightning is significantly cheaper compared to traditional payment processors like Visa and Mastercard. The adoption of Lightning by payment applications like Strike facilitates no-fee transfers, expanding Bitcoin’s usability and attractiveness as a global medium of exchange.

BITCOIN’S BEST DAYS ARE AHEAD

Anticipating Bitcoin’s Bright Future In addition to the aforementioned factors, Bitcoin’s upcoming halving in 2024 adds to its bullish prospects. Halvings occur approximately every four years, reducing mining rewards by 50% and gradually reducing the supply of Bitcoin.

Historically, halvings have served as catalysts for Bitcoin’s price growth. Taking into account the changing macroeconomic landscape, technical advancements, and developmental progress within the Bitcoin network, it becomes evident that Bitcoin’s best days are still ahead. The resilience and potential of Bitcoin make it an asset worth considering for investors and individuals seeking financial alternatives in an evolving global economy.

Note: This article is an opinion editorial by Chen Fang, the COO of BitGO, a Bitcoin-focused regulated custody and financial services firm.