Written by: Yves, Head of Trading at Wirex
The Bitcoin price rebounded this week from the low $34,630 on Saturday to $41,341 on Tuesday, recording the highest level since May 21st. The BTC/USD price jumped by 10% on Sunday after Elon Musk tweeted that Tesla would resume accepting Bitcoin as payment when ‘there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend’. Elon Musk also confirmed that only ~10% of the carmaker’s BTC holdings were sold to confirm that the holdings can be ‘liquidated easily’.
Elon Musk’s tweets, combined with the timing of his sale, could reasonably be construed as market manipulation by one of the best influencer of this generation. The billionaire was charged in the past by the Securities and Exchange Commission (SEC) for allegedly manipulating the price of the Tesla share with a tweet sent on August 7th 2018: this tweet mentioned that he could take ‘Tesla private at $420 per share’ when the price of the stock was only quoting around $70. Elon Musk agreed then to settle the SEC charge for $40 Million two months later.
The cryptocurrency market is not regulated by the SEC. But the recent action against Ripple Labs, and the rumours of an investigation around Elon Musk’s tweets promoting the DOGE cryptocurrency, would certainly hint towards a growing involvement of the US government agency in the sector.
Meanwhile, these tweets are clearly raising concerns among the community. The Bitcoin Mining Council (BMC) was created and officially launched on June 10th to answer the concerns that recently sent the Bitcoin price more than 40% below its all-time-high: educate and promote the use of sustainable clean energy. The organization was born after Michael Saylor, CEO of Microstrategy, hosted a meeting with North American miners and Elon Musk. The meeting was held behind closed doors, which fostered a slight feeling of suspicion against the group. Marty Bent, the founder of Great American Mining, reasonably questioned the object of the meeting in light of a similar event that previously shook the sector, namely the Segwit2X upgrade. This upgrade was conceived in New York in 2017, also by miners, and also behind closed doors. It was competing against the Segwit upgrade supported by developers… tragically starting the war of two Segwits.
The Segwit2X upgrade was meant to increase the Bitcoin block size limit, while the Segwit upgrade supported by the developers was meant to delegate part of the miners workload (hence part of their revenues) to sidechains. Eventually, the lack of consensus and the approval of Segwit forced the Segwit2X leaders to give up. The proponents of a larger block size moved on to create the Bitcoin Cash.
Bitcoin is not Bitcoin without its developers, and no upgrade would happen without the miners approval. The former are looking after the interests of their corporate backers, and the latter are looking after their own interests. Even though miners are the only ones voting, they would never risk losing the developing team. After the war, four years passed without any major upgrade, and the power struggle between miners and developers is still the current status quo.
From this perspective, the BMC initiative doesn’t look very reassuring as there is always a chance that it might revive another Bitcoin war… But this week proved that the existing stakeholder balance is not backward-looking, far from it: the Taproot upgrade, the first major upgrade since Segwit, was approved by over 90% of the Bitcoin miners. The upgrade also contributed to the price rally observed last week-end.
The Taproot upgrade improves on the P2SH upgrade (Pay-To-Script-Hash) that lets a user define the required conditions to spend Bitcoins, namely after a specific date (timelock), or with a set of private keys (multisig). Validating a conditional transaction would require a status check of all the conditions involved: the process is considered data heavy, especially if we intend for the blockchain to handle more complex conditions. Also the validation process is not safe as it needs all the contract’s participants and conditions to be revealed.
Taproot will replace P2SH with a more efficient solution that makes a transaction, regardless of its complexity, always look like the simplest peer-to-peer transaction. In other words, the signatures of all participants, as well as the conditions behind the transactions, are all aggregated into one single signature that is used to validate the transaction.
The Taproot upgrade is scheduled for November this year, and it will make smart contracts on the Bitcoin blockchain cheap and scalable. It will benefit the network and all its users. Above all, the upgrade sends a strong signal to all current and potential investors that Bitcoin can and will adapt reasonably to serve the interests of the community, and not the interests of the few.
The Bitcoin price is still struggling to go above the $41,000-$42,000 range, but with the currently positive fundamental outlook, it could reach new records by the end of the year.
data taken at 10:01 am 18/06/2021
The above is an opinion piece and therefore should not be taken as financial advice. Please do your own research thoroughly when looking at Cryptocurrency.