Written by: Yves, Head of Trading at Wirex
The Bitcoin price reached today its lowest levels since October 12th, trading at $53,950. This is a 22% correction from the BTC/USD all-time-high. The price of the main cryptocurrency is now down by 12% in November. The short term ‘technical’ correction explained in last week’s article is now fuelled by the emergence of a new wave of the COVID-19 virus, with a new dangerous variant observed in South Africa.
The emergence of the fifth wave is weighing on both cryptocurrency and traditional markets as the major European Equity index (SX5E Index) lost nearly 3% today, and 4.5% this week. New worldwide travel restrictions and lockdown measures are expected. The economic consequences of such restrictive actions before the holiday season could be disastrous.
Earlier this week, the negative sentiment started by Tuesday’s listing of a bill that could prohibit all private cryptocurrencies in India. The “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” was mentioned in the Lok Sabha general bulletin with the following purport:
‘To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.’
The cryptocurrency market has already survived the Chinese ban. There is no reason to believe that it won’t survive a potential Indian ban.
Positive reports remind us that adoption is growing regardless of looming regulatory restrictions. Blockdata issued a report this week that compares Bitcoin’s processed volume to the volume processed by the largest centralized payment processors, namely Paypal, Mastercard and Visa. The quarterly volume of BTC on-chain transactions has already surpassed Paypal’s volume of payment transactions, although the report points out that Bitcoin’s processed volume does not only include payments, but more generally currency transfers. The report is an attempt to analyze the evolution of on-chain transfers, against some established references. Among its most relevant observations:
‘If bitcoin were to increase its value transferred per transaction today by ~260% [or 540%], then the Bitcoin network would be processing an equivalent volume to the Mastercard [respectively VISA] network on a daily basis.’
‘if bitcoin were to rise in price by ~260% [or 540%] today, to $245k [or $435k], then the Bitcoin network would theoretically be processing an equivalent in volume to the Mastercard [respectively VISA] network on a daily basis’
With only a few transactions per second, the Bitcoin blockchain transaction speed is nowhere near the 1,700 transactions per second that VISA can process. Without an increase in price or size of Bitcoin transactions, or any technological upgrade, the Bitcoin’s network would never be able to compete with Mastercard and VISA.
However, the report doesn’t look into the layer 2 solutions that are meant to facilitate micro-payments and increase throughput. In particular, the lightning network capacity in BTC is still growing, standing now at its all-time-high: 3,282 BTCs. This is the amount of Bitcoins that is being held by the 16,749 nodes. It is the amount of BTCs users can move through the network’s 79,959 channels. Running a node is hardly profitable: the satoshis (sats) earned don’t cover the setup and running fees. It is only profitable if it is used for actual transactions as this solution avoids the substantial fees that are still paid on the native blockchain.
Source: bitcoinvisuals. Daily lightning network capacity in BTC (in red), and USD (in blue)
The population of El Salvador has been successfully transacting Bitcoins via the lightning network. The success of the Bitcoin legal tender is driving the government to invest more on the first cryptocurrency. It is now planning to build the ‘first Bitcoin City’, revealed during the BitcoinWeek six days ago. More specifically, the president Nayib Bukele announced his plan to raise a billion dollars to invest in Bitcoin (50%) and build the Bitcoin City (50%).