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Factors leading to the recent bullish spike in investor sentiments for Bitcoin
In recent weeks, Bitcoin has been experiencing a remarkable rally, despite the collapse of the Silicon Valley Bank (SVB) and the troubles faced by other financial institutions. In fact, Bitcoin had its best week since January 2021, which has left many investors wondering why this is the case.
There are several reasons why Bitcoin is rallying, including a growing mistrust in banks, macroeconomic tailwinds, and technical factors. Let's take a closer look at each of these factors in more detail.
One of the primary reasons why Bitcoin is rallying is due to the growing mistrust in banks. Many people are beginning to realize that the money they deposit at banks is not entirely their own, but rather a loan to the bank. Banks use this money to make loans to other customers or invest in yielding assets like bonds. However, if the bank fails, depositors may not recover all their savings. This realization has caused many people to turn to alternative forms of currency that are decentralized and transparent.
Bitcoin, in particular, is decentralized, meaning it is not controlled by any authority or intermediary. All transactions are recorded on the public blockchain, making them transparent and immutable. Additionally, Bitcoin is portable, meaning it can be transferred across borders and platforms. If you hold BTC in a private wallet, you are shielded from counterparty risk, which makes it an attractive alternative to traditional banking systems.
Furthermore, Bitcoin is benefiting from macro tailwinds. Unlike fiat currency, which can be printed at scale, Bitcoin's supply is programmed to shrink, which makes it less likely to be devalued by future money printing or manipulation by central banks. Investors are starting to realize that central banks may unleash new stimulus measures, such as slashing interest rates or launching huge-scale asset purchases, which makes Bitcoin more attractive compared to traditional fiat currencies. Similar to gold and Treasury bonds, Bitcoin also benefits strongly from falling interest rates and increased liquidity, which explains why all three assets have performed strongly since SVB's collapse.
Finally, Bitcoin is likely benefiting from technical factors. There has been evidence of a short squeeze, which occurs when prices rise, and short-sellers are forced to close their positions, creating additional buying pressure and continuing the cycle. Bitcoin may also be benefiting from flows from stablecoins being converted to Bitcoin.
According to CoinMarketCap, the total market capitalization of Bitcoin is currently around $1.1 trillion. The price of Bitcoin reached an all-time high of $64,863.10 on April 14, 2021, before falling back down to around $50,000. However, it has since climbed back up to around $60,000.
Furthermore, the number of Bitcoin wallets holding 1 or more BTC has been steadily increasing over the past few years. According to Glassnode, the number of addresses holding 1 or more BTC hit an all-time high of 824,193 on March 31, 2021. This represents a significant increase from just a few years ago when the number of addresses holding 1 or more BTC was in the low hundreds of thousands.
Additionally, the number of companies and institutions investing in Bitcoin is also increasing. For example, Tesla announced in February 2021 that it had invested $1.5 billion in Bitcoin and would accept Bitcoin as payment for its products. This move caused the price of Bitcoin to surge by over 15% in just one day.
In conclusion, Bitcoin's recent rally can be attributed to a growing mistrust in banks, macroeconomic tailwinds, and technical factors. While Bitcoin is not without its own shortcomings, such as volatility and security concerns, it provides an attractive alternative to traditional banking systems. As more people and institutions invest in Bitcoin, its value is likely to continue to rise.
Defi facts which support the long-term bullishness of bitcoin price :
Total value locked (TVL) in DeFi protocols has increased dramatically in recent years. As of March 2023, TVL in DeFi protocols is over $270 billion, up from just $1 billion in 2019. This represents a 270-fold increase in just over three years.
The number of unique Ethereum addresses interacting with DeFi protocols has also skyrocketed. As of March 2023, there are over 12 million unique addresses that have interacted with DeFi protocols, up from just a few thousand in 2019.
One of the most popular DeFi protocols, Uniswap, has seen a massive increase in usage over the past year. In March 2022, Uniswap processed over $34 billion in trading volume, up from just $1.5 billion in March 2021. This represents a 22-fold increase in just one year.
Another popular DeFi protocol, Aave, has also seen significant growth. As of March 2023, Aave has over $30 billion in TVL, up from just $300 million in early 2020. This represents a 100-fold increase in just over two years.
DeFi adoption is not limited to just Ethereum-based protocols. Other blockchains, such as Binance Smart Chain and Solana, have also seen significant adoption in the DeFi space. As of March 2023, TVL in Binance Smart Chain-based protocols is over $30 billion, and TVL in Solana-based protocols is over $10 billion.
Institutional adoption of DeFi is also on the rise. In 2022, JPMorgan became the first major US bank to offer access to DeFi protocols to its wealthy clients. Other financial institutions, such as Fidelity and State Street, have also expressed interest in the DeFi space.
DeFi is also attracting significant investment. In 2022, DeFi protocols raised over $20 billion in funding, up from just $1.5 billion in 2021. This represents a 13-fold increase in just one year.
Lesser known facts about bitcoin adoption:
As of April 2023, the market capitalization of Bitcoin is over $1.1 trillion, up from just a few million dollars in its early days. This makes Bitcoin the largest cryptocurrency by market capitalization.
The number of Bitcoin wallets, or unique addresses that hold Bitcoin, has grown significantly over the years. As of April 2023, there are over 100 million Bitcoin wallets in existence, up from just a few thousand in 2009.
The number of Bitcoin transactions has also increased over time. In 2022, the average daily number of Bitcoin transactions was over 300,000, up from just a few hundred in 2009.
Bitcoin adoption is not limited to just retail investors. In recent years, institutional adoption of Bitcoin has increased significantly. In 2022, companies such as Tesla, MicroStrategy, and Square added Bitcoin to their balance sheets, with some companies holding billions of dollars worth of Bitcoin.
The number of Bitcoin ATMs has also increased over time. As of April 2023, there are over 35,000 Bitcoin ATMs worldwide, up from just a few dozen in 2013.
Bitcoin is also becoming more widely accepted as a form of payment. As of April 2023, there are thousands of merchants and businesses that accept Bitcoin as payment, including major companies such as Microsoft, AT&T, and Overstock.com.
Bitcoin mining, the process by which new Bitcoin is created, has also grown significantly over time. In 2022, the total hash rate of the Bitcoin network reached over 200 exahashes per second, up from just a few megahashes per second in its early days.
Bitcoin adoption is not limited to just developed countries. In fact, Bitcoin adoption is often highest in countries with unstable currencies or limited access to traditional financial services. Countries such as Nigeria, Venezuela, and Iran have seen significant adoption of Bitcoin in recent years.
DeFi vs Traditional Banks
DeFi is built on a decentralized architecture that allows for transparency and immutability. Transactions on the blockchain cannot be reversed or changed once they are recorded, making it secure and free from the risk of fraud or corruption. In contrast, traditional banks rely on centralized systems that can be vulnerable to hacks, data breaches, and cyber-attacks.
It enables peer-to-peer transactions without the need for intermediaries. This means that borrowers and lenders can interact directly without the involvement of banks or other financial institutions. DeFi platforms use smart contracts to automate the lending and borrowing process, reducing transaction costs and eliminating the need for third-party intermediaries.
DeFi is accessible to anyone with an internet connection, irrespective of their location, social status, or credit history. In contrast, traditional banks often require customers to have a certain credit score or meet specific criteria to access their services. DeFi platforms are designed to be more inclusive and democratic, allowing anyone to participate in the financial system and earn interest on their savings.
Provides greater financial freedom and control to its users. Users have full control over their funds and can access their money at any time without the need for bank approvals or restrictions. Additionally, DeFi users can earn higher returns on their investments compared to traditional banking products.
Allows for greater innovation in financial products and services. Developers can create new financial products and services on the blockchain, leveraging the power of smart contracts to automate complex financial transactions. This innovation is expected to revolutionize the financial industry and disrupt traditional banking systems.
DeFi and traditional banking differ significantly in their functioning. DeFi provides a more transparent, secure, and accessible financial system that empowers its users with greater control over their finances. As blockchain technology continues to evolve and gain acceptance, DeFi is expected to disrupt traditional banking systems and redefine the future of finance.
Failure of Banks - "Catalyst in booming future of DeFi?"
A bank can fail in various ways, including mismanagement of funds, risky investments, economic downturn, fraud, liquidity and regulatory compliance issues, and more. When a bank fails, it can be a threat to customer funds because customers may lose access to their deposits or investments held with the bank.
Poor management: A lack of effective leadership and oversight can lead to the mismanagement of funds and risky investments.
Asset quality: A bank's portfolio of loans and other assets can become impaired if borrowers default or the value of the assets declines, which can lead to significant losses.
Liquidity: Banks rely on a steady flow of deposits to fund their operations, so if there is a sudden withdrawal of funds, the bank may struggle to meet its obligations.
Capitalization: Banks need to maintain adequate levels of capital to absorb losses and remain solvent. If a bank's capital levels fall too low, it may be at risk of failure.
Regulatory compliance: Banks are subject to a range of regulations and oversight, and failure to comply with these requirements can lead to fines, legal action, or loss of operating privileges.
Market conditions: Changes in the economy, interest rates, or other external factors can impact a bank's profitability and stability.
Fraud: Banks can be vulnerable to fraudulent activity, such as embezzlement, Ponzi schemes, or identity theft.
Competition: Banks may struggle to compete with other financial institutions or fintech startups that offer more innovative or cost-effective products and services.
Geopolitical risks: Banks can be impacted by political instability, war, or other geopolitical risks that disrupt business operations or financial markets.
Systemic risks: Banks are interconnected with other financial institutions and the broader economy, so if there is a widespread economic downturn or financial crisis, multiple banks may fail simultaneously.
Bitcoin and Defi can solve these problems due to the following pros over traditional banking:
Decentralization: Bitcoin operates without the involvement of a central authority like banks or governments. Instead, it is managed by a network of users who have an equal say in its operations.
Transparency: Bitcoin transactions are recorded on a public ledger called the blockchain, which is available for anyone to view. This ensures that there is no fraudulent activity.
Lower transaction fees: Bitcoin transactions have lower fees than traditional banking transactions, especially for international transfers.
Faster transactions: Bitcoin transactions are faster than traditional banking transactions because there are no intermediaries involved.
No chargebacks: Once a Bitcoin transaction is confirmed on the blockchain, it cannot be disputed or reversed, which reduces the risk of chargebacks.
No bank account needed: Bitcoin can be stored and transferred without the need for a bank account, making it useful for those without access to traditional banking services.
Security: Bitcoin uses advanced cryptography to ensure that transactions are secure and cannot be tampered with.
Limited supply: Unlike fiat currencies, Bitcoin has a limited supply of 21 million coins, making it less susceptible to inflation.
Accessibility: Anyone with an internet connection can use Bitcoin, making it accessible even in remote areas or countries with limited banking infrastructure.
Financial sovereignty: Bitcoin gives users complete control over their finances, allowing them to manage and transfer their funds without relying on third-party intermediaries.
The Basics of Bitcoins and Blockchains By Antony Lewis
Mastering Blockchain: Unlocking the Power of Cryptocurrencies, Smart Contracts, and Decentralized Applications By Lorne Lantz and Daniel Cawrey
Blockchain Revolution: How the Technology Behind Bitcoin and Other Cryptocurrencies is Changing the World By Don Tapscott and Alex Tapscott
In conclusion, DeFi offers several advantages over traditional banks. Its decentralized, transparent and immutable nature ensures security and reduces the risk of fraudulent activity. The transactions are faster, with an average confirmation time of just 10 minutes compared to several days for traditional banking transfers. DeFi also provides financial sovereignty to users, giving them complete control over their funds without the need for a third-party intermediary.
Moreover, DeFi offers financial inclusion to millions of unbanked and underbanked individuals around the world who lack access to traditional banking services due to factors such as geographical barriers, lack of identification, or discrimination. Additionally, the average cost of a blockchain transaction is significantly lower than that of a traditional banking transaction, making it more affordable for individuals and businesses.
While there are some risks associated with Bitcoin, such as volatility and the potential for theft or hacking, it is clear that Bitcoin offers a more secure, efficient, and cost-effective alternative to traditional banking. As the world continues to embrace digital technologies, it is likely that Bitcoin and other cryptocurrencies will continue to gain traction as a viable alternatives to traditional banking.
Any information or communication I provide is for educational or informational purposes only and should not be construed as investment advice. It is important to conduct your research and seek the advice of a professional financial advisor before making any investment decisions. Any investment you make is solely at your own risk, and I am not liable for any losses or damages that may occur as a result of your investment decisions.