The presence of a large cryptocurrency community at the World Economic Forum in Switzerland this week highlights an inherent tension: on the one hand, the industry’s desire to gain acceptance by the business establishment, and on the other, the concern that engaging with it could undermine the disruptive influence of cryptocurrencies. , the rebellious spirit.
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With 2024 expected to be the year that traditional finance (TradFi) arrives, this tension seems particularly acute. After all, the US Securities and Exchange Commission’s long-awaited approval of exchange-traded funds (ETFs) for bitcoin is paving the way for giant asset managers like BlackRock and Fidelity, and mega banks like Goldman Sachs and JPMorgan, to get involved in bitcoin. market.
The question is: Will the involvement of these institutions affect the power dynamics within Bitcoin itself. Will “Bitcoinmaxis” and “degens,” who place a high value on censorship resistance and decentralization, see their influence on Bitcoin diminish as these large regulated entities begin to get involved?
Would BlackRock, Goldman, or JPMorgan, for example, insist on only buying coins mined using renewable energy, or that are “clean” of any prior connection to unspecified actors? Would their demand for Bitcoin be so great that such policies would measurably change the behavior of others, such as miners, so as to change the composition of Bitcoin itself?
It’s too early to say. While this may be a depressing answer, the lack of predictability around this question stems from the complex power dynamics within Bitcoin’s diverse, decentralized ecosystem. This complexity is part of Bitcoin’s appeal and, in the long term, leads me to believe that the Wall Street giants won’t be able to significantly change it.
At the time, 58 cryptocurrency companies lobbied to support a proposed “hard fork” upgrade in Bitcoin’s core code that would increase the amount of memory per block. The goal of the so-called New York Agreement was to reduce traffic congestions on the network, allowing those companies to process more transactions and thus earn more fees. After a number of mining pools said they supported the increase, many thought the increase was a raise The realityLike miners, in choosing which blocks to mine, they were the kingmakers in determining whether a new version of the software would be adopted.
But a core group of developers and users opposed increasing the block size beyond the current 2MB capacity on the grounds that data storage costs would rise for anyone running a node to validate the blockchain. This would ultimately exclude smaller participants, leading to a more centralized network, they said.
Instead, they called for a modification known as Segreged Witness, or SegWit, to reduce the data needs of each transaction, while enabling Layer 2 solutions like the Lightning Network to process off-chain transactions and reduce on-chain fees. They have launched a so-called user-active soft fork (UASF), where anyone who opposes increasing the block size will boycott accepting any coins mined by miners who support them.
In the end, the UASF rebels were victorious. It was celebrated as a victory for the little guy, for the idea that users, the ultimate beneficiaries of the Bitcoin network, had real and effective power, since it was their ultimate demand for tokens that would drive market-led decisions.
One reason to question whether the “littles” will be able to continue to dictate the direction of Bitcoin is that the post-ETF newcomers will likely own a very large portion of it.
A number of analysts estimate that demand for Bitcoin ETFs could continue Up to $100 billion. If so, that would represent about one-eighth of the total market cap, which was just over $800 billion at the time of writing.
So, it’s pretty big, but it’s not quite dominant.
But let us now adapt to the so-called dormant currencies. It’s reasonable to assume that a fair number of bitcoins that haven’t moved from their current address for more than five years will never move — either because they’re controlled by fanatical HODLers or because their owners lost the private keys. These coins — which currently represent about 30% of the total market cap, according to Glassnode — cannot be treated as an exact replacement for “dead coins,” but should be taken into account when estimating the size of the active Bitcoin ecosystem.
Now, we have $100 billion worth of ETF demand at 17% of the “active” Bitcoin market of about $581 billion. It is beginning to look like these institutions could have real influence. UASF could be as difficult to execute as 2017 if these hitters can get their feet on the scales.
However, Wall Street will not be the only giant owner of Bitcoin. There are currently about 1,500 so-called “whale” addresses each holding more than 1,000 bitcoins, and together they control about 40% of the total bitcoin supply. Many of these are true believers who have “embraced” for years. They can transfer coins between themselves, or between their own addresses, and in doing so demand from miners and other participants in ways similar to UASF rebels. Bitcoin OGs still have leverage.
One thing is for sure, if a battle for the soul of Bitcoin arises, it will be a very tough fight, as the Blocksize wars have been tough wars.