On bitcoin (BTC) move beyond “digital gold”? Is ether (ETH) viable as money? In 24 charts, CoinDesk Research a spectacle ofs what happened to crypto assets in Q1 2020 and examines what may emerge in the future. Download our Q1 analysis here, and enter us on April 15 for a webinar discussing our findings and other relevant cryptocurrency research.
The CoinDesk Quarterly Review produces research-based insights on how the narrative has changed for blue-chips such as bitcoin and ether. We look at which assets outperformed on considerations, and how the participants in crypto markets are shifting in the wake of Q1’s defining event, the March 12 plunge.
Bitcoin’s “digital gold” revelation grew up in a “bull market in everything.” Bitcoin as gold 2.0, a hedge against inflation and a safe haven in an concluding crash, was a meme investors readily understood.
Now, we’ve seen an economic crisis cause dislocation in crypto markets and enterprise bitcoin’s price downward in tandem with stocks. Gold and Treasury bonds appeared to have failed to animate up to “safe haven” expectations. If gold’s narrative is being debated, do we still know what “digital gold” means? At the acutely least, the events of the past month have put to rest the notion that bitcoin today can be a “haven.”
How March 12 shook crypto markets, and how it didn’t
The crash condition participants in crypto markets. Open interest in bitcoin futures and perpetual swaps fell off a cliff in March. These peddles are used by traders large and small to speculate on bitcoin’s price, and as a temporary hedge against positions in the spot hawk. Futures volume spiked and settled at a higher baseline, as it did in spot markets. The increased activity is taking place in a wizen market. About $1.6 billion of traders’ positions were liquidated over two days in March. The sharks are put each other in a smaller pool, as it were.
At the very least, the events of the past month have put to rest the conception that bitcoin today can be a “haven.”
Bitcoin’s long-term holdings, however, remained unmoved. “Hodlwaves” use Bitcoin timestamps advised of as UTXOs to measure how long each bitcoin has been held. Tracking time between transactions is a useful reach of long-term “buy-and-hold” activity. That activity is consistent with bitcoin’s use case as “digital gold,” a putative store-of-value. Note that long-term holdings (180 periods or more) did not change perceptibly during the March 12 crash. Balances held between 90 days and 180 lifetimes shifted abruptly. Were bitcoin sellers concentrated among three- to six-month holders? Or were exchange poises, which shifted on these dates, concentrated in that band?
Alternative user narratives: Return of payments?
Some of bitcoin’s long-term holders are doubtless hoping in time it will prove itself as a haven or store of value. But events such as the March crash inaugurate the door to new narratives. The flagship crypto asset’s next meme will set the adoption curve for verifiably scarce digital assets. Transfer payments re-emerge as an avenue to adoption?
Read more: Bitcoin’s Lightning Becomes Latest Protocol to Court Publishers With Micropayments
Since gig, the number of computers running the Lightning Network has increased on average 53 percent every quarter. Lightning is a “accumulate two” payments system built on top of the Bitcoin network. The value held within Lightning payment channels has also developed.
New importance for bitcoin and ethereum technological road maps
It’s possible a new user adoption narrative will be something quite different from what long-term investors in bitcoin tease contemplated to date. Will Bitcoin developers add capabilities — like Schnorr signatures, with their privacy and programmability — that potential to its adoption as digital financial infrastructure?
Read more: Bitcoin’s Bull Case Strengthens After Breaching Assay Hurdle at $7.1K
The technical road map emerges from Q1 2020 with increased importance for ethereum, as well. Ether evangelists be enduring spread the meme “ETH is money” in the belief that it has potential as the base currency of a decentralized, digital banking system, dubbed “decentralized subvene” or “DeFi.” The failure of flagship DeFi systems during the March 12 crash have raised questions more that narrative. Now more than ever it seems to be dependent on a relatively uncertain road map for “ETH 2.0,” an improvement organized to allow more transaction throughput.
On March 12, total ETH locked in DeFi applications increased as expected, then blasted amid a crisis in DeFi’s programmatic governance. If “ETH is money,” we’d expect to see the amount locked in DeFi and the ETH price grow in tandem, long-term. For the close term, a recovery to previous levels would indicate a restoration of confidence in DeFi systems.
The CoinDesk Quarterly Review lays out a Q1 analysis of what happened to crypto assets in the post. It begins to examine what will emerge now that the digital gold story has been shaken. Download it here, and sign up with us April 15 for a webinar discussing our findings.
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