21 Apr Is Bitcoin Undervalued?
It’s become a tradition throughout the cyclical Bitcoin boom and bust market cycle, that while Bitcoin is bearish, the builders will simply continue to build. It’s this ethos which has sustained Bitcoin’s first mover advantage, throughout the first 3 Bitcoin halvings, seeing it emerge as the undisputed market leader with each bull run.
What Have the Builders Been Building This Bear Market?
This bear market, like the others preceding it, has been very busy with Bitcoiners launching new projects of all kinds, in many different areas of the overall ecosystem. Many innovative new approaches to solve some of Bitcoin’s most persistent limitations have led to many exciting new developments, on a variety of fronts.
There has been significant headway made in Layer Two projects, focused on scaling and privacy improvements. We’ve seen two emerging Chaumian E-cash implementations, tokenisation schemes over Lightning and off-chain, and others that also work with on-chain BTC. We’ve also witnessed new innovations like Pear Credit and Slash Tags, which have offered users blockchain-like experiences without the bloat of unnecessary tokens or blockchains.
Apart from Layer Two projects, we have also seen the phenomenon of an emerging and thriving decentralised and censorship resistant social media ecosystem complete with integrated Lightning Network powered micropayments. It started with projects like Adam Curry & Dave Jones’ Podcasting 2.0 movement, and continued with efforts like Stacker.News, Starbackr, and last but definitely not least, the Nostr protocol.
With the systemic collapse of some of crypto’s most iconic startups, exchanges, funds, and lenders during the crypto winter, we saw the greater crypto community respond by moving towards self-custody and self sovereignty. They rushed to pull coins off exchanges and to secure them themselves.
The result has been several new, easy, all-in-one Bitcoin & Lightning node products, open source software stacks, and a thriving hardware wallet market, as Bitcoiners and their crypto counterparts sought secure ways to store their coins. A side-effect of this self custody movement has been upwards price pressure as less BTC is available on the spot market, on exchanges.
Lastly, we have seen the mining industry go through the peak and trough of bear market price volatility and emerge yet more resilient on the other end. Some less profitable miners were forced to capitulate, yet other newer miners entered the market to contribute hash power in their place.
It also seems that the energy inflation experienced following the outbreak of the conflict in Ukraine, has started to subside as well. Meanwhile, positive news has been steady, as mining with primarily renewable and waste energy sources has increased. Ordinals were also an unexpected boon to Bitcoin’s fee market, and miner profitability.
Miners are finally starting to breathe a sigh of relief and prepare for the upcoming halving next year. All of these developments in Bitcoin infrastructure, Layer Two projects, Lightning Adoption and censorship resistant social media with built-in Lightning, are remarkable. It seems the pace of Bitcoin adoption hasn’t shown any signs of slowing during the crypto winter.
This leads us to ask, is Bitcoin undervalued? Considering that the market has begun to indicate a reversal may be close at hand, and so many advances have been made on the tech front, we think, quite possibly, yes.
Layer 2 Projects to Keep an Eye on
Some of the Bitcoin projects with the most enthusiasm are Layer Two projects which address issues, like on-chain congestion, fees, scalability, and privacy. Let’s take a look at some that have had the most enthusiasm from the community.
Lightning Network is Bitcoin’s most famous Layer Two, a near instant payment network designed to scale Bitcoin, and make small purchases fast and unfairly cheap. Lightning has seen continued adoption, as liquidity, nodes, and use have all increased throughout the crypto winter. Projects like Podcasting 2.0, Nostr, and Stacker.News have made Lightning micropayments central to the user experience.
RGB focuses on issuing assets and tokens on Bitcoin, either on Lightning Network or on-chain. RGB allows users to create and issue their own tokens, altcoins, stablecoins, Non-Fungible Tokens (NFTs) and other blockchain assets. It has been in the works for a while, but it is finally getting to the stage where we may begin to see wallets integrate tokens via RGB in the very near future.
Taro is a Taproot-powered Layer Two tokenisation project focused on bringing stablecoins and other assets to Lightning Network. Taro’s assets will be able to be deposited directly into Lightning channels and compatible with the wider Lightning Network ecosystem. Taro allows assets to be created and issued in a more private and scalable way.
Synonym & Slash Tags
Synonym has set out to prove its Bitcoin-only thesis by building a range of Bitcoin and Lightning Network solutions that offer a blockchain-like or Web3-like user experience without using additional blockchain technology aside from Bitcoin. It has pioneered “Slash Tags”, a protocol which lets users manage their identity by way of cryptographic keys, to create their own curated content feed from other users, Bitcoin services, wallets, exchanges, and news sites, which can be managed directly from within Synonym’s flagship Bitkit wallet.
Cashu is one implementation of a Bitcoin Lightning Network powered Chaumian E-cash and Mint protocol. Cashu lets users take advantage of Lightning Network’s near instant transaction settlement and Chaumian E-Cash’s near perfect privacy to offer a new private and scalable way to make Bitcoin-backed, instant, low-fee, and untraceable payments. Cashu can easily be implemented in any app or website, and users can create their own mint and issue their own E-Cash in just a few clicks.
Fedi is the second implementation of a Bitcoin Lightning Network powered Chaumian E-cash and Mint protocol. Fedi uses Fedimint, a Chaumian E-Cash implementation which leverages a federation of mints, rather than individual mints, as in Cashu. Fedimint’s federated Chaumian E-Cash mints add the quality of decentralisation to the trust assumptions around using Chaumian E-Cash, which make it harder for the mints to act maliciously. Fedimint offers a similar instant, private and untraceable, low-fee payments system as Cashu.
Blockstream’s Bitcoin sidechain, Liquid, has also seen some major headway, as it has been the primary choice for asset issuance for Bitfinex Securities, our Tokenised Security trading platform. The first Tokenised issuance was Blockstream’s Mining Note, with others coming soon. Bitfinex Securities was recently granted a Digital Assets Licence in El Salvador under its new Digital Assets law, which paves the way forward for more tokenised security offerings which will be leveraging the Liquid sidechain for asset issuance.
RSK, formerly known as Rootstock is another Bitcoin sidechain that has seen a flurry of activity throughout the bear market. RSK brings EVM compatibility, Smart Contracts, tokens, NFTs, Decentralised Applications (DApps), and Decentralised Finance (DeFi) to Bitcoin. RSK was created by a team of Latin American Bitcoiners based in Argentina, and as such, has seen a high degree of adoption from Latin America. Projects like Tropykus Finance and Money on Chain, were built by teams in Latin America, to meet the specific needs of users in Latin America, using RSK.
Stacks is a Bitcoin Layer Two project that was created to bring additional functionality to Bitcoin. Stacks, like RSK, envisions bringing DeFi, DApps, NFTs, tokens, and Smart Contracts to the world of Bitcoin. Stacks has experienced a resurgence of interest in the aftermath of the release of Ordinals, a protocol for “Inscribing” NFTs on single Satoshis, which have been integrated into the Stacks ecosystem, which has always been focused on NFTs.
Decentralised, Censorship-Resistant, Social Media with Lightning Micropayments
The Bitcoin empowered social media revolution is in full swing with Podcasting 2.0, the Value 4 Value model and Nostr, which powers a variety of alternative video, micro-blogging, blogging, and streaming sites that allow content creators to receive streaming Satoshis and micropayments directly from their fans and followers.
Podcasting 2.0 is an open source project which allows creators to monetize their podcasts via Streaming Satoshis, Boosts, Value splits, and allows podcasting to remain open and decentralised while encouraging censorship-resistance. There are over 50 Podcasting 2.0 apps that incorporate its new features and Lightning Network micropayments for Value 4 Value monetization.
Nostr is not a social media platform, but it is a decentralised social media protocol which is open, decentralised, and censorship-resistant. The most popular Nostr clients offer a Twitter-like experience, although Nostr is versatile and can be used for a variety of different social media experiences, like Nvote.co (a Nostr-based Reddit clone), Habla News (a Nostr-based Medium/Substack clone), and even Chess. Nostr, like Podcasting 2.0, has implemented Lightning Network micropayments which allow users to send “Zaps”, tiny Bitcoin payments as tips for posts they enjoy.
Stacker News is like Hacker News, an open board where anyone can post, except Stacker News has Lightning Network micropayments built-in. Users can earn Satoshis from other users, upvotes, popular threads and more. Stacker is one of the most popular Lightning enabled social media sites, so there is a lot of good content, and they have a great Bitcoin jobs board.
Wavlake is a Podcasting 2.0 powered audio streaming site, that aims to let musicians monetise their music using Podcasting 2.0’s assortment of Lightning Network Value 4 Value tools. This means you can stream Satoshis and boost songs from your favourite bands and the artists themselves receive the money, bypassing the record label. It’s a win-win, and also censorship-resistant.
Starbackr is a Patreon-like platform which lets users monetise their content using Bitcoin Lightning Network payments, utilising the Value 4 Value model. Starbackr users can post content like images and videos or even do a live stream, which viewers can tip and send Satoshis over Lightning for.
Lightning Video is a Youtube-style video streaming site that lets content creators monetise their video content through a Lightning Network paywall and micropayments received from viewers. It, like the other Bitcoin powered social media sites, aims to offer a censorship-resistant platform to post and monetise content by leveraging the power of Bitcoin and Lightning micropayments.
Bitcoin Mining Appears to be Making a Comeback
Bitcoin Mining’s hash rate has seemingly stabilised and begun to recover, after reaching all-time lows. Hash rate growth has surpassed Luxor mining’s estimates for growth in their first quarter of 2023 report, and seems to be on a path to maintain this growth. As Bitcoin has rebounded in price, a lot of new hardware has come online over the first quarter, in the form of Application Specific Integrated Circuit (ASIC) miners.
Hash price has risen 31 percent in the first quarter of this year, meaning that many miners that were unprofitable, previously in the bear market, are now in the green again. Even though hash price has seen a substantial increase, it’s still down 58 percent Year over Year (YoY). However, going into the next halving in 2024 could dramatically change this metric over the course of the next year.
Energy prices also seem to finally be making headway in retracing the explosive growth in prices associated with the outbreak of the conflict in Ukraine, and miners are enjoying this cut in operational overhead.
The unexpected increase in transaction fees due to Ordinal Inscriptions has also been a pleasant surprise to those in the industry. So far, miners have reportedly mined 150.32 BTC of Inscriptions transactions worth $3,731,429 in the first quarter of 2023.
The market for ASIC Miners has also reportedly reached a bottom and may be set for a bit of a rebound after plummeting for most of 2022 during the crypto winter. Bitmain is also set to release a new line of “next-gen” ASICs.
This perceived rebound in the mining industry, which could potentially just be getting underway, is a signal that the bear market may finally be coming to a close heading into the next halving, expected to occur roughly sometime in early April of next year.
If we are headed into a new Bitcoin-fueled crypto bull run, Bitcoin at its current price may seem like a legendary entry in the coming months with hindsight. Bitcoin will certainly seem undervalued if it approaches new all time highs. It seems like the builders in the Bitcoin ecosystem have been busy enough throughout the bear market to provide the substance to back a new wave of adoption and new users. Overall sentiment seems to be improving.
What do you think? Is Bitcoin undervalued?