foreword

foreword"Almost every other day, Bitcoin hits a new all-time high (ATH) -- the December 2020 year close of $29,100. This comes after a previously reached 3-year high of $19,800. Bitcoin is once again in the spotlight due to the enthusiasm of newcomers and the usual speculation about future prices. The fact that Bitcoin continues to grow is an affirmation of its increasing legitimacy. Bitcoin's ATH in 2021 is indeed very different from 2017. Spurred by unregulated ICO speculation, the previous ATH was inconsistent with then-current organic growth and the state of the technology, and therefore unsustainable. Prices continued to fall in 2018 and 2019, and many critics were happy to see their bearish predictions come true:"

See, it's just a bubble, I was right!

During the same period, many countries began a complex regulatory process, and institutional investors began to see Bitcoin as a very interesting alternative to traditional assets. Since its inception, Bitcoin has undergone — and is undergoing — constant development to improve the network (such as increasing transaction speed, reducing fees, and increasing privacy and security). These and many other factors make this new ATH completely different from the previous ones. What has changed? Let's analyze some of these factors.

1. Technology maturity and acceptance

The launch of any new technology, especially one as disruptive as Bitcoin, is initially accompanied by hype. Only after time has passed and the hype has worn off can the technology be fully evaluated for eventual introduction to the market."In 2017, a $20,000 bitcoin was mostly the result of hype and Fear Of Missing Out (FOMO): early adopters were intrigued by the promise of this new technology, but most of the interest did come from speculators. 4 years later, after a 2-year period of consolidation and renewed growth, Bitcoin has passed its initial hype period and is now positioned as increasingly mature, both from a legislative and technical point of view. In its favor, Bitcoin and the open-source technology stack on which it depends should not be viewed as an"static technology

The diagram below illustrates a typical innovation adoption life cycle. Bitcoin, which has not yet been adopted by the majority of early adopters, is sparking the interest of the early majority of users who now have a richer storyline to evaluate the technology and its value proposition.

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Source: Charlie Karlsson

• The technology life cycle is represented by four stages.

• research and development phase.

• In the rising stage, the cost paid has been recovered, and the technology begins to accumulate strength.

• Maturity stage, when the technology has stabilized.

The decline stage, after the practicality of the technology has been reduced to a certain extent.

Even if it is not strictly applicable to Bitcoin, due to the singleness of the technology and the decentralized nature of the project, the current state can be positioned as an upward stage: the initial challenges have been solved, the technology is relatively mature, and its value can be proven with existing use cases . An interesting consideration for this question is that the R&D phase of Bitcoin is an inherent requirement of the nature of the network and is ongoing. In fact, everyone can propose improvements to the network in the form of Bitcoin Improvement Proposals (BIPs), which are then evaluated by the community and, if consensus is reached, implemented on the network. Here you can find a comprehensive list of all successfully implemented BIPs to see how fast the Bitcoin network is growing.

2. Legislative clarity and institutional investors

It can be said that legislative clarity and institutional investors are complementary, because legislative clarity is fundamental to Bitcoin being considered a desirable alternative investment.

2.1 Legislation as legalization

In 2017, with a few exceptions, legislation surrounding cryptocurrencies was virtually non-existent. Most countries are unwilling to consider them within their legislative framework, and some countries have set out to ban them. Currently, more than 130 countries have issued laws or policies on this topic. The rules cover a wide range of implications for cryptocurrencies, from the classification and definition of terms, to warnings to potential investors, restrictions on payments, and the regulation of ICOs. Broad countries are interpreted broadly. For example, different countries classify cryptocurrencies like this, with different regulations on taxation:

Israel → taxed as an asset

Bulgaria → Taxed as a financial asset.

Switzerland → Taxed as a foreign currency.

Argentina and Spain → need to pay income tax.

Denmark → pay income tax, losses can be deducted.

UK→Companies pay corporate tax, unincorporated enterprises pay income tax, and individuals pay capital gains tax.

Still, most of these regulations have to be viewed as preliminary, as most countries work to create a comprehensive legislative framework for cryptocurrencies. Globally, the most favorable frameworks for the development and growth of blockchain ecosystems can be found, arguably, in countries such as Malta, Switzerland, and Singapore.

2.2 Institutional investors and Bitcoin"In 2017, cryptocurrencies were seen as having a strong anti-establishment narrative, and thus a rather small investor base and appeal. On Wall Street, no one is really talking about Bitcoin as an asset or an investment. Many prominent investors such as Buffett, Bill Gates and Jamie Dimon go on to describe Bitcoin as"rat poison

, and therefore worthless."Three years later, things are very different: An interesting report from Greyscale Investment (2020) paints a very different picture than in 2017, showing that more and more investors are familiar with Bitcoin , an 11% year-over-year increase, and even believes that Bitcoin is slowly moving towards mainstream acceptance. In 2020, more than 62% of surveyed users claim that they"bitcoin.

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Source: Greyscale 2020 Bitcoin Investor Report

Not all investment vehicles are created equal: options and futures are speculative bets on future prices and thus do not give investors any ownership in bitcoin. Instead, Greyscale and MicroServices purchased the bitcoins directly and thus have full ownership over them - contributing to the overall supply and demand dynamics of the bitcoin network. Below you can find a comprehensive list of all companies investing directly or indirectly in Bitcoin, broken down into publicly traded, privately traded, and ETF-like.

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Issuing different investment vehicles, catering to the different risks/exposures of each type of investor, contributes to a virtuous cycle of interest and increases the accessibility of Bitcoin to traditional investors - an example of which is the future of Bitcoin options. Record liquidation volume, now at ATH, exceeds $7 billion - a 400% increase since September 2020.

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Source: IntoTheBlock

The growing number of investment vehicles, coupled with clearer legislation, has resulted in a paradigm shift in how investors perceive Bitcoin. This opens up the possibility of developing entire derivatives and credit markets, as well as creating services that mitigate the complexities and security risks inspired by holding large amounts of Bitcoin. For this problem, some companies, such as Fidelity, have developed services as early as 2018: 1. Provide institutional investors with custody services for encrypted currency assets to protect their large positions; 2. Allow investors to use Bitcoin is used as collateral for the transaction."Today, it is much easier for institutional investors to hold and invest in Bitcoin, both from a regulatory and practical standpoint. In the next few years, this trend is likely to continue, and Bitcoin will soon be regarded as a"mainstream

alternative assets.

3. Indicators on the chain

The next section relies purely on-chain to discuss on-chain metrics such as demand and supply, the number of Bitcoin holders, and the general dominance of Bitcoin vs. Altcoins. Since Bitcoin’s circulation is constant (average 6.75 BTC every 10 minutes), increased attention from retail and institutional investors is likely to lead to a large increase in demand — and price.

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Source: TradingView

Source: TradingView

It can be said that due to the special properties of Bitcoin, Bitcoin today has split from all other currencies. There has been a silent consensus among cryptocurrency users. Bitcoin is a currency, but other currencies are completely different from Bitcoin.

3.2 Evolving Network

1) The hash rate of the Bitcoin network has reached ATH. It represents the total computing power provided by miners to maintain the network. As a decentralized peer-to-peer network, Bitcoin runs on electricity provided by miners. A high hash rate is a sign of the health of the Bitcoin network. The higher the hash rate, the harder it is for malicious actors to 51% attack the network.

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2) The number of Bitcoin addresses has also reached ATH: There are now more than 33 million wallets holding Bitcoin balances, an increase of 16% from 28 million YOY in January 2020.

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Among them, 96.92% of addresses are in profit, only 1.39% of addresses are in loss state, and 1.69% of addresses are in breakeven state (data as of January 1, 2021).

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Source: IntoTheBlock

3.3 Comparison of holders and traders

The average holding time for one Bitcoin is 3.1 years. In addition, more than 21.9% of bitcoins (4 million BTC) have not been touched for more than 5 years, 11.92% (2.2 million BTC) are 3-5 years old, and 13% (2.5 million BTC) are 2-3 years old. Only about 5% (1.1 million BTC) of bitcoins were moved last week, and 7% (1.34 million BTC) were moved between last week and last month. In 2017, short-term trading - focusing on the red-yellow area - was very common, and now most users choose to hold Bitcoin - take the green-blue area as an example.

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Source: IntoTheBlock

Thus, 64% of the total Bitcoin addresses are considered holders - a strong increase considering that it was 17.4 million in December 2019 - as they have not touched their Bitcoins for over 1 year, 24.5% (8M) are considered to be volatiles (1-12M), while only 11% (3.7M addresses) of Bitcoin users are considered to be traders (<1M). The overall trend shows that the trend of holding Bitcoin and not trading Bitcoin in a short period of time is becoming more and more obvious.

4. Bitcoin: a scarce and deflationary commodity

Bitcoin is an increasingly scarce commodity over time. The finiteness of Bitcoin is often underestimated, and it is without a doubt one of its most attractive and interesting features. Every four years, the release of bitcoins is cut in half until all 21 million bitcoins are mined, which is estimated to happen in 2140. The most recent halving took place in May 2020 and reduced the reward given to miners for processing bitcoin transactions from 12 bitcoins per block to 6.75 bitcoins. Therefore, this also increases the cost of electricity production for a single bitcoin. To compensate, today's decrease in supply is being met by an increase in demand, both from retail investors and institutional players who have purchased high amounts of Bitcoin - as described in the previous section."Bitcoin is often compared to gold as a store of value due to its properties, such as divisibility, portability, and scarcity. The Winklevoss brothers (co-founders of Facebook) even think that Bitcoin is better than gold because, in fact, it is"The only scarce commodity in the universe

, because in the future, advanced technology will allow us to obtain gold through asteroid mining. Due to its deflationary nature, Bitcoin certainly also represents a safe haven for those from countries such as Venezuela, Turkey, and Iran whose economies are in poor condition or whose currencies are severely inflated by economic sanctions. Send money home, for international trade, or just to pay for essentials. If traditional fiat currencies continue to experience high levels of inflation and volatility in the near future, more people will look to Bitcoin as a safe asset to protect their wealth from economic instability and inflation .

5. Last but not least

Bitcoin, now 12 years old, is the most secure financial network in the world: it securely stores over $500 billion, has an uptime of over 99%, and has never been hacked. It is increasingly being legitimized by regulators and attracting the attention of retail and institutional investors as an alternative asset. The price of 1 Bitcoin is now hovering above $30,000, which is 50% higher than the previous high in 2017, which also confirms the strong upward trend.

The technology stack behind Bitcoin is very atypical: open source, decentralized, encrypted, which is fundamental to the decentralization of the network and the protection of privacy. One point that needs to be emphasized is that whether it is technology, legislation, or the application of Bitcoin as a technology and currency, it is always in progress and cannot be considered static-to do so would seriously underestimate its flexibility. Bitcoin is the liquid currency of the 21st century: programmable and constantly improving."The adoption cycle of a highly disruptive technology is necessarily long: when it was first invented in 2009, its concept was almost utopian and understood by few banks, which called Bitcoin"technopopulism

. These concerns are legitimate, and the status quo cannot be blamed for such justification. However, the environment has changed profoundly since then. The four major developments pointed out in different chapters have resulted in a completely different environment, one that is now more receptive to Bitcoin, both from an ideological and a practical point of view.

It is impossible to predict the future application of Bitcoin or the future price. On the contrary, it can be predicted that the world will gradually get used to Bitcoin: in the end, countries will slowly go through the cycle of rejection and acceptance, realize the value of Bitcoin, and formulate corresponding legislative frameworks; It will continue to improve, with more use cases; more investment vehicles will be created to cover all investors.