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It’s been a complicated week for Bitcoin adoption history. In particular, Michael Saylor and Elon Musk gave more impetus to the idea that bitcoin can be used in commerce: Musk pointed out the potential for Tesla to return to accepting bitcoin payments, and Saylor called the Bitcoin network a rail system for the global dollar.
The best indicator for the use of bitcoin in trading is the Lightning Network. In short, Lightning is a user-friendly service that is built on Bitcoin. It allows parties to transact quickly and cheaply, periodically checking their transactions in batches through the more reliable Bitcoin network.
As we noted in last week’s Chain Links, Lightning has increased this year. As of Tuesday, the number of bitcoins available for use on its network had increased by 44% since December 31.
This column originally appeared in Crypto Long & Short, CoinDesk Research’s weekly newsletter for professional investors.
This is something for the potential use of bitcoin in trading. But we would be remiss if we didn’t consider it alongside the use of Bitcoin on another network more associated with finance than Ethereum trading.
Wrapped Bitcoin (WBTC) is an Ethereum Compliant (ERC-20) token that is tied to the value of bitcoin. The stake is maintained by the BitGo custodian.
The number of bitcoins wrapped on Ethereum has grown faster (67%) during the same period, and it is a few orders of magnitude higher than the number of bitcoins committed to the Lightning Network: On Tuesday, WBTC’s offer was of 188,961. Lightning Network’s bitcoin capacity was 1,523.
In theory, it is possible that WBTC will be used on commercial applications that accept ERC-20 tokens. In reality, it is used for decentralized finance (DeFi).
The history of these two charts is clear, at least for now: bitcoin is much more like gold, an investment, than the dollar, a medium of exchange.
Michael Saylor took to CoinDesk TV this week and spoke about this distinction, describing a world in which citizens of dollarized countries and adopting bitcoin like El Salvador have digital wallets containing multiple cryptocurrencies: a currency is a linked stable coin. to the dollar; the other is bitcoin, an investment.
This is where Saylor left the text. “It’s going to move on Bitcoin rails,” he said, speaking of this stable dollar coin, leading to further dollarization across the world. The possibility of dollarization via stablecoins is real, but as for the rails on which it will move, the market has spoken: it’s not Bitcoin, it’s Ethereum.
The chart above shows the supply of tether (USDT), the largest stablecoin by offering, across three networks that support it. The almost flat line is tether on Omni, an app-supporting layer that runs on Bitcoin, and the original tether network. The line going up and down the right corner of the chart is tether on Ethereum.
Tether and other stablecoins certainly have the potential to facilitate trade, better than the more volatile cryptocurrencies, which are more suitable for investing. However, in reality, their use is in finance, specifically as a quote currency on cryptocurrency exchanges.
In summary, it is finance, not commerce, that is driving crypto adoption, and although bitcoin enjoys a unique status as a premier investment in this category, the market is showing a clear preference for rails built on Ethereum.
It reminds me of another thought leadership that aired on digital crypto TV this week: Steve Hanke, a Johns Hopkins economist, said El Salvador’s new bitcoin policy would make it a plaque. revolving door for criminals looking to launder bitcoins into dollars. (My maximalist Bitcoin friends will quickly point out that Amsterdam and Frankfurt have recently served as fairly convenient money laundering centers.)
As the chart above shows, there is no shortage of demand for stable coins pegged to the dollar. Crypto exchanges offering liquid bitcoin-tether crosses are plentiful, and some of them I guess don’t have the strictest KYC / AML. There are fewer crypto-dollar pairs, and if a world as Saylor describes it really comes to pass, the regulatory challenges at the ramps between crypto and commerce will extend far beyond the borders of a Central American nation state.
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