People have a tendency to celebrate periods of low feerates. It’s time to clean the house, consolidate all UTXOs you need, open or close any lightning channels you’ve been waiting for, and write some stupid 8-bit JPEG for Blockchain. They are perceived as a positive time.
They are not. We have seen explosive award assessment over the past few months and eventually hit the 100K USD Benchmark, all of which took for granted as predetermined during the last market cycle. It’s not normal.
The picture on the left is the average Feerate every day since 2017, the picture on the right is the average price every day since 2017. When the price pumped as it was very unstable, we have historically seen Feerates Spike accordingly. Generally, the growth matches and topped when the price did. The people who actually buy and sold trade in on-chain lasted custody of their own coins when they bought them.
This last leg up to over 100,000 does not seem to have had the same proportional influence on feeerates that even move earlier in this cycle. Now, if you actually looked at both of these charts, I’m sure many people go “What if this cycle is at the end?” It’s possible, but let’s say it’s not a moment.
What else could this indicate? That the participants who drive the market are changing. A group of people who used to be dominated by individuals who self-insured who administered their counterparty risk by removing gains from exchanges that generated time-sensitive activity on the chain are transformed into a group of people who simply pass ETF shares that do not need to settle any on-chain.
It’s not a good thing. Bitcoin’s nature itself is defined by the users who interact directly with the protocol. Those who have private keys to approve transactions that generate revenue for miners. Those who are sent funds and verify transactions against consensus rules with software.
Both of these things that are removed from the hands of users and placed behind the veil of depotmen, put the very stability of Bitcoin’s nature at risk.
This is a serious existential question to be resolved. The entire stability of consensus around a specific set of rules is assumed on the assumption that there are enough independent actors with separate interests that differ, but adapt to a value obtained by using this set of rules. The smaller the group of independent actors (and the greater the group of people “use” Bitcoin through these actors as intermediaries), the more practical it is for them to coordinate to fundamentally change them, and the more likely it is that their interests as a group will dive sync from the interests of the larger group of secondary users.
If things continue to tend to trend in that direction, Bitcoin can very well end up embarrassing something that those of us here today hope it can. This problem is both technical in terms of scaling Bitcoin in a way that allows users to independently have control over their funds on the chain, even if it is only through the worst case, but it is also a problem with incentive and risk management.
The system should not only scale, but it must be able to provide ways to mitigate the risk of self -retardation to the extent that people are used to from the traditional financial world. Many of them actually need it.
This is not just a situation of “doing the same thing as I do because it is the only correct way,” This is something that has consequences for the basic characteristics of Bitcoin itself in the long term.
This article is a take. Opinions expressed are completely the author’s and does not necessarily reflect BTC Inc or Bitcoin magazine.