Bitcoin (BTC) beyond $5000 - what's changed since last time around?

24 Apr, 2019 | Updated: 24 Apr, 2019
by David Robb
Analysis
Bitcoin (BTC) beyond $5000 - what's changed since last time around?

With the Bitcoin (BTC) price rapidly surging past the $5000 after months of hovering around $4000, many in the crypto community are calling this the start of a new bull run. Let’s take a look at the last time BTC was trading beyond $5k, and see what’s changed since last time around.

The last time the BTC price saw the $5k level before this was a year and a half ago - around October 12, 2017. This was when the historic bull run, up to a peak price of $19k, was just kicking into gear. So what has changed between then and now?

Chart provided by Tradingview


1. The Lightning Network

One significant way that Bitcoin is different compared to October 2017 is the implementation of the Lightning Network. First introduced in a whitepaper by developers Joseph Poon and Thaddeus Dryja in 2016, the LN payment protocol started to be tested around December 2017.

LN was developed as a solution to Bitcoin’s scalability issues, which had been identified from the very start of the project back in 2008. It allows for faster transactions between users by processing them off-chain, in a separate payment channel that is open for an indefinite amount of time. The blockchain is updated once the channel is closed.

As the top crypto was really starting to increase in popularity around 2017, LN was brought into play as a genuine way of helping the network cope with the huge growth in traffic. After a slow start, the LN gradually became implemented more and more. As well as easing the load on the main BTC blockchain, the LN is particularly useful for processing micro-transactions, such as those on the ‘digital tip jar’ tippin.me

Image from Gyazo

Since the start of 2018, the number of LN nodes with channels has increased from 64 to 4148, with the total doubling between December 2018 and April 2019. In March 2019, the total capacity of the LN exceeded 1000 BTC for the first time. Even as BTC itself has fluctuated in price and transaction volume, LN adoption has grown consistently, emerging as an indispensable new feature that could underpin a new BTC bull market.

Read more: Network capacity exceeds 1,000 BTC as lightning network adoption continues

2. SegWit

Similar to the Lightning Network, the Segregated Witness (SegWit) layer was built to address the scalability issues facing the Bitcoin blockchain. It moves digital signatures to the end of a block, which means that the block size can be significantly larger.

It was first activated in August 2017, and the last time Bitcoin was at $5000, around 7% of BTC transactions were using the protocol. Since then, adoption of SegWit has grown exponentially, with around 43 percent of transactions on the BTC network now making use of the layer. In February 2018, a new official update to the Bitcoin Core code was released. Bitcoin Core Version 16.0 introduced a feature that made SegWit transactions the default for people who were using the default Bitcoin wallet.

Image from Gyazo

Another improvement brought in by SegWit is that it fixed transaction malleability. This means that it is no longer possible for malicious nodes to tamper with transaction IDs, which enables the Lightning Network to be effective. With the LN and SegWit combined, the Bitcoin network could eventually scale from around 10 transactions per second to thousands or even millions, making it more than capable of handling the volume increase that the next bull run could bring about.

Read more: Bitcoin has now processed over 400 million transactions

3. Better trading platforms

After its launch in August 2017, Binance was just starting to find its feet and turn a profit in October 2017. However, its neat interface and great functionality, as well as the huge number of trading pairs it offered, meant that the exchange was soon able to take over the crypto trading market. As of January 2018, it became the top trading platform, with over a million new users registering every week.

The ascent of Binance has been one of the key stories in crypto since the last BTC bull run, and it has significantly changed the way the industry operates. Its native token, Binance Coin (BNB), was an innovative way of handling transaction fees, and it has rapidly grown to be one of the top 10 cryptos, with a market capitalization of $2.6 billion.

Read more: The 3 best and worst performing altcoins since their ATH

Binance has set an example for other top crypto trading platforms such as OKEx and Kraken, which have followed its lead in launching native tokens, as well as other improved services and global expansion. One of the more important developments is an increase in fiat on-ramps. First introduced with Binance Uganda, credit card payments are now standard across many platforms, offering a more direct route into Bitcoin trading for retail users.

Although it has arguably contributed to the centralization of the crypto market, Changpeng ‘CZ’ Zhao’s company and its competitors have brought about stability and legitimacy to the industry. Binance and other exchanges are also in the process of launching decentralized exchanges (DEXs) for those users who want the choice to not use intermediaries in crypto trading.

With a wider, more reliable, and more accessible trading eco-system now available, the next Bitcoin bull run should be supported much more effectively than before, particularly for newer traders who are joining the space for the first time.

Read more: Why bears are wrong about the Bitcoin pump

4. Institutional interest

Since the last time the BTC price was at $5000, Bitcoin has seen a huge influx of investment from traditional financial institutions and even more is expected to come in the next year or so.

There are now over 500 BTC-related investment funds, managing at least $10 billion each. More than 200 of these have been created since October 2017, in the U.S. and further afield, despite a general downturn in the number of new hedge funds being launched. One of the most high-profile institutional investors is Michael Novogratz, who founded the Galaxy Digital investment firm in 2018. He is one of the pre-eminent Bitcoin bulls, and regularly encourages others in his field to get involved in the crypto space.

Late 2019 should see the launch of Bakkt, a major new project from the Intercontinental Exchange, which runs the NYSE and a number of other leading global stock exchanges. This should introduce physically-delivered Bitcoin derivatives contracts, which will bring BTC trading more in line with the Forex market that institutional traders are used to. Bakkt is also due to launch new custodial solutions for investors who are wary of handling a digital asset, as will leading pensions firm Fidelity.

Read more: 5 ways Fidelity and Bakkt could change cryptocurrency in 2019

Institutional investment both in Bitcoin and its infrastructure is reshaping the market into a more secure and reliable trading space, one that should eventually encourage the SEC to approve a Bitcoin ETF. Whereas the last bull run was led primarily by retail investors, and institutions that were willing to take on a little more risk than usual, this time around the established financial firms won’t have to be so bold to enter the market.

Read more: What does JP Morgan's Jamie Dimon really think about Bitcoin?

5. More use cases

An increasing number of merchants and payment processors are now accepting Bitcoin as payment, with people now using BTC to buy fast food, cars, real estate, and even to pay their taxes. There has also been a huge growth in the number of Bitcoin ATMs recently. Almost 3000 new Bitcoin cash machines have been installed worldwide since October 2017 - an increase of almost 200%.

Image from Gyazo

The global financial system is arguably in a worse state now than it was when Bitcoin last saw the $5000 level. Although unemployment is falling in the U.S., many are predicting another major economic recession around the corner. If this does come about, Bitcoin could be seen by many investors as a good store of value and a hedge against volatility.

Read more: 5 reasons it's not too late to get into cryptoStarbucks and Bitcoin: what are the facts?

Further afield, cryptocurrencies have even more appeal to those facing economic hardship. People in the developing world who lack access to banking services are increasingly turning to crypto as a way to gain some measure of financial independence. Meanwhile, the escalating hyperinflation seen in Venezuela since October 2017 has made it a key area of adoption for Bitcoin (BTC) and other tokens like Dash (DASH).

Since the last time BTC was at the $5000 level, it has been firmly established as a legitimate payment system. The feverish enthusiasm and hype bubble that caused the last bull run may have been led in part by speculators just looking to make a quick buck. After this subsided, Bitcoin weathered the storm of a year-long bear market, defying countless predictions of its imminent demise. In the process, it has proven itself a useful and reliable solution for a number of genuine real-world problems, which should stand it in good stead for the next bull run (and the possibility of even more people looking to buy in and get rich off BTC hasn’t entirely gone away either…).

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