If you're like us, you've probably been glued to cryptocurrency news all year with a mixture of excitement and anxiety as Bitcoins price crashed and then crashed even further with so many companies going under. It was a terrible, no good year for everyone. But despite the ups and downs, there's always a silver lining to be found and it's pretty clear one of them is in Bitcoins transfer value.
The Great Bear Market Of 2022
It's no secret that 2022 has been a terrible year for all assets, not just Bitcoin. With virtually every share, every bond and other asset class all hugely crashing it's been a huge hit to most peoples portfolios. What's surprising though is that throughout this huge draw down so many of Bitcoins core metrics have been surging. Everything from number of coins held in self custody to its hashrate and especially its transfer value has gone bonkers.
What Is Transfer Value?
Transfer value is exactly what it says on the box. It's a measure showing you how much value (usually noted in USD) has been transferred in any given time. For example, if 100 people send each other 1 BTC over the course of a day and 1 BTC = $10,000 USD then the total transfer value for that day is 100 (transactions) x 1 BTC x $10,000 = $1,000,000 USD. During times of high volatility transfer value tends to increase because everyone is trying to either sell or buy depending on what's happening. So we should expect to see Bitcoin's transfer value increase around the periods of volatility, which it did. What's surprising though is that even outside of these times it's still hugely increased when we compare it to virtually any other previous time. Although Bitcoins price dropped a ton this year, this apparently hasn't stopped significantly more people from using it to transfer some truly staggering amounts of value around the world.
Why Has Transfer Value Surged?
There's a few key reasons that transfer value has surged. As noted above, it's been a very volatile year (at least the first half) and so this always increases the amount that people trade. One of the other main reasons has been the increasing adoption of the cryptocurrency by mainstream investors and institutions. As more and more people become aware of the potential benefits of Bitcoin, demand for it has naturally increased.
Many people now see Bitcoin as a safe haven asset - especially compared to hundreds of other more volatile and hard to trade currencies - and believe that it will hold its value better during these times of economic uncertainty. This has led to millions of new people using it to save for the future and store their wealth, further increasing the buying and selling of it. Another major reason is that thanks to the Lightning Network, Bitcoin is really starting to deliver on it's original promise of being online, digital cash. As pointed out by Athena Alpha, you could always send bitcoins pretty quickly over the base layer in a few minutes and for a pretty low cost, but it was still clunky. Most people never used it for more "exchange of value" type transfers like buying coffee, sending $10 to a friend or making lots of regular purchases. However all throughout 2021 and especially in 2022 Lightning has grown in leaps and bounds. The network is not just bigger and more accessible with easy to deploy wallets and nodes, it's more robust and reliable too. This increased adoption and use by millions of people has resulted in more people doing base layer Bitcoin transactions too. Whether it's to buy the bitcoins they'll send over Lightning or to open up new channels.
Cumulative Transfer Value Hits $100 Trillion
Increasing and continued cumulative transfer volumes is a solid sign of increasing demand for an asset. That's why it was quite ironic that during such a negative, terrible year the cumulative transfer value for Bitcoin soared past the $100 Trillion dollar mark. This larger cumulative transfer volume also helps to provide more liquidity to the market which makes it easier for people to buy and sell when they want to. This creates an overall more efficient market which is good for everyone involved. As Bitcoin grows bigger and bigger it also attracts more and bigger investors. This feeds back into the increased transfer value amounts, adding more liquidity and making everything work even more smoothly.
As we can see, the average size of a transaction (denominated in bitcoins) also grew over 2022. We're seeing more and bigger fish enter the pond and as this accelerates we can expect Bitcoin to become more and more stable too.
What To Expect In 2023
It's a fool errand to predict what the future holds for Bitcoin. It's still relatively new (compared to something like stocks or bonds) and is always evolving. However, there's a few trends we can note. It's clear that there's huge interest by mainstream investors and institutions and that their entering into the market will only accelerate in 2023. As more and more people become aware of the potential benefits of Bitcoin, demand for it is likely to continue to grow. This will likely only accelerate the more central banks run their printers in overdrive. Another trend is the continued and ever amazing development of the technology itself. Everything from the Bitcoin Core software to custom Full Node operating systems to wallets. The software ecosystem is huge and only getting bigger especially with Lightning now. Finally, regulatory developments will probably have a significant impact on Bitcoin's this year. As governments and central banks around the world respond to the criminal negligence that is FTX, the future of Bitcoin and other digital assets remains uncertain. Will they over react? Or will common sense prevail? Whichever happens, it's going to be another exciting year!