Crypto Wars: Return of the BTC

“The more things change, the more they remain the same” – Alphonse Karr

After a tumultuous, mostly downhill-momentum ridden first quarter, we are now witnessing a bit of a sustained bounce back in the crypto markets. The asset class appreciated by over 50% since the beginning of the month. News such as Goldman hiring its first head of crypto, and Soros deciding to make a move, has definitely helped. This recent rally is being driven by the uptick in the valuation of a majority of altcoins, resulting in a decline in BTC dominance. The low Bitcoin dominance could foreshadow a BTC rebound, in which case that the altcoin rally may reverse quickly.

Alternatively, this could be the new normal, as the number of quality projects coming online is increasing, and scarce investor capital actually gets pulled away from the ‘safe-harbour’ that BTC was perceived to be. This could also be because BTC’s dominance as a gateway crypto is diminishing. During the first quarter, the falling price of Bitcoin stole most of the headlines, while the significant decline in on-chain transaction volumes for BTC and ETH obviously missed the attention of most of the mainstream media. On-chain transaction volumes is a reliable and widely tracked indicator for economic activity on a blockchain. Historically, Bitcoin’s price rise was highly correlated with the growth in transactions.

However, this time, in our view, the fall in BTC transaction volumes is less worrisome than what the charts show. The feverish buying activity fueled by FUD and FOMO during the last weeks of December led to a frothy spike in on-chain transaction volumes, resulting in very high transaction fees. Crypto exchanges, which account for a sizeable number of transactions, in an effort to save transaction costs, resorted to literally “batching” their transactions. In layman terms, batching allows users to bundle multiple transactions together and send it as a single transaction to save space in the block. Each transaction after batching would otherwise be equivalent to 8 to 9 or more transactions if the fees were not a deterrent. In addition, investor interest cooled off significantly after Bitcoin’s price stabilized following a meltdown in January, leading to even lower on-chain transaction volumes.

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Cheerful Week for BTC Offshoots (Clones)!

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In other news, it could be blockchain forking season again for Ethereum. Get your popcorn ready and brace yourselves for the GETH vs Parity battles, as a select gang of developers distributed across the world go head-to-head, or code-to-code, on esoteric terms such as EIP999, while the rest of us try and make sense of it all.