The Cryptocurrency Market Has Reached A Critical Mass

The Second Of Two Crypto-Revolutions Has Begun

By definition, critical mass is the minimum amount of fissile material needed to sustain a nuclear reaction. Comparing the cryptocurrency market to that definition it would seem as if the market reached critical mass a long time ago. The cryptocurrency market has been sustaining itself for quite some time which raises the question, what’s happening now? Prices for Bitcoin are skyrocketing like in 2018 and there is no end in sight. In our view, what’s happening now is that a second critical mass in the cryptocurrency market has been reached. After years of waiting the cryptocurrency market has reached the point at which consumer demand is driving adoption by mainstream institutions and we’re only in the opening round.

Bitcoin Goes Institutional

The adoption of Bitcoin (BTC) as both a means of transferring value and investment has been slow going but it is gaining momentum. Hurdles in the form of uncertain regulation and volatility kept most mainstream investors out of the market but that is changing fast. Demand for Bitcoin service by consumers and investors is leading more retailers and institutions to adopt the coin. That, in turn, is driving increased demand among consumers and investors.

Elon Musk and Tesla made headlines when he announced a $1.5 billion investment in the cryptocurrency but they are far from the first. Paypal began offering cryptocurrency exchange and custodial services to its customers in the fall of 2020 and there are others before that, Overstock.com is only one that springs to mind. The point is that there are a growing number of high profile businesses embracing the coin and with each new addition to the list market demand builds. And it is building to a point businesses are being forced to respond.

There were not one but four major announcements concerning Bitcoin in the wake of the Tesla revelation. News from MasterCard, Bank of New York Mellon, J.P. Morgan, and Morgan Stanley amount to one thing; their clients want to own Bitcoin and other cryptocurrency. J.P. Morgan reports that its managers are demanding the company support crypto while Morgan Stanley is mulling another investment in a crypto-focused business.  MasterCard is perhaps the most aggressive saying it will support the use of several cryptocurrencies directly on its platform while Bank of New York Mellon will offer custodial services. The bottom line is that, regardless of use, competition within the financial world will have to support cryptocurrency or else risk getting left behind.

The Money Is Flowing Into Ethereum

If there is one thing about cryptocurrency that mainstream investors need to understand it is defi. Defi is an umbrella term for decentralized finance applications such as lending, borrowing, providing liquidity, and other financial services on the web. Investors who stake or capitalize these defi apps earn fees and interest but that is not the point. The point here is not that anyone should rush out and use these services but that money is flowing into them at a very fast pace.

Ethereum (ETH) is the #2 cryptocurrency by market cap. The Ethereum network itself is a form of defi. The Ethereum 2.0 upgrade is turning the network into a POS blockchain which means miners (now called validators) stake money to capitalize a “node”, collateralize transactions and earn fees. The total value of money staked into the ETH 2.0 Beacon Contract surpassed $5.5 billion in the past week and continues to grow daily.

Perhaps more importantly, 59 of the top 60 defi applications in the world, worth 99.9% of the total value staked in defi or about $40 billion, are built on top of the Ethereum platform. That brings the total value staked in or on the Ethereum network to over $45 billion. At the current pace, the Ethereum network will have well over $100 billion in staked value by the end of the year. The takeaway is that, once again, demand is high and mainstream businesses are going to have to get on board with defi or else risk getting left behind.

The one defi app that isn’t built on Ethereum is the Lightning Network. The Lightning Network is built for the Bitcoin network which raises a question about Tesla’s purchase. Perhaps Tesle is planning a Lightning node or similar application of defi.

This Is Isn’t The End Of Bitcoin’s Run

With accessibility to cryptocurrency about to erupt it is safe to assume the run up in cryptocurrency prices isn’t over. Not only is adoption and interest growing, but the number of available tokens is also getting smaller. Yes, new Bitcoins and Ethereum are being minted every day but there are a finite number of them to be minted and something else to consider as well. People lose Bitcoin and that is having an impact on scarcity. At last estimate about 20% of all mineable Bitcoin’s have already been lost and more are lost every day. If you want one before they cost $100,000 each you may need to act fast.