The crypto space in the last few months has experienced some strange activity, and much of that is because the fundamentals of Bitcoin acceptance and usage have stalled. From the El Salvador experiment to a true spot price ETF to the Lightning Network, there have been many forces and moments that promised to expand Bitcoin and crypto’s appeal but haven’t yet broken through. This has created price uncertainty and volatility after the big run-up earlier this year.
Without a clear, defining event to push the price higher in a sustainable way, there isn’t much on the horizon that provides an obvious ramp upwards for crypto. At the same time, because crypto prices have been bid up due to speculation, the currencies are vulnerable to sudden downwards adjustments.
The El Salvador Bitcoin Experiment
The El Salvador Bitcoin experiment has largely failed. The government botched the launch of its Chivo wallet, leading to outages and massive identity fraud as hackers tried to steal the signup bonuses on the poorly secured app. At the same time, El Salvador residents failed to migrate to using Bitcoin, with nearly all of them preferring to own and use dollars instead.
The government stopped making ads for Chivo and has started to cover up posters and wrappings that mention the app. The El Salvador government is in dire financial straits and needs a large infusion of dollars to function, and the Bitcoin play was an attempt to skim some dollars out of the economy and foreign exchange. Since that isn’t working, the government has stopped bothering to promote the app or the Bitcoin legal tender in general. Next year, it is unlikely that El Salvador will be a meaningful player in crypto.
SEC Closing the Door on Bitcoin ETF
The Bitcoin ETF has long been a dream for crypto watchers. It would give the currency broader exposure to retail traders beyond the hardcore enthusiasts and open the door to more institutional investment. Two ETFs based on futures prices for Bitcoin were approved by the SEC this year, without much impact on crypto prices. The real prize is an ETF based on Bitcoin’s spot price and even ETFs based on other currencies.
However, the SEC has repeatedly rejected spot price ETFs. They are much better than the futures ETFs for price discovery and for interest to the public, but the SEC has signaled that it is not interested in approving one of those anytime soon. The volatility and potential manipulation in the Bitcoin price over the various exchanges are too daunting for the SEC to manage with the exposure of an ETF. This also closes the door on ETFs for other major cryptos for the near future, as those are less financially established than Bitcoin.
Lightning Network Continues to Stall
Lastly, the Lightning Network, which has long been heralded as a transformative tech for making crypto transactions faster and cheaper, continues to stall. A hopeful report by Arcane Crypto projected hundreds of millions of users in the next ten years. But that assumed that every adult and teen citizen of El Salvador would become an active Lightning user and that streaming services like Spotify and Netflix would also switch to crypto and migrate their userbases over to Lightning payments. Both of those assumptions are wildly optimistic.
The reason Lightning is not growing is because there is no transactional use case for Bitcoin. Other cryptos that do have transactional use, like the eth family, suffer from enormous gas fees because they do not scale well and do not have effective Layer 2 solutions.
This stagnant environment means that a retreat to core crypto projects without relying on ambitious, unproven projects or exponential growth projections is a safer move. If you want to track your investments, then try using a crypto growth calculator like this one. Enter how much crypto you have as the principal, and then how much you plan to buy each month as the deposit. You can also change the frequency to yearly or some other interval if that is more convenient. Then add in the rate of return you plan to get and how long you will let your investments grow, and it will create a graph and numerical output for how your pile will grow under those assumptions.
You can do things like experiment with higher and lower rates of return to see how that changes the outcomes. These are not ironclad projections, but they are a good way for you to see how well your plan will work under various conditions in the market and over different time horizons for your investments.