Coinbase is integrating the Bitcoin Lightning Network, partnering with Lightspark to provide its users with a faster and cheaper transaction experience. Meanwhile, Cathie Wood of ARK Invest shared her thoughts on Bitcoin&'s broader appeal amidst currency devaluations. She also praised its potential as both an investment and a hedge against fiscal instability. In the backdrop of BTC’s growth, the Bitcoin mining sector is gearing up for the upcoming halving event, with companies like Bitfarms investing heavily to boost their operations.
Coinbase’s Bitcoin Lightning Integration
Coinbase is on the verge of incorporating the Bitcoin Lightning Network into its platform through a partnership with Lightspark, a company that specializes in Lightning solutions for enterprises, led by ex-PayPal president David Marcus. In the announcement on Apr. 4, Coinbase CEO Brian Armstrong revealed that the integration with the layer-2 network is expected to happen "soon," and will offer its vast user base of 108 million the ability to conduct faster and cheaper Bitcoin transactions.
This move to integrate Lightning Network, a second layer to Bitcoin that allows for quicker and more cost-effective transactions, seems to be a strategic move to address the rising transaction fees on Bitcoin&'s primary network. Lightspark, which was established in 2022, has been focused on simplifying the complexities involved in managing a Lightning node, which is essential for sending and receiving transactions reliably. The firm has also developed Lightspark Predict, an AI-driven tool designed to optimize liquidity requirements and routing in real-time, improving transaction success rates and speeds.
According to a study by River, a Bitcoin financial services firm, the Lightning Network has a 99.7% success rate for payments based on data from 308,000 Lightning transactions. The main challenge for transactions that do fail is the lack of sufficient liquidity to complete the transfer. River&'s findings also indicate that the average transaction size on the Lightning Network is about 44,700 satoshis, equivalent to $11.84, and estimates the number of active Lightning Network users to be between 279,000 and 1.1 million as of September.
Coinbase&'s integration of the Bitcoin Lightning Network follows Binance, its major competitor, which added support for Lightning in July of last year. The technology has gained a lot of popularity as a payment method in various parts of the world, including Lugano, Switzerland, El Zonte in El Salvador (nicknamed "Bitcoin Beach"), and Utiva in Costa Rica (known as "Bitcoin Jungle").
Despite the growing adoption of Bitcoin as a means of transaction, people like Michael Saylor still mostly advocate for Bitcoin&'s value primarily as a store of wealth, rather than a medium of exchange.
Wood&'s Take on Bitcoin&'s Rise
Cathie Wood believes that people using BTC might benefit from more than just efficient and cost-effective transactions. The CEO of ARK Invest recently shared her thoughts on Bitcoin&'s rising value in an interview with CNBC, stating that the cryptocurrency is acting as a "flight to safety" against the devaluation of fiat currencies.
Wood sees Bitcoin as a unique investment that can be considered both risk-on and risk-off, and believes BTC’s appeal is a much broader context than just the introduction of new exchange-traded funds (ETFs) in the United States. Despite the push for mainstream acceptance through ETFs, she believes that Bitcoin&'s appeal also extends to offering ordinary people protection against currency devaluation. She specifically pointed towards the severe depreciation of currencies like the Nigerian naira and Egyptian pound against the U.S. dollar due to government interventions as examples.
Wood suggests that Bitcoin&'s attractiveness lies in its potential as a hedge against fiscal mismanagement and currency devaluation, offering a safeguard to people&'s purchasing power and wealth. This perspective gains further weight when taking into consideration past events like the U.S. regional banking crisis and the Greek financial crisis, which she references to point out Bitcoin&'s role as a form of insurance against economic instability.
Despite ARK&'s ETF facing net outflows recently, Wood is still supportive of Bitcoin, and believes the crypto could see huge price increases driven by institutional investments. With a bold prediction of Bitcoin reaching a $1 million valuation before 2030, Wood points to the untapped institutional market as a key driver for future growth.
Bitcoin&'s Profitability
Even more good news for Bitcoin investors is that their portfolios have stayed in the green for 99.92% of the time since the cryptocurrency&'s inception on Jan. 3 of 2009. This statistic means that there were just six days of unprofitability over a span of more than 14 years.
Recent months have seen Bitcoin reach a new all-time high of $73,600 in mid-March, ensuring that investors across all entry points witnessed an appreciation in their investments. Additionally, despite the market&'s volatility, Bitcoin has managed to maintain its value within the $68,000 to $70,000 range.
The periods of unprofitability are only confined to specific dates when Bitcoin was bought at its peak, particularly between Mar. 9-13 and Mar. 25-29, during which investments have seen losses due to the subsequent adjustments in Bitcoin&'s market price. Despite this, the overall landscape for Bitcoin investors remains overwhelmingly positive.
Bitcoin&'s ability to recover from bear markets and maintain its value not only benefits investors but also supports the mining community. As the cryptocurrency approaches its fourth halving event, which is expected to happen at block height 840,000 around Apr. 20, both institutional and private investors are gathering Bitcoin in anticipation of a price surge. This event is expected to reduce mining rewards to 3.125 BTC, which means that miners are making plans to make sure they remain profitable.
In response to the upcoming halving, Canadian Bitcoin mining firm Bitfarms announced a massive investment of almost $240 million to upgrade its mining equipment. This move aims to triple the company&'s hash rate to 21 EH/s, increase its operating capacity by 83% to 440 megawatts, and enhance fleet efficiency by 40% to 21 w/TH. According to Bitfarms&' chief financial officer Jeffrey Lucas, this strategic upgrade will be a "game changer" that positions the company for greater scale and profitability.
Bitcoin Mining Resurgence
Others are also getting ready for the halving. In the first quarter of 2024, Bitcoin miners started reactivating older crypto-mining machines which contributed to a record-setting hash rate as Bitcoin&'s price soared to new heights. According to Nico Smid, the founder of Digital Mining Solutions, improved market conditions have made it profitable for miners again. Previously unprofitable miners are starting to resume operations.
The reintroduction of these older miners, alongside the deployment of advanced equipment like the Bitmain S21, has fueled a 14.7% increase in the Bitcoin hash rate since the year&'s start. This boost is similar to adding 375,000 Antminers S21 200 TH/s to the network. By Mar. 11, Bitcoin&'s hash rate reached a peak of 631 exahashes per second (EH/s) on a 7-day moving average, coinciding closely with Bitcoin&'s price reaching new record highs, including a peak at $73,738 on Mar. 14. Despite a decrease in transaction fees since early March, miner revenues hit an all-time high on Mar. 10.
While old miners are finding new life, the stability in the cost of ASIC machines means that miners are still cautious ahead of the Bitcoin halving event. A survey by ASIC Jungle indicates that 65% of miners are delaying new equipment purchases until after the halving.
Sphere 3D vs. Gryphon Digital Mining
The competition between Bitcoin miners is also starting to pick up. Sphere 3D recently openly denied claims of financial instability made by its former partner Gryphon Digital Mining. The dispute, which is centered around financial disagreements, escalated to the United States District Court for the Southern District of New York, where both companies have exchanged allegations of breach of contract and financial mismanagement.
Gryphon started the legal battle by requesting the court to freeze $10 million in equity proceeds that Sphere 3D got from a settlement related to Core Scientific&'s bankruptcy exit. Gryphon argued that this measure was necessary to make sure Sphere could fulfill potential future breach of contract judgments.
Contrary to Gryphon&'s accusations, Sphere 3D presented a robust financial status in its defense, pointing towards its 2023 Annual Report which showed $45 million in assets against a mere $5 million in liabilities. Sphere confidently stated that it could easily settle a $30 million judgment, should it be imposed, and accused Gryphon of making the legal proceedings seem worse than they really are.
The backdrop of this legal tussle is the harsh financial climate that crypto miners, including Sphere and Gryphon, faced during the crypto winter between 2022 and 2023. Insiders suggest that Gryphon&'s aggressive stance could be a strategy to mitigate its own financial strains, as it reportedly holds $18 million in assets versus $27 million in liabilities.
The root of the conflict traces back to a Master Service Agreement (MSA) established in 2021, under which Gryphon managed Sphere’s blockchain operations exclusively. The partnership soured in April of 2023 after an incident where Sphere accused Gryphon of a security lapse that led to the unauthorized transfer of 26 Bitcoins to a malicious party. Gryphon retaliated by blaming Sphere for negligence.
To make things even worse, Sphere alleges Gryphon breached their MSA by failing to file a proof of claim in Core Scientific’s bankruptcy case, jeopardizing Sphere&'s ability to recover a big portion of its $35 million deposit for hosting services. Sphere is now seeking damages of more than $25 million from Gryphon, as they believe that Gryphon&'s oversight greatly impacted Sphere&'s financial recovery from the Core Scientific bankruptcy settlement.
