Dialogue with Blockstream Co-founder: The Road to $100,000 for Bitcoin

Host: Michael, Blockworks Macro

Speaker: Adam Back, Co-founder & CEO of Blockstream

Compiled by: Deep Tide TechFlow

In today's program, Adam Back, co-founder and CEO of Blockstream, joins the show to share his insights on the current macroeconomic environment, the future of Bitcoin, and industry dynamics.

The Impact of the Macroeconomic Environment on Bitcoin

Adam mentioned geopolitical and macroeconomic factors that have led to global financial turmoil, such as COVID-19, money printing, supply chain disruptions, and political conflicts. He emphasized that Bitcoin is gradually gaining acceptance and understanding in traditional finance, as evidenced by the interest from major U.S. financial institutions in Bitcoin-related financial products.

Adam believes that the recent surge in Bitcoin prices has attracted the attention of institutional investors and traditional finance experts. Now is the time for Bitcoin to gain more adoption and acceptance, especially with the potential approval of spot exchange-traded funds (ETFs) in the near future. However, he warned that investors should be aware of the potential risks associated with custodial ownership of Bitcoin, as it could undermine the cryptocurrency's censorship-resistant properties.

Investment Portfolios Beyond Bonds

Adam mentioned that when interest rates unexpectedly rise, investors holding large amounts of long-term government bonds suffer losses. In such cases, investors need to reassess their investment strategies and consider alternative assets that can provide long-term value and growth, such as Bitcoin.

Adam pointed out that given the current state of the bond market, the traditional investment strategy of allocating 40% to bonds may need to be revised. He suggested that adding Bitcoin to the portfolio could serve as a store of long-term value, which is different from gold primarily used as a hedge.

Bullish on the Lightning Network

Adam believes that Bitcoin is undergoing a maturation and stabilization cycle, gradually being recognized as a digital asset with long-term value storage and wealth preservation functions.

Adam predicts that Bitcoin's price could reach $100,000. He believes that as Bitcoin becomes more mainstream and more institutional investors enter the market, the value of Bitcoin will continue to grow. The current market undervalues Bitcoin below $100,000, and its scarcity and decentralized characteristics give it higher potential value.

Adam pointed out that the Lightning Network is a second-layer solution based on Bitcoin blockchain technology, designed to improve the transaction speed and scalability of Bitcoin. Through the Lightning Network, users can conduct fast, low-fee microtransactions without having to record each transaction on the Bitcoin main chain.

The development of the Lightning Network has multiple implications for Bitcoin. First, it can increase the transaction speed of Bitcoin. Due to the longer confirmation times for transactions on the Bitcoin main chain, the transaction process is slower. However, with the Lightning Network, transactions can occur on the second layer network and be completed almost in real-time, significantly enhancing Bitcoin's transaction speed.

Secondly, the Lightning Network can reduce transaction fees for Bitcoin. Transaction fees on the Bitcoin main chain rise with network congestion and increased transaction volume. However, through the Lightning Network, users can conduct low-fee or even free microtransactions, further promoting the use and adoption of Bitcoin.

The development of the Lightning Network can also enhance Bitcoin's scalability. As the number of Bitcoin users continues to grow, the number of transactions on the main chain will increase, leading to network congestion and transaction delays. The Lightning Network provides a scalable solution that allows Bitcoin to handle more transactions and easily cope with future user growth.

Bitcoin ETFs

Adam believes that the introduction of Bitcoin ETFs could bring more liquidity to the Bitcoin market and attract more institutional investors. The introduction of ETFs will allow more investors to buy and hold Bitcoin through traditional exchanges, thereby increasing market participation in Bitcoin.

Adam believes that the core value of Bitcoin lies in its decentralized nature. As a decentralized digital currency, Bitcoin is not controlled by any central authority or government. This gives Bitcoin its censorship-resistant and self-sovereign characteristics, allowing individuals to have complete control over their assets and transactions. He emphasized that this decentralized nature is the essence of Bitcoin and is fundamentally different from traditional financial systems.

Adam pointed out that the introduction of ETFs could lead to the marketization and financialization of Bitcoin, bringing it closer to traditional financial systems. This could introduce some centralization risks and compliance issues with regulatory bodies. Therefore, he calls for people to maintain a commitment to the decentralized essence of Bitcoin while promoting the development of the Bitcoin market and seeking a balanced path forward.

Adam noted that the introduction of Bitcoin ETFs would expose the Bitcoin market to the regulatory framework of traditional financial systems. This involves ensuring the compliance of Bitcoin ETFs, including KYC and AML (anti-money laundering) regulations. Regulatory bodies need to ensure that the operation of Bitcoin ETFs complies with these regulatory requirements to protect investors' funds.

Adam emphasized that regulatory bodies need to gain a deep understanding of Bitcoin and blockchain technology's characteristics and develop corresponding regulatory policies. This will help ensure the safe operation of Bitcoin ETFs and avoid potential risks and vulnerabilities.

What Stage Are We in the Bitcoin Cycle?

Adam mentioned that the price movements of Bitcoin exhibit cyclicality, having experienced multiple boom and bust cycles during its existence, with rapid price increases followed by significant corrections, and each cycle has its unique characteristics and driving factors, including market demand, investor sentiment, adoption rates, and other external factors.

Adam emphasized that understanding and recognizing this cyclical characteristic is crucial for investors, as it can help them better understand and predict Bitcoin price fluctuations.

Adam pointed out that in the current cycle, Bitcoin's price has experienced significant volatility. Nevertheless, the fundamentals of Bitcoin remain strong, with hash rates and adoption rates continuously increasing, and miners maintain an optimistic outlook on Bitcoin's long-term value. In the long run, Bitcoin shows a strong growth trend.

Adam stated that Bitcoin has evolved from a fringe technological experiment into a widely recognized asset class, with its core value and technological innovations continuously developing. Over time, Bitcoin has begun to gain broader recognition, especially in traditional finance, with more institutional investors and financial service companies exploring and adopting Bitcoin.

Adam believes that the integration of Bitcoin with traditional financial products, such as Bitcoin exchange-traded funds (ETFs), provides traditional investors with a more accessible and understandable way to invest in Bitcoin, further promoting its acceptance in mainstream financial markets. Although the regulatory environment varies across different countries and regions, the overall trend is towards better understanding and regulating this emerging market.

The Impact of Bitcoin Ordinals

Adam pointed out that Ordinals are a native NFT form of Bitcoin, realized through UTXOs (unspent transaction outputs) arranged in a specific way. This became possible with the recent Taproot upgrade, allowing the creation and dissemination of these Ordinal NFTs on the Bitcoin blockchain.

Adam mentioned that the emergence of Ordinals may lead to a new perspective on Bitcoin's block space. This new use has sparked controversy within the community, with some arguing that Bitcoin should primarily be used for financial transactions, while others believe that if the code allows for such use, then it is valid.

Adam noted that each JPEG image is about 100KB and could replace hundreds of financial-related UTXOs, potentially preventing some emerging market users from conducting cold storage on the main chain and forcing them to use custodial services or exchanges. This situation indicates that while Bitcoin is a free market, due to limited block space, those who can pay higher fees may ultimately gain an advantage.

Adam also mentioned that Bitcoin adapts based on user behavior, market conditions, and solutions provided by technology vendors. For example, due to the emergence of Ordinals, some technological solutions have been forced to adapt to new economic conditions, thereby enhancing the scalability and resilience of the Bitcoin network.