- Bitcoin’s settlement functionality faces risk as user activity declines.
- Shift in BTC volumes to ETFs and custodians reduces network usage.
- Implications for miner revenues due to reduced fee inflow.
Galaxy Research has highlighted a risk for Bitcoin, warning that it could become a settlement layer without active transactions due to declining network usage and fee revenue.
This warning emphasizes the risks of Bitcoin’s reduced engagement, impacting security and potentially diminishing its viability as a transaction medium.
Galaxy Research has issued a warning regarding Bitcoin’s declining usage on its core network. The report highlights potential risks of becoming a settlement layer with inadequate activity. This situation arises due to stagnant fees and shifting volumes toward alternative platforms.
Insights from Alex Thorn
Alex Thorn, Head of Research at Galaxy Digital, explains that as more Bitcoin migrates to ETFs and custodians, the primary network may lack sufficient settlement activity. Thorn’s insights point to a serious need for real reasons to continue using the chain effectively.
“If more BTC volume continues to migrate to ETFs, custodians, and fast alt-L1s, the core network risks becoming a settlement layer without sufficient settlement activity.”
Market Impact and Institutional Custody
The market impact of this trend includes diminished miner revenue due to lower on-chain transactions. Institutional custody also decreases the organic demand for Bitcoin blockspace, affecting fee generation. These changes necessitate a reassessment of the chain’s utility.
Cryptocurrency dynamics are shifting as activities that traditionally supported Bitcoin’s fee market now gravitate towards faster, alternative blockchains like Solana and Ethereum. These migrations highlight Bitcoin’s challenges in adapting to evolving market preferences. More insights into the on-chain transaction fees and UTXO model offer a deeper understanding of these trends.
Challenges in a Post-Halving Era
Historical data shows periods of low fee revenues following miner reward halvings in 2018 and 2020. As block rewards decrease, Bitcoin’s security relies more heavily on transaction fees, sparking concerns about sustainability. Potential outcomes could involve legislative changes such as the Digital Asset Market Clarity Act impacting Bitcoin’s custodial practices. Galaxy’s research underscores the importance of recognizing these shifts in both market behavior and technological adaptation.
