Bitcoin has gone from “magic internet money,” to speculative trade, to a mainstream asset adopted by Wall Street. More people, companies, and countries are starting to utilize the technology which continues to expand the network’s volume.
Bitcoin can eat into other financial markets, becoming a global settlement network for all financial products. With the help of miners and scaling improvements like the Lightning Network (LN), Bitcoin could consume equities, futures, and possibly foreign exchange (FX) markets.
Pricing existing financial markets in terms of Bitcoin gives a sense of scale for what Bitcoin needs to grow into, starting with Bitcoin exchanges and finalizing with money markets.
Pricing in Bitcoin, crypto-native exchange trade volumes has closed some 1.2 million Bitcoin per day on average over the last 90 days. In fact, industry leaders such as Coinbase, Kraken, and Binance are now doing more volume than the New York Stock Exchange (NYSE).
Furthermore, the Bitcoin blockchain is now 4.5 times larger than the NYSE with the ability to move 4.4 million Bitcoin on a daily basis. With the help of the global hive mind of miners, transactions are minted into each block at the interval of around 10 minutes, showcasing the relatively quick transaction times compared to money markets, which have a normal time of T+2 (trade date plus 2 business days.).
Bitcoin can eat larger money markets as well, such as FX markets worth an estimated 180 million BitcoinTwo constraints are apparent: Bitcoin’s price and Bitcoin’s tech stack for settlement.
First, the price of Bitcoin would need to rise to create a volume for money markets to utilize for settlement. Although suffering a brutal correction recently, Bitcoin’s long-term price trajectory remains healthy given its relatively short history. Still, it could be a long time before Bitcoin could tackle such large volumes easily.
Second, LN and batching are two technical options for aiding Bitcoin’s larger ambitions. Strike is one such current test case that is utilizing the LN to perform intermittent transfers while connecting bank accounts. The LN only has the ability to perform small transfers for now, while larger transfers could be performed on the base layer with features such as batching. Batching transactions would also cut down on fees, with the fees per payment dropping significantly due to similar improvements. This technological improvement on top of money markets could help shift the current financial system into a new era.
Of course, other novel techniques would be necessary for settling complex financial instruments on top of the Bitcoin network. Recent initiatives, such as Lighting Labs Taro, could one day make that a reality.
If money markets used Bitcoin as a settlement layer while utilizing batching, it could in theory move larger amounts of money quickly while reducing time and cost to the customers further expanding the purview of Bitcoin.
