And empirical reality bears this out too: from February 2018 to July 2019, Bitcoin was effectively flat (it started and

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hine learning network, users send data to a server, which makes a prediction, and sends that back to the user. This is slower, more expensive, less reliable, and less secure than edge computing, where predictions are made directly on the user’s device.

I did not even mention the rise of true institutional-caliber custodians like Fidelity Digital Assets (launched in late 2018), a potent development in the history of the industry. Nor did I cover the rise of sophisticated order management services which facilitate the process of attaining exposure to large quantities of Bitcoin. And I did not cover sophisticated digital asset settlement networks like Fireblocks which rely on novel cryptography and derisk the process of making on-chain transactions. Nor did I mention the unbundling of exchange, brokerage, and custody functions, and the specialization of firms within each segment. And I did not mention the rise of institutional-caliber capital markets data firms creating credible data feeds and reference rates to power indexes and other financial products. The positive developments which we have witnessed in the last three years are too many to enumerate.

In the third quarter of 2020, the SEN processed $36B in transfers. These sorts of financial infrastructure products, while not typically understood as critical to Bitcoin, enable the efficient clearing and settlement of fiat funds between crypto firms in the U.S. This is yet another product that simply did not exist in 2017.

Lastly, capital existing in tokenized fiat format tends to enter the crypto industry but not leave. This is because crypto rails are fundamentally more convenient, more globalized, and less encumbered than traditional payment and settlement rails. Thus a material portion of the $22.7B worth of of tokenized USD circulating on public blockchains represents dry powder that could well be allocated to risk assets like Bitcoin. If there is a run on any of these stablecoins, or their backing comes into question, the natural direction to flee will be in the direction of censor-resistant assets like Bitcoin which can absorb that much liquidity at short notice. Presumably, if a stablecoin suspends convertibility, holders will not be able to conveniently exit at fiat off-ramps — but they will be able to flee into the blue chip cryptoassets, of which Bitcoin is by far the largest and the most liquid. Thus if stablecoins do face adverse outcomes, the result is most likely a significant capital inflow into Bitcoin.

The fact that Bitcoin has nearly completely recovered its prior highs in market cap while stablecoins have taken its mantle as reserve assets for the crypto industry suggests that it has taken on a life of its own

In these nine charts, I covered a variety of factors where clear improvements are manifestly present when we compare today’s market environment with the bull run of yesteryear.

Another underappreciated story is the wide availability of crypto-native credit today. As with some of the other phenomena mentioned here, professional intermediation in the lending space simply didn’t exist in late 2017 — although certain p2p credit markets existed, for example on Bitfinex. What credit permits is capital efficiency for market makers, arbitrage firms, and hedge funds active in liquid markets. The fragmented liquidity environment in the crypto industry means that these firms must lock up liquidity on a number of exchanges simultaneously. This can make certain strategies very costly from a capital perspective, which is where credit providers like Genesis and BlockFi come in. The insertion of credit onto blockchains has the practical effect rendering spreads tighter and inter-exchange price dislocations less common. Additionally, any business with Bitcoin or stablecoin-denominated expenditures — like Bitcoin ATM companies — can benefit from the convenience of credit.

There are many charts to choose from to depict the growth of credit, but the outstanding loan portfolio of Genesis, the largest institutional-focused lender, is illuminating.

At the previous Bitcoin ATH, only $1.5B worth of stablecoins existed. Today that number stands at $22.7B. Stablecoins have created a pool of stable-value liquidity which is not exposed to volatility. Interestingly, while many exchange venues have become “Tetherized” — as in, USDT is the main trading pair and settlement asset, displacing Bitcoin’s former role in this function, Bitcoin’s price remains robust. This is testament to Bitcoin’s evolution as a product, from a reserve asset for exchanges — exposed to trader willingness to trade long tail assets on exchanges — to an independent monetary asset in its own right, beloved of hedge fund managers and commodities traders.

Another critical piece of financial market infrastructure which has been underappreciated has been banks like Silvergate which service the industry. In 2017, and even more so during the primordial era of the crypto industry, bank relationships were extremely hard to come by, and only the largest and most credible crypto corporations could acquire banking. Today, a number of banks in the US actively service crypto businesses: chiefly among them, Silvergate, Signature, and Metropolitan. Additionally, two new entities — Avanti Bank and Kraken Financial — have received charters under Wyoming’s Special Purpose Depository Institution legislation, meaning that they are eligible to get access to the Federal Reserve (while also managing cryptocurrency assets on behalf of clients).

Despite this, the growth in stablecoins is positive for Bitcoin, not because of the conspiracies around unbacked issuance, but simply because it means that the liquidity environment is vastly improved.

To sum up, today’s market is far more mature, more financialized, more surveilled, more orderly, more restrained, less reflexive, more capital-efficient, and more liquid than the market that powered the prior bull run in 2017. Positive catalysts like a Bitcoin ETF appear to be plausible in the not too distant future. The quiet and diligent work that entrepreneurs have done in the last three years, out of the public eye, has equipped the industry to handle far more

The truth is that the creation of Tether and other stablecoins (the supply of non-Tether stablecoins is over $5B today) should be understood not as purchases or capital inflows, but simply like-for-like asset swaps. Stablecoins are created when an entity with fiat on their balance sheet wants access to crypto-native liquidity. They merely exchange commercial bank dollars for a tokenized representation of the same. Firms that denominate their balance sheets in stablecoins or hold stablecoins as working capital include market makers, proprietary trading firms, exchanges, venture capital firms, and generally speaking any businesses operating in the crypto industry with crypto-denominated expenditures. After the panic in mid-March 2020, a number of firms transformed their balance sheets from commercial bank dollars to tokenized dollars circulating on public blockchains, so that they could be more nimble the next time an opportunity like that arose.

Put simply, the bank environment, long a critical challenge for crypto businesses in the U.S., is vastly ameliorated today as compared with three years ago during the last bull run. By virtue of its publicly-traded status, Silvergate’s impressive traction is semi-transparent. One of their flagship products in their intra-bank settlement product, the Silvergate Exchange Network (SEN). The SEN enables clients of Silvergate to settle with each other Since they bank so many crypto businesses, transactions on the SEN are a proxy of sorts for the vibrancy of U.S. domiciled firms in the industry.

While some Bitcoiners are opposed to the insertion of credit into the industry, I am firmly of the opinion that abundant credit has dramatically ameliorated the liquidity environment and tightened spreads.