The existential threat to Bitcoin

The “halving” of Bitcoin last week has produced a relatively modest rise in its price. It has also led to a huge spike in the cost of Bitcoin transactions that points to a growing existential threat to the functioning of the cryptocurrency.

It is the throttling of supply relative to a demand that has been greatly expanded by the US Securities and Exchange’s reluctant decision in January this year to allow exchange-traded funds to create bitcoin ETFs. The best part of $US10 billion of new money has flowed into the Bitcoin market via those funds.

If transaction costs go up significantly it will inevitably impact the demand for bitcoins and their price and make a relatively clunky system even less efficient. That has major implications for the broader Bitcoin market. While transaction fees are as volatile as the price of bitcoins, early this month they averaged less than $US3 per transaction.

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