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Bitcoin Network Sluggishness May Support The ‘Death Spiral’ Scenario

John Wanguba by John Wanguba
May 15, 2021
in Analysis, Blockchain, Crypto news
Reading Time: 4min read
Signs indicate that Bitcoin might be headed for a death spiral

A lot is happening in the crypto world. In that context, some commentators believe that the signs of the apocalypse are now upon us. Bitcoin transaction fees are continually rising, and the block time is increasing. Additionally, the mempool is slowly becoming congested, all as predicted by one managing partner at Unbounded Capital, Zach Resnick.

Many are now wondering; does the sluggishness of the Bitcoin network support the death spiral scenario that Zach described?

Flash Crush Might Happen

When Resnick spoke to reporters on May 8, he said that the ‘death spiral’ scenario is yet to be priced in. Also, he believes that the crypto community underestimates its probability. He asserted that there is still maybe about a 2-3% chance of the halving killing off the entire chain. But, in his view, Bitcoin was being priced like there was no probability of that happening.

Additionally, he stated that there is a high chance of a significant flash crash happening:

“I put at least a 10 percent chance on kind of a big flash crash”.

But, it should be noted that Resnick and his team are huge supporters of Craig Wright and Bitcoin SV, and they think Wright is Satoshi Nakamoto.

Does Network Activity Vindicate Resnick?

Resnick’s point of view about the death spiral was described as that. Since the halving cut the block reward, many miners will abandon the network. Then, the block time will increase as the network hash rate drops, and the network will become congested. That occurrence will eventually make Bitcoin less attractive since the participants and users will not want to wait for long periods before their transactions are processed.

In the end, the BTC price will fall and push more miners off the grid. The process will repeat itself until the network dies.

For starters, the hash rate plunged by 30% in three days. The block time interval has increased as a result, which means that fewer transactions are being processed. That has led to an increase in the number of transactions awaiting processing (mempool). Notably, the bitcoin transaction fees are priced by supply and demand. Hence, the shrinking supply has resulted in a manifold increase in transaction fees.

Even though the current data might support the doomsday probability, it remains mostly unlikely that the Bitcoin network’s temporary sluggishness will result in its eventual demise. In the end, adjustments in difficulty and price will create a new equilibrium in the Bitcoin network.

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Tags: BitcoinBitcoin networkBitcoin Pricebitcoin SVBSVBTCBTC netowrkBTC PriceCraig WrightcryptoCrypto Worldcryptocurrencycryptocurrency communitymempoolSatoshi Nakamoto

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