People tend to celebrate periods of low feerates. It’s time to clean house, consolidate any UTXOs you need to, open or close any Lightning channels you’ve been waiting on, and inscribe some stupid 8-bit jpeg into the blockchain. They’re perceived as a positive time. 

They are not. We have seen explosive price appreciation the last few months, finally hitting the 100k USD benchmark that everyone took for granted as preordained during the last market cycle. That’s not normal. 

The picture on the left is the average feerate each day since 2017, the picture on the right is the average price each day since 2017. When the price was pumping, when it was highly volatile, historically we have seen feerates spike accordingly. Generally matching the growth and peaking when the price did. The people actually buying and selling transacted on-chain, people took custody of their own coins when they bought them. 

This last leg up to over 100k does not seem at all to have had the same proportional affect on feerates that even moves earlier in this cycle have. Now, if you actually did look at both of those charts, I’m sure many people are going “What if this cycle is at the end?” It’s possible, but let’s say it’s not for a second. 

What else could this be indicating? That the participants that are driving the market are changing. A group of people who used to be dominated by individuals who self custodied, who managed their counterparty risk by removing gains from exchanges, who generated time-sensitive on-chain activity, are transforming into a group of people simply passing around ETF shares that have no need of settling anything on-chain. 

That is not a good thing. Bitcoin’s very nature is defined by the users who interact with the protocol directly. Those who have private keys to authorize transactions generating revenue for miners. Those who are sent funds, and verify transactions against consensus rules with software. 

Both of those things being removed from the hands of users and placed behind the veil of custodians puts the very stability of Bitcoin’s nature at risk. 

This is a serious existential issue that has to be solved. The entire stability of consensus around a specific set of rules is premised on the assumption that there are enough independent actors with separate interests that diverge, but align on a value gained from using that set of rules. The smaller the group of independent actors (and the larger the group of people “using” Bitcoin through those actors as intermediaries) the more practical it is for them to coordinate to fundamentally change them, and the more likely it is that their interests as a group will diverge in sync from the interests of the larger group of secondary users. 

If things continue trending in that direction, Bitcoin very well could end up embodying nothing that those of us here today hope it can. This problem is both a technical one, in terms of scaling Bitcoin in a way that allows users to independently have control of their funds on-chain, even if only through worst-case recourse, but it is also a problem of incentive and risk management. 

The system must not only scale, but it has to be able to provide ways to mitigate the risks of self custody to the degree that people are used to from the traditional financial world. Many of them actually need it. 

This isn’t just a situation of “do the same thing I do because it’s the only correct way,” this is something that has implications for the foundational properties of Bitcoin itself in the long term.  

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.