Topic: Lightning Network effect on Bitcoin's price (Read 14946 times)

Lightning Network seems to be expanding slowly (though how much it is actually used for transfers still remains an open question). Here's the thing that my attention has been drawn to:



Apart from a steady increase in the amount of bitcoins used in payment channels (542 at the time of starting this thread versus 752 now) along with the number of these channels rising (17604 back then versus 32020 now, which is almost a twofold increase), we can see that some entity calling itself BitMEXResearch is seemingly experimenting with the Lightning Network technology. So what do you guys think?

Does it look like exchanges started to test waters with LN for real?

It is not about the news at all

It is about the Lightning Network potential effect on Bitcoin when it actually starts to be used in earnest. Whether and when it is going to happen is another question but still worthy of discussion here. Personally, I have no doubts that it will have serious impact on prices just like the last halving had even though it took some time to actually kick in. Obviously, Lightning is not the same as halving but that's what it makes it more interesting to analyze

We can only hope for that

Again, this is a cart and horse problem ultimately, a problem of cause and effect. After Segwit activation, there's little doubt that LN will be activated sooner or later in the mainnet. But does that mean it will be used to the full in a short while or even to any significant degree? Let's remember that it will be two years in April since LN had been activated in Litecoin, and so what? Its use is still in single digits, and I'm not sure if these digits are not after the decimal point

This is to say that activation alone won't suffice. The adoption should rise as well to make use of this endless scalability. But here's the catch. If the adoption is to rise, how much of it will be caused by LN? I don't think that much. In other words, if it is set to rise, it will rise even without LN. So what difference does LN actually make apart from letting people know that Bitcoin is ready for industrial-scale transaction processing?

Any coin not linked to a centralized exchange and not being used to influence/manipulate the price is a positive for me. We have recently seen how some exchanges have been implementing fractional reserve type practices to manipulate the Bitcoin market and the coins in the LN will not be a part of that. 

The LN should only function as a second layer application targeted at micro payments and should never replace the on-chain transactions for larger amounts of BTC that needs to be transferred on a more secure network. 

october 2013 hype triggered by new asics compared to GPU
which caused a change in the mining:market dynamics of cheapest way to get bitcoin.. but it over inflated and bubbled due to the FOMO speculation

november 2017 hype triggered by VC's being satisfied segwit was activated by deadline
which caused buy up by VC's... but it over inflated and bubbled due to the FOMO speculation

if all you care about is promoting something to death purely to cause a hype bubble. just realise one thing...
they only last a couple days-weeks-months before correction

so dont waste years promoting another network just for the hope of a 2 week-month price movement

the thing about hype is that sometimes some types of hypes are based on false promises and lies like what the altcoins have been doing for their pumps. this type of hype is not going to last and will go away. and there will be a big dump.
but another hype is based on facts and there is some reality to it. if this type leads to a rise then it will last even though there may be a correction in case of a bubble because of that hype.

the LN hype is of second type. there may be some exaggeration and misunderstanding in there too but it is based on facts. the facts that it offers limitless scalability, near no fees, instant transactions,...

Well it may be some sort of coincedence when btc and that network has come to market price increase. But, there could be also a chance that the bitcoin market price increase was due to the lighting network's hype since all of the crypto are alternative to bitcoin and all of the crypto were being influence by bitcoin market price movement and vice versa.

On the other hand, if there is enough hype caused by a LN explosive expansion, this alone can lead to a boost in demand and consequently price. But the drawback is that hype is not going to last for long as it is with any other hype out there, especially if it is not followed and supported by the real use of this technology. Compare this to a long-lasting and landscape-changing effect of Lightning Network itself taking off for real

That would be like an avalanche, and a never-ending one at that

I agree with that, and I think it really needs a lot of time before the Lightning Network is mass adopted by the crypto community because at this point of time just what you have said it is still not safe for usage and it should be used at anyone's own risk. The transaction speed of Lightning Network is really fast but the security is still not proven compared to Bitcoin's blockchain that is already proven throughout the years of its existence, but even this LN has some kind of awesome features I still prefer the original Bitcoin network.

It is a very simple concept really

A bit of supply locked away by LN is not dependent on price. It means that if the price changes, a change in supply caused by the coins locked in LN is not going to disappear as it is not caused by the price changes, even if some coins may in fact leave LN and get sold at a higher price. The lower supply will lead to a somewhat higher price, which everyone seems to universally admit

But as the price goes up, the demand for coins necessarily decreases (and still more so in a generally downtrend market). And that leaves us with higher volatility as both supply and demand decrease down the road, the former due to coins "lost" in payment channels while the latter due to an increase in price. The net effect is that the market becomes thinner on both ends or sides and thus more susceptible to manipulations and price fluctuations

Well, people in this thread are correctly pointing out that by locking bitcoin in LN you're lowering the float, leading to slightly more powerful price movements when whales sell/buy.
But bitcoin, being the most mature crypto out there, will see less price movements based on news - good or bad. It's still significantly more volatile than stocks, but it's the most stable crypto out there, sans stablecoins.

Welcome to the club, bro!

When the price was hitting new highs every other day a little over a year ago, some folks here said essentially the same as I tried to explain the reverse of what I'm trying to explain here. What happened next proved me right, though. You forget that price is going down now just like it was going up back then

Regardless, you add words but you don't add value to the discussion. This is what I call noise. If you disagree (which I understand), then don't hesitate to point out your thought, idea, or insight revealing something which we didn't already know. In other words, what is that which you brought to the table?

Personally, I'm not interested in stuff like "supply goes down, price goes up" as it doesn't tell anything new and it is too abstract to have any practical importance, apart from what we already know (but I repeat myself)

I think that the lightning does not affect the price of Bitcoin in any way since this news did not have a very powerful effect on the market as a whole.

Apparently it's worth discussing because you argue that lower market supply makes it easier to manipulate prices downwards. It seemed necessary to point out the basics of how supply and demand works.


It is of practical interest because we're talking about how decreased supply (due to BTC locked in channels) will affect price.


You do need a reason since you keep saying "the demand should necessarily go down if the supply gets diminished." That makes no sense whatsoever!

Demand has been falling since the 2017 high. So what? Demand has obviously been consistently rising since 2009 too. These points are both completely irrelevant to the question of Lightning's effect on price.

Why did you bother making this thread if you planned to ignore any discussion about the Lightning Network? I was trying to have a discussion about how Lightning might affect price -- not about how demand falls in a bear market.


The discussion was not about the effect of a bear market. The discussion was about the effect of the Lightning Network.

See the thread title.


You don't get it. "All else equal" is just a simple conditional to explain that we are isolating a single variable. The purpose is so we can discuss the effects of that single variable -- the effect of diminished supply due to Lightning channels -- without worrying about the plethora of other variables in play.

If you don't isolate variables, these discussions aren't worth having at all. You should just say, "There are many factors that affect price" and leave it at that, and not bother creating threads like this.

This will be my last post here. This obviously is not a constructive discussion.

"That makes no sense at all"

Well, actually, it may make some sense but only if purely theoretical, for at least two things. First of all, it is something which is not worth discussing per se because it is kind of obvious that if supply decreases with demand being the same, the price should inevitably rise, at least as long as we accept the balance of supply and demand as an accounting identity which holds in all cases. And second, this is of no practical interest because this is not how things typically unfold in real life and especially these days when the prices have been on the decline for a year


In fact, I don't need to provide any specific reason. The price falling most of the time throughout 2018 is that reason which provides for itself. If you accept that fact, you should also accept the fact that demand has been falling too. Obviously, it is not just demand alone but there's no telling how much of the price drop should be attributed to a squeeze in demand and how much to an expansion in supply. Whether the hype associated with Lightning will be able to offset this squeeze and to what degree remains to be seen


A bear market means the demand side is thinning too. So it all depends. This is what ceteris paribus doesn't take into account and exactly what my idea of supply squeezes hinges on. LN will likely add fuel to this effect, to its supply and demand sides

Obviously, market conditions won't be exactly the same. The point is that we are isolating one variable -- decreased supply due to Lightning.


That makes no sense at all. If demand dropped equally every time supply dropped (or vice versa), then price would never change. We've established why market supply might decrease if Lightning became popular -- it incentivizes Bitcoin holders to lock up bitcoins. You haven't provided any reason why demand needs to drop. If Lightning lives up to its hype, there should actually be increased demand.


Exactly.

But a thinner sell side also inherently makes upwards manipulation easier.


https://en.wikipedia.org/wiki/Ceteris_paribus

I don't assume increased demand. I pointed out the possibility, though.

I expected you to say exactly that

The problem is you can't have everything else equal as you suggested. If you assume that the price remains the same, then the demand should necessarily go down if the supply gets diminished, which is market thinning and kinda expected in a bear market with prices falling and demand declining. Otherwise, with lower supply and same demand, prices will just start rising on their own according to the law of supply and demand, without any manipulation, and whales won't have to push them upwards

Then again, you yourself assume increased demand which is not quite "all else equal". So what do you actually mean by that, to avoid further misunderstanding and confusion?

That's not all else equal. LN might facilitate lower supply, but there's no reason to assume there is a corresponding decrease in demand. You're calling it a "thinner market" but it's only the sell side that's thinner. In fact, LN might create additional demand -- it provides new utility and creates incentive to open LN channels (routing fees).

If lightning network work on bitcoin and make transaction more faster and cheaper, i am believe it will give big effect to bitcoin price. Thats mean investor will more confident with bitcoin and the technology. If transaction growing faster, i think mass adoption become more faster

LN wont be used for people making 1 coffee purchase a day. its Niche will end up being people that want to balance swap with exchanges to arbitrage without waiting for confirmations.

people in the past would sell a btc for dollars on an exchange with highest btc-dollar rate.
then to arbitrage buy an alt with fast confirm. use that to exit one exchange go to another exchange with a cheap btc-dollar rate and then deposit alt to then sell for dollar to buy btc cheap

then hope to withdraw the btc to then return to the high btc-dollar to repeat.

.. stable coins sorted out the need to use an alt to shift dollar without wire transfer and LN will sort out shifting btf without confirm.

so those who love and dont mind locking their BTC up with custodians will use LN for that purpose.

LN wont be much of a vault for people that just buy coffee and groceries because the once a day, require to preplan a fortnight/couple month spending and the worry of route raiding, partners offline just are not convenient enough. people will just buy giftcards for their favourite merchants for convenience.

emphasis
LN's lockup would moreso be for the custodian factory of exchanges using the locked btc as a international 'reserve' system for inter-exchange swaps