Bitcoin Upgrade ‘Taproot’ Set for Activation, Largest in Years

Hello and welcome to the newest issue of Overbit Insights.

Bitcoin underwent a massive network upgrade on November 14, 2021 or 255 blocks later, known to the public as Taproot.

The last major upgrade to the Bitcoin network was back in 2017 with the SegWit upgrade, which intended to increase the scalability of the network. This was a huge concern during the last bull run when transaction fees on Bitcoin skyrocketed to hundreds of dollars per transaction.

Now, the Taproot update aims to go a step further and improve network privacy and the network’s ability to support smart contract efforts.

CoinTelegraph reported on the upgrade and spoke with Ben Caselin, head of research and strategy at AAX, a cryptocurrency exchange, who said the following summary: “The Taproot Upgrade is among the most impactful changes to be implemented on the network. The upgrade brings smart contract functionality to the protocol, and it optimises for cost efficiency and privacy.”

Bitwise Asset Management’s general lawyer and chief compliance officer, Katherine Dowling, spoke to CNBC on the upgrade as well. She said that, compared to Ethereum, “Bitcoin has historically been much more limited in accommodating smart contracts. But, while Bitcoin likely won’t ever be as flexible as Ethereum from a smart contract standpoint, with Taproot that gap will now narrow.”

So even though we don’t expect Bitcoin to become an immediate competitor in the smart contract field, we expect to see an influx of exciting, day-to-day applications built on the Bitcoin network due to the Taproot upgrade.

Regardless of the short-term price impact that the Taproot upgrade may or may not have on Bitcoin, it is clear that the Taproot upgrade, which is the network’s first in four years, is a significant step forward since it strengthens the network’s foundations even further.

Closing out this week’s edition of Overbit Insights, we take a look at the most recent attempt at offering spot Bitcoin to institutional traders.

The Securities and Exchange Commission announced Friday that it had rejected a VanEck Bitcoin exchange-traded fund that would have tracked the digital currency’s price movements directly.

The CBOE BZX Exchange filed the application in March, requesting that the SEC amend its rules to list the VanEck Bitcoin fund. The SEC stated that the CBOE had not demonstrated that it could prevent fraudulent trading to protect investors. This reasoning is consistent with the SEC’s prior denials of proposed ETFs that would directly track Bitcoin.

For almost a decade, companies like VanEck and CBOE have been fighting to be the first to launch a Bitcoin ETF in the United States, but the SEC has been hesitant to do so, citing worries about a lack of regulation and the potential for fraud and manipulation in the Bitcoin market.

Several additional Bitcoin ETF proposals are also awaiting approval.

The denial comes just weeks after the SEC approved the first futures-based Bitcoin ETFs, the ProShares Bitcoin Strategy ETF, which debuted on October 19 and saw a 4% gain on day one, and the Valkyrie Bitcoin Strategy ETF, which debuted on October 22.

Many investors believe these futures-based products aren’t as beneficial as an ETF that tracks Bitcoin directly, but some see them as a necessary first step toward one down the road. However, it may be a long journey. This year, after SEC Chairman Gary Gensler stated that he would be more open to a futures-based product, a flood of applications for futures-based ETFs flooded in. Several other Bitcoin futures ETFs are also awaiting SEC approval to begin trading.

Thanks as always for reading Overbit Insights! Take care until next time.

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