Bitcoin is surging while stocks slump. Explore what’s driving its rise, from Trump’s crypto policies to institutional adoption and safe-haven appeal.

April 2025 was ghastly for stock market investors. US President Donald Trump's “Liberation Day” tariff announcements on April 2 contributed to existing negative market sentiment, sharply decreasing the major stock indices. From Apr 2–7, the market's two primary performance indicators, the S&P 500 and NASDAQ Composite indices, experienced 13% drops, some of the worst results in decades. However, The April shock wasn't a one-off event: the nervousness and losses in the market started in mid-February, mainly as a response to the new administration's drastic measures that ignited the fear of international tariff wars.

 (BTC) — the flag-bearer of the cryptocurrency market — is doing well. In fact, the world's leading crypto asset is 13.5% up on a monthly basis as of May 6, 2025 and continues to power on. So confident is the performance of the BTC crypto that it’s safely beaten the results posted by gold, the traditional safe-haven asset rising in times of trouble. Moreover, it’s looking like some investors are preferring to park their funds in 

Why is Bitcoin rising? What supports this seemingly unexpected pattern? Will this phenomenon persist over a longer-term window? In this article, we set out to answer these questions. Some of the reasons we’ve identified might be familiar to those closely following financial news, but others may feature less prevalent narratives.

As of our review date on May 6, 2025, the stock market is desperately trying to recover from its 

. The S&P 500 and NASDAQ Composite have lost about 7% and 9% of their value, respectively, over the past three months. Among the most recent shocks to the market in early April were Donald Trump's “Liberation Day” announcement regarding his intent to apply hefty tariffs against most countries' imports to the US. By late April, stocks were attempting to stage a recovery, but the market is still feeling nervous and its major indices are down on a 30-day basis.

In contrast to these developments, Bitcoin has been on a rise since Apr 8, a development that wasn't widely expected — especially given the fact that BTC joined stocks in their earlier tariff-linked nosedive earlier this year.

Analysts have devised a myriad of explanations and reasons for this phenomenon, and there's definitely no shortage of analysis and commentary on this intriguing development. The reasons below, in our view, deserve special attention, as they’ve likely contributed to Bitcoin's recent and ongoing rise.

When Donald Trump regrettably won the US presidential election in November 2024, the crypto community rejoiced. Finally — thought many crypto natives — a friend of cryptocurrency was taking up residence in the Oval Office. The 45th and 47th US president's crypto-friendly stance was and remains no secret. In fact, on the day of Trump’s inauguration, Jan 20, 2025, Bitcoin hit its all-time high of $108,786.

However, there was initially uncertainty as to how much of Trump’s embrace of crypto during the election campaign would translate into real action. Consequently, Bitcoin dropped off its highs weeks after the new administration assumed office. In late February, when the stock market first began to decline in response to tariff threats, Bitcoin also joined in, losing its late 2024/early 2025 gains.

This all changed in early March, when the White House announced the planned establishment of a crypto strategic reserve, a dedicated supply of five cryptocurrencies — Bitcoin, 

 (ADA) — that the US government would stockpile to secure the nation's financial position. Finally, it seemed, the Trump administration was taking tangible action to demonstrate its crypto-friendly nature.

Later the same month, the US Senate Committee on Banking, Housing, and Urban Affairs passed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, a piece of legislation designed to bring 

, a major component of the overall crypto market, into the financial mainstream. The act is a fundamental regulatory measure, the first to gain congressional approval of any kind, and, if fully adopted, will bring the US closer to the European Union (EU) in terms of cryptocurrency regulation [the EU already has a comprehensive framework in this area — the Markets in Crypto-Assets Regulation (MiCA), adopted in 2023].

Both the Committee's approval of the GENIUS Act and, particularly, the planned crypto strategic reserve announcement have been instrumental in creating a crypto-friendly political climate in the US. Partly as a result of these developments, Bitcoin’s price not only didn’t decline in April in unison with the stock market — as happened back in February — but it also rallied strongly in the last three weeks of the month.

Institutional interest in Bitcoin began to rise significantly following a series of approvals by the US Securities and Exchange Commission (SEC) of Bitcoin exchange-traded funds (ETFs). In October 2021, the first US-based Bitcoin futures ETF — the ProShares Bitcoin Strategy ETF (BITO) — had its debut on the market.

While Bitcoin futures ETFs gradually entered the market after BITO's approval, 

 kept hitting a wall as they tried to get a nod from the SEC. After years of struggle and rejection, the regulator finally greenlighted a host of Bitcoin Spot ETFs in January 2024. That month, the SEC opened the gates for 11 Bitcoin Spot ETFs from providers like Fidelity, Bitwise, Grayscale, VanEck, Invesco and others.

The bulk approval in early 2024 marked the beginning of a new era for Bitcoin — finally, the cryptocurrency could be considered a full-fledged member of the financial family, along with stocks, major commodities, bonds and other traditional asset classes.

Institutional investors, many of whom use ETFs as a key product in their portfolios, embraced Bitcoin with enthusiasm, helping drive its price up. Just before the SEC’s January bulk approval, Bitcoin was trading at under $42,000. By late March of the same year, its price shot up to over $70,000, a sharp rise even by the wildly volatile asset’s standards. This tectonic shift contributed to speculation about Bitcoin eventually hitting $100,000 a realistic discussion, rather than a fantastical dream of the crypto-obsessed.

By now, Bitcoin is quickly becoming a popular element of diversified portfolios for institutional investors — especially those focused on digital assets — and the recent uncertainty in the stock market is attracting more attention to the world’s largest cryptocurrency from fund managers.

Amid the market uncertainty, investors are looking for assets that can act as a store of value, rather than a growth source. Bitcoin is increasingly seen as a legitimate store of value, with its decentralized issuance mechanism and universal governmental independence.

In the past, Bitcoin’s reputation was that of a technology-driven gimmick — more akin to points in an online game than a full-fledged financial asset. As the use of blockchain technology and crypto increased steadily since the mid-2010s, Bitcoin’s recognition and brand image improved drastically. By the end of the 2010s, investors were beginning to appreciate Bitcoin as a legitimate financial asset, albeit one that was wildly speculative and 

This association with excessive volatility persisted right into 2025 — and investors interested in a store of value usually don’t fancy volatile assets at all. However, the ensuing events of April 2025 — the stock market’s continual decline, along with Bitcoin’s raging ascent — indicate that a growing segment of risk-averse investors is viewing the world’s top cryptocurrency as an acceptable store of value.

Although still volatile, Bitcoin has managed to post positive long-term growth rates over all the typical time windows considered by investor folk. As of the end of April 2025, it’s up by 15% in the past month, 34% in the past half a year, 47% in the past one year and 970% over five years. For any of these time intervals, Bitcoin has confidently outperformed not only equities but also gold, an asset often regarded as the ultimate store of value.

Bitcoin’s decentralized issuance mechanism, independent from any government or central bank, is now seen as among the best hedges against international trade wars during which governments might limit access to their markets for outside investors using their regulatory muscle. Bitcoin’s independence and spectacular growth rates are increasing analysts’ opinions of it — not merely as a speculative growth asset, but as one of the best store-of-value assets around.

In the past, stock market declines often prompted a flight to safe-haven assets — i.e., gold and US Treasury bonds. However, in the current atmosphere, 

 to many international investors. The current stock market turmoil is largely driven by the actions of the US government as it imposes wide-ranging tariffs on imports. Since America’s trade partners around the globe feel uncertainty about dealing with the world’s largest economy and its government, the formerly ironclad confidence in the US is on the decline. Discourse concerning both the de-dollarization of international trade and the US pulling out of many of its strategic trading partnerships is on the rise. This situation was bound to be reflected in lower confidence in the US government's fixed-income securities.

As for the ultimate safe-haven asset — gold — the precious yellow metal has duly done its job during the most recent turmoil. At the tail end of April, gold's monthly growth rate stood at around 7%, while the S&P 500 and NASDAQ Composite were bouncing around 0% growth, desperately trying to claw back their early April losses.

However, while gold has done its job as a safe-haven asset during the bear market, it simply hasn’t done it as well as Bitcoin has. The same monthly growth figure for Bitcoin stands at 15%. In other words, during this stock market decline, Bitcoin has performed about twice as well as gold. While this is the first time Bitcoin has behaved in such a classic safe-haven style, it might be an early indicator that this unique cryptocurrency is emerging as a new competitor to gold at times of stock market troubles.

The current bear market in equities has seriously damaged investors' confidence in several other traditional large asset classes. As we noted above, the US government's aggressive tariff moves have dented investors' faith in Treasury securities in general. Commodities, with the exception of gold, are also known to be strongly affected by international trade wars.

This leaves investors with few large, liquid alternatives outside of gold. In this respect, Bitcoin is emerging as a reasonably large and liquid choice. Naturally, its liquidity levels aren’t comparable to gold’s. For instance, while gold’s market capitalization stands at around $22 trillion, Bitcoin’s market cap is slightly under $2 trillion. Likewise, gold features global daily trading volumes of between $200 and $300 billion, while Bitcoin’s are around a tenth of that.

Evidently, Bitcoin is still not a match for gold when it comes to liquidity. Nevertheless, besides gold and Bitcoin, investors don’t have many choices in the current climate of tariff duels and international trade difficulties.

 elements built into it. This provides certainty to investors and supports the price of the asset in general.

First, the supply of new Bitcoin is subject to a well-defined schedule, with a fixed amount of BTC issued every ten minutes on the network. Known as the mining block reward, it’s currently set at 3.125 BTC. Approximately every four years, the block reward is halved. The 

, when the reward’s rate was cut from 6.25 to the current 3.125 BTC. The next Bitcoin halving will further reduce the rate of the block reward to 1.625 BTC, and is scheduled to occur at some point in April 2028.

Bitcoin also has a hard cap of 21 million on its total supply. Based on the regular release of block rewards every ten minutes (and the roughly quadrennial reward halving mechanism), it’s estimated that BTC 

These supply-limiting, deflationary properties should, in theory, support Bitcoin's price over the long term. The structured release mechanism and halvings also provide certainty and transparency to investors regarding the asset's supply levels. 

For investors who firmly believe that an asset's supply is a major determinant of its value, Bitcoin is definitely an attractive alternative.

Bitcoin’s price predictions currently range from wildly optimistic (and at times, exaggerated) to being more reasonably grounded in the top crypto’s key fundamentals. Some analysts are predicting that, having solidified its position as a highly resilient asset, Bitcoin will experience highly pronounced growth spurts. Among the boldest predictors currently is that of ARK Invest’s CEO and founder, Cathie Wood. The acclaimed investor believes Bitcoin 

However, the majority of other predictions are more moderate, and consider both positive and negative pressure factors.

Standard Chartered’s Geoff Kendrick believes that Bitcoin will trade at around $120,000 in Q2 2025, and will 

. This forecast is quite similar to the estimate by Peter Chung of Presto Research, who 

An optimistic outlook for Bitcoin is also supported by detailed modeling within the academic domain. Murray Rudd and Dennis Porter from Satoshi Action Education — a nonprofit dedicated to peer-reviewed, data-driven research on Bitcoin — published a paper in an early January 2025 edition of the 

 at some point between January 2027 and early autumn 2028.

Two major crypto price prediction portals, PricePrediction and DigitalCoinPrice, take a somewhat more reserved view regarding Bitcoin’s rate in 2027–2028, compared to researchers at Satoshi Action Education. Nevertheless, their estimates are quite optimistic: Price Prediction 

 $273,091 in 2027 and $408,480 in 2028, while DigitalCoinPrice is even more bullish, 

Based on these estimates, we can conclude that some of the highest quality forecasts for Bitcoin predict a rate of around $200,000 by the end of 2025. In two to three years (i.e., in 2027 and 2028), Bitcoin’s price could average as low as $250,000 and as high as $1 million.

Naturally, there's no shortage of extreme estimates on both ends, with some fervent crypto aficionados predicting astounding rates of millions of dollars within a year or two, and ardent crypto haters — loyal to their well-known line — maintaining that Bitcoin will soon be worthless. These extreme views, however, aren't what mainstream price analysts take seriously.

1. How much will one Bitcoin be worth in 2030?

Discounting headline-grabbing and/or extreme forecasts, it's likely that, by 2030, Bitcoin will reach a value of $1 million or even more. In fact, Rudd and Porter’s model sees this price as a possibility as early as 2027. 

Even if we assume more conservative estimates, such as those posted by the major price prediction portals, Bitcoin may be trading at from $500,000–$1 million in 2030. The average and maximum prices for Bitcoin by the two prediction portals we mentioned above are as follows:

It’s true that price prediction portals base their prognostications largely on aggregating forecasts from many sources, and by definition don’t always get it right. However, their current estimates for Bitcoin in 2030 are a reasonable averaging of the many divergent forecasts posted by analysts. As such, 

Bitcoin trading somewhere between half a million and a million dollars in 2030

Bitcoin as an asset has posted stellar growth rates over every imaginable time interval used by analysts. Its future prospects also look bright, as discussed above. Thus, having $100 in Bitcoin — or whatever amount you can safely afford to invest — might be one of the best available investment choices in 2025.

, as of early May 2025, there were 137,560 blockchain addresses with Bitcoin worth between $1 million and $9.99 million. The number of addresses holding $10 million or more is vastly lower, around 15,410. As such, the number of Bitcoin millionaires at the tail end of April 2025 — as estimated by network statistics — is 15,2970.

4. What if I’d bought $1 worth of Bitcoin 10 years ago?

Exactly ten years ago, on May 6, 2015, Bitcoin's market value was $229.78. Your $1 investment at that time would have yielded you 0.004351 BTC. This amount of Bitcoin is worth $409.74 today (May 6, 2025).

It’s most certainly not too late for you to invest in Bitcoin. As noted above, most estimates for Bitcoin’s future price are highly optimistic. In addition, BTC is emerging as a new hedge against stock market disturbances. While this is the first time Bitcoin has clearly demonstrated such behavior, it’s indicative of its increased standing within the hierarchy of financial assets.

You might not earn the stratospheric returns that early Bitcoin investors enjoyed, but as of 2025, Bitcoin is definitely shaping up as one of the best investments to consider — and not only for lovers of risk and speculation.

Intermediate

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Why is Bitcoin going up — and how high could it go?

Chainlink Rewards, launching on May 8, incentivizes active participation in the Chainlink network.

Daily top performer — ICON Network (ICX)

The S&P 500 fell 0.64% on Monday as market sentiment weakened due to stalled trade talks and new tariff threats, with investors awaiting the Fed’s policy meeting and Powell’s remarks. Gold surged over 2% to $3,321 as a weaker USD and Fed rate hold expectations boosted demand, with traders eyeing resistance at $3,350 ahead of Powell’s upcoming comments. The Coindesk Indices, which tracks the broader crypto market, down 0.53%, with Bitcoin and Ether down 1.33% and 1.44%, respectively in the past 24 hours. Trade these markets and more with up to 500x leverage on Bybit MT5 using this 

Today's top performer is ICX, which surged 21.4% after the announcement of its transformation into SODAX, a unified DeFi platform powered by Sonic and $SODA.

ICON Network (ICX), launched in 2017, connects diverse blockchain communities through smart contracts and Citizen nodes, aiming to improve interoperability across blockchains. It uses decentralized identifier (DID) technology to securely store user data, supporting decentralized finance and digital content distribution. 

, a unified DeFi platform with a new deflationary token ($SODA), optimized liquidity products, and a migration to the faster, low-cost Sonic EVM chain for scalability and sustainability.

Check out the latest prices, charts, and data of 

, launching on May 8, incentivizes active participation in the Chainlink network. The first phase, Season Genesis, offers 100M SXT tokens to eligible LINK Stakers. Future seasons will introduce a more advanced claiming system and additional rewards linked to various Chainlink Build projects. Stay cautious of phishing attempts, and only rely on official links provided at launch.

Yesterday, BTC spot ETFs saw total outflows of $105.7M, with $16.4M from GBTC and $89.3M from other ETFs.

, enabling users to verify their reserved Human ID as an on-chain proof of identity linked to their humanity. RWT will convert to Humanity Points (HP), claimable offchain with one click. Palm scanning via mobile will also be introduced to confirm user presence on the network.

Beginner

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Chainlink rewards launches with 100M SXT token giveaway for LINK stakers

May 5, 2025: Our weekly Institutional Insights explores the latest market developments — market performance, industry news, exchange-traded fund (ETF) flows, trending topics, upcoming events and token unlocks — to help you supercharge your crypto trading.

 explores the latest market developments — market performance, industry news, exchange-traded fund (ETF) flows, trending topics, upcoming events and token unlocks — to help you supercharge your crypto trading.

Weekly highlight — Robust economic data might support June rate cut

Things are becoming increasingly complicated for the Federal Reserve as it prepares for its upcoming meeting. With inflation in focus, officials are likely to maintain interest rates. Yet, concerns about an economic slowdown are growing, exacerbated by calls from President Trump for a rate cut.

Fed Chair Jerome Powell may find some reassurance in recent labor data, which reported a robust increase of 177,000 jobs in April 2025. This solid job market provides a rationale for the Fed to hold rates steady. Additionally, the Fed's preferred inflation measure indicates a slight easing of price pressures. However, rising tariffs on imports threaten to undermine this progress.

Uncertainty looms globally over major central banks, as the White House seeks trade deals that could significantly alter economic forecasts. Economists suggest Powell will emphasize the importance of price stability, especially as inflation expectations appear to be shifting.

Meanwhile, the European Central Bank continues to lower rates in anticipation of disinflation and weaker growth due to US tariffs, and the Bank of Canada has diverged from its usual practice of issuing a standard forecast, opting instead for two contrasting scenarios based on the tariff situation with the US.

Looking ahead, the US economic calendar is sparse, with upcoming data on service sector activity and jobless claims expected to provide insights into labor market trends. Globally, monetary policy decisions are anticipated in several countries, highlighting the widespread impact of trade tensions.

As central banks navigate these turbulent waters, the interplay of tariffs and inflation will be critical in shaping future economic policies.

Weekly crypto highlight — Strategy sees no pause in Bitcoin purchase

Michael Saylor's company, Strategy, has doubled its capital raising plan to $84 billion following a record $4.2 billion first-quarter loss. This loss was attributed to a new accounting rule mandating that the firm value its substantial Bitcoin holdings at market prices. On Thursday, Strategy registered to sell an additional $21 billion in common shares, having exhausted a previously authorized equity program.

Additionally, the company has increased its planned debt purchase program from $21 billion to $42 billion, with $14.6 billion remaining. This shift reflects a growing awareness among corporate Bitcoin buyers of the unrealized earnings fluctuations that can occur, such as in Strategy's dramatic quarterly loss. The company holds approximately $53 billion in Bitcoin.

Prior to this accounting change, Strategy classified its Bitcoin as intangible assets, which limited its ability to recognize gains unless the assets were sold. This resulted in permanent markdowns whenever Bitcoin prices fell.

Over the past five years, Saylor has transformed Strategy, formerly known as MicroStrategy Inc., into the largest leveraged Bitcoin proxy globally. However, revenue from its software division fell 3.6% to $111.1 million in the first quarter of 2025.

Saylor's advocacy has significantly contributed to Bitcoin’s mainstream acceptance, inspiring numerous companies to follow suit by purchasing Bitcoin for their balance sheets. Analysts suggest that as more firms adopt this strategy, demand for Bitcoin will rise, potentially benefiting Strategy further.

Despite the stock's remarkable 3,000% increase since Saylor began buying Bitcoin in 2020, concerns remain about the sustainability of this approach. New competitors are emerging, including well-funded entities like Twenty One Capital Inc., increasing the pressure on Strategy. Nonetheless, Saylor shows no signs of slowing down, and is continuing to expand Bitcoin acquisitions aggressively.

Advanced

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Weekly Institutional Insights: Robust US economic data sends stocks higher; Strategy sees no pause in Bitcoin purchase

The US dollar is facing its biggest test in years. Since President Trump returned to office, markets have struggled. 

Introduction: The Trump effect and market breakdown

The US dollar is facing its biggest test in years. Since President Trump returned to office, markets have struggled. The S&P 500 recorded its worst start under a new president since 1928. At the same time, the US dollar is falling — not just against one or two currencies, but broadly.

Normally, when stock markets fall, the dollar gains as a “safe-haven” asset. But this time is different, as both stocks and the dollar are dropping, which is rare and worrying. Investors are leaving the dollar and moving into alternatives like the euro (EUR), Japanese yen (JPY), gold and Bitcoin (BTC).

Example of negative S&P 500-Dollar correlation. S&P 500 dropped while the Dollar rose — July to October 2023 correction period. 

A perfect storm: Tariffs, isolation and the Federal Reserve

One of the biggest reasons for the dollar's current weakness is fear. Trump’s aggressive trade stance is isolating the US economy, and investors are worried about new tariffs and the long-term damage to global trade relationships.

If Europe decides to deepen trade ties with China instead of the US, the dollar’s position as the global reserve currency could face a real threat. On top of that, Trump has been attacking Federal Reserve Chairman Jerome Powell, calling him a “loser” and pushing for lower interest rates. These comments hurt confidence in the independence of the Fed — a cornerstone of US financial stability.

, it could signal a more cooperative approach and help stabilize investor confidence, offering much-needed support for the dollar.

China, trade and the mechanism behind the dollar decline

For decades, China and other countries have exported goods to the United States, earning US dollars. These dollars were often reinvested in US assets such as Treasury bonds, helping support the dollar’s strength. But tariffs are upending this entire system.

When Trump’s tariffs were activated, Chinese goods became more expensive in the US This meant that China sells less, earns less profit and has fewer dollars to reinvest. Demand for the dollar falls — and so does its value.

In other words, more tariffs are actually 

 for the dollar. The same goes for other export-heavy countries, such as Japan or Germany. If they see reduced access to US markets, they hold fewer dollars and invest less in US assets.

This shift in global capital flows is a major reason why the dollar is falling, and why it could fall further — unless, of course, a 

, which could help bring global flows back toward the dollar.

Technical environment: Oversold — or more pain to come?

There are two key ways to track the dollar in financial markets:

The DXY is currently down 8.3% in 2025, sitting at around 99.5 — its lowest level since April 2022. Meanwhile, EUR/USD is trading at around 1.134,after hitting 1.157 on April 21 — its highest level since the start of the Russia-Ukraine war in early 2022.

Technically, the dollar appears to be oversold. The 

 (RSI) is at 38, which is close to the “oversold” threshold of 30. Earlier in April it hit 25, which often signals a short-term rebound. The 

 indicator also shows early signs of positive momentum, as the 12-day moving average has crossed above the 26-day. If DXY can remain above 100 for a few days, it could help to build a stronger rally.

On the other hand, EUR/USD shows signs of being slightly overbought. The RSI is at around 60 (with 70 being the usual “overbought” threshold), and the MACD suggests downside risk is building. A drop below 1.13 in EUR/USD could push the dollar back up slightly. However, without fundamental support, any rebound may be short-lived.

Key events to watch: Tariff deadline and Fed cuts

Two major forces will shape the dollar in the weeks ahead:

Trump signing a tariff agreement with China

 before the July deadline — could help reverse the current negative trend and provide a short-term boost for the US dollar.

The US dollar is under pressure from all sides: politics, trade, interest rates and technical factors. Meanwhile, the rare combination of falling stocks and a falling dollar signals that global investors are losing confidence in their outlook on the US. The core of the problem is Trump’s aggressive trade policy and its impact on China — a longtime buyer of US assets.

As the 90-day tariff delay nears its end and the Fed prepares to lower interest rates, the dollar could face another sharp leg down. However, 

if a tariff deal is reached between the US and China

, the dollar could regain strength, as investor sentiment improves and capital flows return.

Technical indicators also suggest that the Dollar may be slightly oversold. RSI and MACD readings point to a possible short-term bounce if conditions improve.

In the meantime, traders and investors should watch the 100 level on the DXY and the 1.13 line on EUR/USD. These will be key markers for where the dollar is heading next.

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Bybit x FXStreet Report: USD is oversold as the result of technical indicators and EUR hype

Bybit Learn

Blockchain

Wonder how decentralized your favorite blockchain is? Make sure to use the Nakamoto coefficient as a way to gauge its degree of decentralization.

If you're interested in blockchain decentralization, you've probably come across a few discussions on the Nakamoto coefficient. This concept might sound very complex, but once you understand it, it's quite simple. Our guide will tell you everything you need to know about the Nakamoto coefficient so you can use it in your financial decisions.

The Nakamoto coefficient measures decentralization and represents the minimum number of nodes required to disrupt the blockchain's network. A high Nakamoto coefficient means that a blockchain is more decentralized.

The Nakamoto coefficient was first formally described in 2017 by former Coinbase CTO Balaji Srinivasan. This measurement is named after Satoshi Nakamoto, the presumed founder of Bitcoin. However, the Nakamoto coefficient isn’t a Bitcoin-only measurement. Instead, a Nakamoto coefficient can be used for analyzing a variety of blockchains.

Srinivasan's initial plan was to find a quantitative way of determining exactly how decentralized any system was. To calculate this, he proposed a method that combined the

. These measurements are generally used to look at inequality and non-uniformity within an economic population, but Srinivasan had the revolutionary idea of applying them to blockchain decentralization concepts. The Nakamoto coefficient is created by combining these inequality measurements with blockchain subsystem analysis.

The Nakamoto score considers how many subsystems a blockchain has, and how many entities you would have to compromise before gaining control of each subsystem. Simply put, a Nakamoto score describes the minimum amount of effort it would take to disrupt any given blockchain. A high coefficient means that a blockchain is harder to disrupt, because it’s more decentralized. Meanwhile, a low coefficient means that a system is heavily centralized, and has a high risk of disruption.

Calculating a Blockchain’s Nakamoto Coefficient

Calculating a Nakamoto coefficient is a little more complicated than just plugging basic numbers into a simple formula. The formal definition of a Nakamoto measurement is the minimum number of entities in a given subsystem that can add up their amounts of proportionate control to take control of the subsystem. There are several different techniques you may need to use when calculating this coefficient. You'll need to select your Nakamoto coefficient formulas based on the sort of situation you want to analyze.

First of all, you need to determine the minimum threshold for takeover. How much of any subsystem is needed in order to sway it? The standard number is 51%. However, the reality is that not all blockchains operate on a system where a simple majority gains control. Some systems might require something like 60% or 75% of the network to be in agreement about altering the system. Unless a score says otherwise, you can assume the Nakamoto coefficient formula uses 51% as its minimum threshold.

Next, you have to consider the ways in which each type of blockchain subsystem can be compromised.

 that any blockchain can be divided into six individual subsystems: Mining, clients, developers, exchanges, nodes and owners. Each one of these subsystems has its own statistical data set you need to consider.

Once you have this individualized information plotted as a Lorenz curve on a graph, you can identify the number of entities it would take to reach a minimum threshold percentage for system disruption. You'll need to find the minimum number of entities whose proportionate control adds up to 51%, or whatever other disruption percentage you set. This number is the Nakamoto coefficient for blockchain decentralization.

We know the Nakamoto coefficient formula can sound a little complicated, so let's take a look at a real-world example to make things simpler. For example, when considering the Nakamoto score for Ethereum dev decentralization, you would start by looking up the number of engineers who have made commits. (

 shows the total number of commits and the number of commits per engineer.) By plotting the number of commits per engineer on a Lorenz curve, if you can see that two engineers alone have made over 51% of all commits, the Nakamoto score for Ethereum devs would be two. This would mean that Ethereum development is heavily centralized.

As you can see, Nakamoto coefficients are a fairly unique concept in blockchain analysis. Compared to other measurements, these coefficients have some very specific pros and cons.

Using the Nakamoto score comes with many helpful perks.

Despite its many benefits, this coefficient does have some downsides.

Nakamoto Coefficient Among Popular Blockchains

So how do popular blockchains measure up? Here are some revealing things to know about the measurements for some well-known blockchains.

 tends to have the highest Nakamoto score. Its measurements — e.g., for developer, owner and validator — are significantly higher than for most other blockchains. This makes Bitcoin one of the most decentralized blockchains overall. For example, Bitcoin has 14,409 validators and scores a

, while most blockchains score lower than 15.

 was actually one of the first cryptos to popularize the idea of the Nakamoto coefficient. The measurement was brought up frequently by users, who claimed the blockchain was reasonably centralized. If you look at the total number of validators, Solana does have a decent Nakamoto coefficient of 19. It scores particularly well at things like mining pools. However, when you consider measurements for nodes and owners, Solana has fairly poor scores for blockchain decentralization.

 tends to rank consistently high across multiple Nakamoto coefficient measures. It has a score of 26 for the total number of validators, and its various subsystems get high scores as well. This comes as no surprise to supporters of Avalanche. From the start, this blockchain's priority has been decentralization. As Nakamoto score analysis shows, Avalanche is the most decentralized 

 is tricky enough to require its own separate article. Ethereum has such a large network size that its total number of validators cannot be determined. However, some blockchain experts have managed to look at Nakamoto scores for smaller subsystems of Ethereum. When it comes to things like developer decentralization and owner decentralization, Ethereum tends to have low-to-moderate scores. However, it does excel at providing a decentralized node network. Ethereum actually scores higher than Bitcoin when you consider node distribution.

The Nakamoto coefficient is certainly one of the most useful methods for measuring blockchain decentralization. Most other measurements just determine whether a blockchain is either centralized or decentralized. Meanwhile, the Nakamoto coefficient shows that blockchain decentralization is on a continuum. It can determine precisely how decentralized any given chain is. Furthermore, it can help to identify a blockchain's strengths and weaknesses so that you can more easily find decentralized blockchains.

The Nakamoto coefficient can be handy, but it does have some faults. To get the most out of this measurement, you need to take the time to really analyze it. You can't simply read that "Blockchain A has a higher Nakamoto coefficient than Blockchain B" and automatically assume that Blockchain A is therefore more decentralized. A lot of different factors go into any given Nakamoto score.

To work with the Nakamoto measurement, you need to take a close look at which blockchain subsystem it’s evaluating. Keep in mind that there are multiple ways in which any blockchain can be decentralized. Even if a blockchain scores well for a specific type of decentralization, another one of its more important systems might be centralized. You also need to take the time to discover what data set was being used. Some Nakamoto scores are calculated over short periods of time, or with a very broad set of users, rendering these blockchain decentralization scores less reliable.

The Nakamoto coefficient is very helpful as long as you take the time to analyze the data behind any given Nakamoto score. By using a Nakamoto score to analyze subsystems, you can easily rank various blockchains based on their level of centralization. This makes the Nakamoto coefficient one of the most useful tools for determining blockchain decentralization.

Nakamoto Coefficient: An Accurate Indicator for Blockchain Decentralization?

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