Lightning could strengthen bitcoin's investment thesis, Fidelity Digital Assets says

Fidelity Digital Assets sees Lightning as a transformative technology that not only enhances Bitcoin's utility but also bolsters its investment case by increasing the network's transactional use and expanding its adoption across various sectors.

The Lightning Network is a second-layer solution of payment channels built on top of the Bitcoin blockchain, designed to enable near-instant transactions at negligible cost. While first launched in 2018, it was not until 2024 that its adoption gained momentum, Fidelity Digital Assets argued in a Wednesday report produced in collaboration with data from Voltage — a Lightning payment provider backed by President Trump's Crypto Czar David Sacks.

"Over the past year, we've seen firsthand how businesses are scaling with the Lightning Network — payment reliability is improving, transaction costs are dropping, and adoption is accelerating faster than ever," Voltage Founder and CEO Graham Krizek told The Block.

Since 2020, the Lightning Network's average capacity has grown by 384%, holding 5,358.50 BTC, which at a bitcoin price of $95,000, values this capacity at around $509 million as of January, Fidelity noted, adding that this does not include private or unannounced channels that it estimates to be as substantial. The entire capacity of the network combining public and private channels is unknown.

More businesses integrated with the Lightning Network in 2024 than any year prior, including U.S. crypto exchange giant Coinbase, joining rivals such as Bitfinex, OKX, Kraken and Binance — a trend that Fidelity expects will continue in 2025.

Signs of maturity for Lightning

The Lightning Network is also showing other signs of maturity, according to Fidelity, with smaller, less efficient channels deployed in earlier years closing in favor of larger, more streamlined channels. A well-optimized Lightning Network participant can see transaction fees as low as 0% and payment completion times of less than half a second as a result — though poor channel management can result in much higher costs with more inconsistent payment success.

A shift is also occurring in favor of fewer, larger, well-connected nodes as opposed to many smaller nodes, Fidelity noted, with average bitcoin capacity growing substantially over the last four years while average channels per node fell 30%. Though this improves the chances of payment success, it also contributes to the increasing number of users now relying on centralized Lightning Network wallet services rather than running their own nodes.

Capital efficient growth. Image: Fidelity Digital Assets.

Beyond offering an efficient transaction platform, Lightning also potentially functions as a yield-bearing network, Fidelity argued, allowing node operators to retain full control over their assets while earning returns through well-managed liquidity.

Finally, Lightning is also emerging as the language protocol for multiple new layers and services in the Bitcoin ecosystem, Fidelity said. Applications like Fedimint, Cashu and Nostr are all utilizing the network and expanding its use cases, while newer Layer 2 protocols on the horizon, such as Ark, will also offer interoperability with Lightning.

Tether's recently proposed integration of USDT with the Bitcoin Layer 2 represents perhaps the biggest driver of Lightning Network adoption globally — with a potential 1197% increase in transaction volume, according to Solv Protocol co-founder Seb Bunney.

By enabling fast, low-cost micropayments, Lightning expands Bitcoin's utility for everyday purchases and new digital commerce models, Fidelity said, without needing to rely on a different blockchain or token. While Lightning payments need to work 100% of the time for it to be truly effective, as the network matures, it shows promise for institutional adoption, offering a competitive edge for financial institutions in global remittances and transaction processing, allowing it to meet such demand. This could strengthen Bitcoin’s role in the global financial system and improve its long-term value proposition, making it a more attractive investment, the firm concluded.

Fidelity Digital Assets is a subsidiary of asset management giant and spot Bitcoin exchange-traded fund issuer Fidelity Investments, focused on providing institutional-grade services for the crypto ecosystem.