- Bitcoin’s blockchain is slowly becoming more than just a buy-and-hold platform.
- Programmers have been expanding its functionality, which could lead to fresh demand.
- Ethereum underwent a similar trend, leading to its massive rally in 2021, Bitget CEO Gracy Chen told Business Insider.
Bitcoin’s 2024 catalysts may seem a thing of the past, but programmers are fueling future upside from behind the scenes.
For most of its existence, the top cryptocurrency has caught market attention as a buy-and-hold asset, and this store of value appeal has led to explosive gains. Aside from this, the blockchain hasn’t offered investors much else to do.
“Despite bitcoin’s diverse use cases, it is primarily viewed as either ‘digital gold’ for inflation mitigation or a currency alternative that lets participants transact in a decentralized, peer-to-peer (P2P) environment,” a Chainalysis note said in March. “It typically has not been viewed as the blockchain on which you can build.”
That puts bitcoin a step behind certain competing networks, especially Ethereum. On that platform, investors have been free to transact different cryptocurrencies, or gain exposure to non-fungible tokens and DeFi.
And with Ethereum’s native crypto now approved for its own set of spot ETFs, some analysts expect these tech advantages to trigger a bull run towards it.
But bitcoin is catching up.
While programmers have tried for years to expand its functionality, the launch of the Ordinals protocol last year spurred new momentum. This system is what allows the blockchain to finally host digital data beyond the bitcoin token, such as NFTs.
Then came BRC-20 tokens. Building off the Ordinals mechanism, the protocol allows tokens to be minted and traded directly on the blockchain, and new cryptocurrencies have hit bitcoin in droves.
“The Ordinals protocol enabled the growth of memecoins on the bitcoin blockchain, leading to a surge in liquidity within the BTC ecosystem in record time. Since the protocol’s inception, tens of thousands of BRC-20 tokens, with a combined market capitalization exceeding $2 billion, have been issued,” Gracy Chen, CEO of the crypto-exchange Bitget, told Business Insider over email.
Memecoins and NFTs may for now appeal more to those seeking fun, but this is good news for price-minded investors as well, she said. Added to that are bitcoin’s inroads into scaling solutions and DeFi, helping boost transaction demand.
Though key technical differences will still remain between bitcoin and ethereum, she said, replicating its functionality could send bitcoin surging five times over in just a matter of years, Chen said.
That’s based on the Total Value Locked, or the amount of assets staked on the bitcoin protocol. Currently, this metric is roughly inline with where ethereum stood just before it hit a parabolic boom between 2020 and 2021.
In Ethereum’s case, new DeFi functions and fresh coin launches triggered the seismic rise, and ether jumped 3,702% from peak-to-trough. For bitcoin, surging BRC-20 adoption could be the basis for its own — albeit less amplified — surge:
“Despite bitcoin’s higher capitalization, it may not experience growth as meteoric as ETH did in 2020, given the absence of a low base effect and stricter regulatory conditions. However, even a twofold weaker surge could still result in a fivefold increase in the leading cryptocurrency’s value,” Chen wrote in a note.
Since their inception in March, close to 67 million BRC-20 inscriptions have been made.
The explosive popularity has boosted profits for cryptominers, who get paid a certain fee for minting these assets. While transaction fees were rarely a primary source of revenue, surging activity is changing industry mindsets, Galaxy Co-Head of Mining Brian Wright said.
“We see these events occur, you know, probably not sustainably, but throughout the year, there’s going to be some periods where miners may be more profitable than they thought they were going to be just as a result of transaction fees,” he told the Galaxy Brain podcast in April.