We’re In A Bull Market For Off-Chain Bitcoin

This is an opinion editorial by Zack Voell, a bitcoin mining and markets researcher.

One of the more interesting and controversial developments in the Bitcoin ecosystem is off-chain use cases. Many of these applications are not technologically identical, but they all nonetheless expand the list of potential use cases apart from the Bitcoin base layer for a given bitcoin holder. And some of these products are completely outside the Bitcoin economy altogether.

This article takes no position on the unique merits of any particular off-chain use for Bitcoin, but it summarizes some growth trends and supply data showing growth and adoption across Layer 2 protocols, bitcoin-backed tokens and more. Using bitcoin in these ways is not suited for every investor, but anyone who cares about the broad scope of Bitcoin adopters should take note of these trends to better understand where and how bitcoin are moving.

Lightning Network, Liquid Network and RSK over the past two years. It’s apparent that of these three, some are seeing supply grow faster than others. But the overall growth trajectory is markedly opposite of bitcoin’s current price action. Despite the bear market, adoption continues.

unleashing Bitcoin’s full potential,” Stacks announced its offering of a form of wrapped bitcoin in January 2021. The asset uses the ticker symbol xBTC.

Data Overview Of Tokenized Bitcoins

It’s no secret that synthetic bitcoin products on other blockchains are often derided on Twitter and not universally used or welcomed by the broader Bitcoin community. But data shows that a non-trivial amount of bitcoin investors are increasingly using bitcoin-backed tokens.

Wrapped Bitcoin (WBTC), an ERC-20 token launched by BitGo. The chart below taken from The Block shows the extraordinary growth in WBTC supply over the past two years irrespective of any downward bitcoin price action:

Six other teams have launched similar assets, including tBTC, pBTC, renBTC and more. Each one offers slightly different features and protocol architectures to serve different demographics of users.

Tron) or to try and imitate the success of Ethereum’s bitcoin-backed tokens (e.g., Solana and Avalanche). But Ethereum is by far the network with the largest amount of synthetic bitcoin assets, in large part thanks to the craze of “DeFi Summer” in 2020.

The bar chart below shows current supplies of synthetic bitcoin on alternative blockchains:

proof of the reserves backing the bitcoin tokens it issues.

The Future Of Off-Chain Bitcoin

Readers who ideologically reject the set of tradeoffs inherent to tokenized bitcoin products will surely not be convinced by anything in this article to change their thinking, nor are they criticized per se in this article. The point of this data and analysis is simply to show that some people (in fact, a consistently growing number) see value in choosing to use their bitcoin somewhere besides the Bitcoin blockchain — and even places outside of the Bitcoin-native economy. After all, HODLing in cold storage is just as valid of a use case as tokenization.

This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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