The conversation around the Bitcoin ecosystem has returned as the price of BTC reached another all-time high, over $90,000, for the first time in November 2024. High expectations from a pro-crypto U.S. administration, a fresh easing cycle from the Fed, strong demand for crypto ETFs and institutional adoption could all be driving forces behind BTC’s strong performance.
On the other hand, the performance of the Bitcoin ecosystem projects and their related assets was mixed. The TVL of Bitcoin DeFi reached a new high, while the floor price of most ordinal inscriptions didn’t follow BTC’s strong momentum.
In this article, we’ll look into what BTC record performance means to the broader Bitcoin ecosystem. The possibility of BTC’s strong momentum creates tailwinds for sub-verticals within the ecosystem and the chance of speeding up the adoption of Bitcoin scaling technologies as interest increases.
DeFi on Bitcoin Shows Promising Signs
Decentralized finance (DeFi) for Bitcoin could be one of the sectors that benefit from a high BTC price. Bitcoin DeFi is an emerging sector within the Bitcoin ecosystem that aims to leverage Bitcoin’s security and infrastructure for DeFi applications.
The total value locked (TVL) of Bitcoin DeFi has reached over $4 billion for the first time as the price of BTC surged to over $90,000. With BTC’s price expected to rise further, overall liquidity in the Bitcoin network could increase and more BTC could be locked into DeFi protocols.
Figure 1: TVL of Bitcoin DeFi has reached $4 billion for the first time. Source: DefiLlama
Restaking, yield farming and BTC-backed stablecoins are some of the popular narratives among Bitcoin DeFi. These related projects are expected to benefit from increased interest, activity and liquidity in the Bitcoin network. For example, some BTC holders could look to generate yield from their idle holdings. BTC’s increasing value might encourage some other holders to mint and use BTC-collateralized stablecoins.
The current bullish sentiment may create a positive feedback loop. Rising prices could fuel investors’ optimism, driving further investment into the Bitcoin ecosystem and potentially leading to a self-sustaining growth cycle.
BUIDL on Bitcoin
If the demand for Bitcoin DeFi is set to increase, the interest in Bitcoin’s scaling solutions might also increase. That’s because developers could take advantage of the market attention of the world’s leading crypto, as well as some of the recent technology breakthroughs under the hood, to build (BUIDL) on Bitcoin. This would especially apply to expanding Bitcoin’s smart contract capabilities with Layer 2 (L2) solutions, allowing the blockchain to handle transactions more efficiently. On top of that, building sophisticated decentralized applications (DApps) on the Bitcoin network could also be a direction of focus.
Figure 2: TVL of Stacks — a major Bitcoin L2 — recovering from Q2’s decline. Source: DefiLlama
Projects such as Stacks, a Bitcoin L2 that provides smart contract capabilities for the Bitcoin blockchain, might see increased interest. Data from DeFillama shows that Stacks’ TVL has been gradually recovering from Q2’s decline, and STX, its native token, has posted a 20% YTD gain.
In addition, a strong BTC price could benefit BTC-related infrastructure. Projects such as Xverse, a Bitcoin-based noncustodial wallet that allows users to store and manage assets on Bitcoin, and Nomic, which bridges Bitcoin to the Cosmos ecosystem, could see growth due to the increased demand for interoperability, allowing Bitcoin to be used in DeFi ecosystems beyond its native network.
Ordinal Inscriptions Struggle to Regain Traction
Ordinal inscriptions and BRC-20 were some of the important narratives in the Bitcoin ecosystem in 2023. However, Ordinal inscriptions weren’t immune as the market trend turned sour in Q2 2024. As the price of BTC has rebounded, some of the ordinal inscriptions seem to have struggled to regain traction. Figure 4 shows the floor price of Runestone, which is the third-largest market cap ordinal inscription collection on CoinGecko. It hasn’t seemed able to follow BTC’s recent strong momentum, at least not yet. Although some other collections may have shown some traction recently, its floor price is still quite far from its previous peak.
Figure 3: Total market cap of NFTs on Bitcoin. Source: CoinGecko
Figure 4: Floor price of Runestone over time. Source: CoinGecko
BRC-20 tokens seem to be in a similar situation. For example, ORDI and SATS have a $1.3 billion combined market cap, and take up over 80% of the total BRC-20 token market cap. They’ve been struggling to follow BTC’s uptrend and largely remain in the same trading range that they’ve been in for months, notwithstanding some recent short-term rebound.
Philosophical Difference Could be a Challenge
The future development of the BTC ecosystem could still face multiple challenges — despite all the innovations that have been pushing the boundaries of the oldest blockchain — and community division is a major challenge.
There’s still a philosophical debate within the Bitcoin community about whether Ordinal inscriptions and BRC-20 tokens align with Bitcoin’s original purpose. While Bitcoin’s store of value (or “digital gold”) narrative is widely accepted in the community — and has even begun to win buy-in from the mainstream — Ordinal inscriptions and BRC-20 tokens may often be seen as more risky and speculative by nature, especially if they don’t offer significant advantages. This contention could pose a challenge for both Ordinal inscriptions and the BRC-20 standard, at least from an investment perspective.
Suppose the market perceives Ordinal inscriptions and BRC-20 tokens as less useful or integrated into financial ecosystems such as BTC. In that case, their value may not be fully realized by the market, and their liquidity might also not be as high as for BTC — meaning price movements could be more volatile and less directly correlated with BTC’s price. In that scenario, even a skyrocketing BTC price may not be able to directly benefit the Ordinal inscription space and BRC-20 tokens.
On the other hand, Bitcoin DeFi is painting a relatively rosier picture. Since Ethereum-based DeFi has been around for a long time, the concept is easy to understand and is being tested in the market. Extending that into the Bitcoin blockchain thus seems more digestible. Besides, the demand for staking, restaking, native yield and BTC-backed stablecoins has been increasing in proportion to the price of Bitcoin. At the same time, recent tech innovations seem to cater more to DeFi activities on Bitcoin, rather than improving the user experience of Ordinal inscriptions and BRC-20 tokens.
Conclusion
The impact of Bitcoin’s record-high prices extends far beyond mere numbers on charts. As we’ve examined throughout this analysis, a rising BTC price could create a cascading effect across the entire Bitcoin ecosystem. However, it’s crucial to recognize that sustainable ecosystem growth requires more than just price appreciation.
While record-high prices certainly attract attention and capital, they must be accompanied by fundamental improvements in scalability, accessibility and user experience. The challenge for the Bitcoin ecosystem will be to harness this increasing momentum to build lasting infrastructure and develop practical applications that extend far beyond speculative trading.
