Behind Bitcoin's return to $16,000 is the rapid expansion of its ecosystem

• In September 2020, nearly 69,000 bitcoins flowed into the DeFi ecosystem, while miners only mined 28,000 bitcoins that month.

• Through integration with other DeFi protocols, the number of active addresses of WBTC has increased to around 1,500, up about 25 times from 2019.

• In the six months after the Bitcoin halving, the amount of BTC held by Grayscale was basically equivalent to the amount mined during the same period.

• Bitcoin, including the entire digital asset market, needs to expand the scope of its ecological applications to allow holders to use it for new financial applications or attract more funds and participants.

On November 12, Bitcoin returned to above the $16,000 mark after 1,039 days. In the 12 years since its birth, the closing price was higher than this level only on 15 trading days. While people were still debating whether the popularity of DeFi would allow Ethereum to make a comeback, Bitcoin took the lead and returned to its "peak".

From Satoshi Nakamoto's vision of "peer-to-peer electronic cash", to the so-called disruptive "global currency" in the later period, to its current status as a "store of value" like gold, there is no doubt that Bitcoin's status in the hearts of all digital asset enthusiasts is unshakable.

In the 12 years since the birth of Bitcoin, we seem to be able to sense a hint of its development dilemma. The core functions of Bitcoin are trading and value storage. It is built on these two and is also limited by these two. Compared with Ethereum, which rose and became popular based on smart contracts, the Bitcoin ecosystem seems stubborn and closed. But we are also very happy to see the influence of Bitcoin gradually spread.

In the field of digital assets, Bitcoin participates in the Ethereum DeFi ecosystem in an anchored manner, allowing its users to choose more open financial products; in the field of traditional finance, Bitcoin is becoming a "financialized" investment asset in the form of trusts, bonds, etc., and is thus accepted by traditional financial investment institutions. In this article, Chain News will take readers to analyze the expanding new Bitcoin ecosystem from a data perspective.

150,000 Bitcoins Flowing into the DeFi Ecosystem

If DeFi is a new trend in blockchain technology, then with the help of Bitcoin's own user scale, holdings and transaction volume, as well as network effects, Bitcoin-pegged coins are destined to develop in the future DeFi ecosystem.

Bitcoin-pegged coins are special tokens issued on non-Bitcoin networks whose prices are anchored to native Bitcoin. To a certain extent, they increase the number of channels for holding Bitcoin and expand the utility of Bitcoin. Currently, Bitcoin-pegged coins based on Ethereum include WBTC (Wrapped Bitcoin), renBTC (Ren), SBTC (Synthetix), imBTC (TokenIon), HBTC, BTC++ (PieDAO), pBTC (pTokens) and tBTC (Keep Network).

According to DeBank data, the total issuance of the eight Bitcoin-pegged coins based on Ethereum has reached 153,458, and the total locked amount is nearly US$2.4 billion, both of which have set historical records. Although there has been some reflux with the recent rise in Bitcoin prices, the number of Bitcoins locked in the DeFi field remains high.

Data source: https://debank.com

As of November 11, 2020, the total issuance of Bitcoin-pegged coins has exceeded 150,000, with a total of 153,000 coins, an increase of about 5,928% from 2,538 coins on May 1. Among them, the total issuance of WBTC is 123,411, accounting for 80.66% of the total issuance of BTC-pegged coins; renBTC's issuance is 19,222, accounting for 12.56% and ranking second, followed by HBTC with an issuance of 6,010 coins.

Taking the most widely used WBTC as an example, before May this year, Bitcoin lock-up in the DeFi ecosystem mainly occurred in WBTC and the Lightning Network in the payment field. After May, as MakerDAO voted to approve WBTC as a new collateral for Dai, its Bitcoin lock-up volume increased sharply, far exceeding the amount of the Lightning Network.

Data source: https://analytics.skew.com

By connecting with the ERC20 format, a large number of highly liquid and high-yield DeFi products such as Maker, Compound, Aave, Balancer, Curve and Uniswap can use Bitcoin for decentralized lending, margin trading and development of derivatives markets.

Dune Analytics data shows that as of November 11, of the more than 120,000 WBTC issued, approximately 33,000 were in circulation on the Uniswap platform, accounting for more than 26%; 24,000 were in circulation on Compound, accounting for nearly 20%; and other DeFi platforms also circulated more than 23% of WBTC.

Data source: https://www.duneanalytics.com

On the other hand, data from IntoTheBlock shows that WBTC had an average of only 58 active addresses per day in 2019. Since liquidity mining ignited the DeFi ecosystem in June, the number of non-zero addresses and active addresses of WBTC has shown a clear fluctuating upward trend. Through integration with other DeFi protocols, the number of active addresses of WBTC has increased to around 1,500, an increase of about 25 times compared to 2019.

Data source: https://www.intotheblock.com

IntoTheBlock classifies transactions worth more than $100,000 as large transactions. In 2019 and the first quarter of 2020, WBTC's large transactions were almost zero. But starting in mid-August, the number of WBTC's large transactions increased significantly. On September 17, the number of large transactions in a single day even exceeded 970.

Data source: https://www.intotheblock.com

With liquidity mining and other new features of open finance, DeFi has ignited the passion of the digital asset industry. From the growth of WBTC's active addresses and large transaction volume, it can be seen that more and more traditional institutions and large participants are participating in the DeFi market through it.

Currently, the Bitcoin-pegged coin project on Ethereum is in a stable growth state. Although Bitcoin in the DeFi ecosystem only accounts for about 0.8% of the total Bitcoin circulation, as long as there are no black swan events such as market conditions or hackers, and the ecosystem and application continue to develop, both Bitcoin and Ethereum will benefit. From the data, the monthly growth of Bitcoin-pegged coins is almost the same as the output of its miners. In particular, in September 2020, nearly 69,000 Bitcoins flowed into the DeFi ecosystem, while miners only mined 28,000 Bitcoins that month.

Grayscale Fund's crazy Bitcoin accumulation plan

If the emergence of pegged coins has added application scenarios for Bitcoin in the field of digital assets, then the Chicago Mercantile Exchange (CME), Bakkt, a trading platform established by ICE, the parent company of the New York Stock Exchange, and the Grayscale Bitcoin Trust, which has been extremely eye-catching this year, have brought more attention from traditional financial institutions to Bitcoin.

Compliance digital asset tools that landed before Bitcoin ETF

In January this year, Grayscale Bitcoin Trust (GBTC), a subsidiary of digital asset management company Grayscale Investment, became the first digital asset tool that complies with the standards of the U.S. Securities and Exchange Commission. In other words, at this stage when Bitcoin ETF has not yet been approved by the SEC, it is one of the preferred compliant options for passive investment in Bitcoin.

In the second quarter of this year, Forbes disclosed that nearly 20 institutions had invested in GBTC. These institutions include well-known investment companies such as Ark Invest, which manages $4.5 billion in assets, and Horizon Kinetic, which manages $5.3 billion in assets. In addition, new investment companies such as Rothschild and Addison Capital also participated in the investment.

Let institutions rush in

Grayscale Investments released a Bitcoin investor survey report in October, showing that more than half (55%) of US investors surveyed were interested in buying Bitcoin, much higher than 36% in 2019. This trend is confirmed by the fact that this asset management institution is using unstoppable force to set off a revolution in which traditional financial funds are pouring into the Bitcoin market, further expanding the original Bitcoin ecosystem.

According to official data, Grayscale's total capital inflows for all products in the third quarter were $1.05 billion, the largest quarterly inflow ever, and a record high for the third consecutive quarter. Bitcoin Trust received $719.3 million in inflows in the third quarter. As of November 10, 2020, Grayscale Bitcoin Trust's assets under management (AUM) have surged from $1.9 billion at the beginning of the year to $7.622 billion, an increase of about 300% in 2020.

Grayscale Bitcoin Trust's holdings have been rising this year, with impressive growth. Take the period after Bitcoin's halving as an example. Before the third Bitcoin halving, Grayscale Investments held about 334,100 Bitcoins. On November 10, Grayscale Bitcoin Trust increased its holdings by another 1,701 BTC, an increase of 0.34%. According to Chain News statistics, Grayscale's total Bitcoin holdings have reached 497,800 so far. In the six months after the halving, Grayscale's Bitcoin holdings increased by 162,700, an average of about 940 per day.

On the other hand, miners mined only 163,200 bitcoins during the same period, with an average daily output of about 938. This means that in the six months after the Bitcoin halving, the number of BTC held by Grayscale is basically equivalent to the amount mined during the same period.

Bitcoin is being accepted by traditional institutions by building different ecological roles. Grayscale's third-quarter report shows that 81% of its current investments come from institutional investors. A recent report by JPMorgan analysts also pointed out that Grayscale's Bitcoin Trust outperformed gold ETFs. This trend may be driven by institutional investors such as family offices. It pointed out that "family offices may be viewing Bitcoin as a substitute for gold."

summary

Bitcoin is the default "value storage" and "digital gold" in the market, but this does not mean that it only needs the support of HODL. A large number of digital assets, including Bitcoin, currently lack the necessary application value. In this case, Bitcoin, including the entire digital asset market, needs to expand the scope of its ecological applications to allow holders to use it for new financial applications or attract more funds and participants to enter the market.