Crypto News Updates

Bitcoin Has No Real Use For DeFi In Its Current Form

The decentralized finance (DeFi) ecosystem continues to attract billions of dollars from cryptocurrency enthusiasts. Though the term “decentralized finance” could certainly apply directly to Bitcoin in and of itself, the growth of the DeFi industry lately refers to an umbrella of projects, mostly based on Ethereum smart contracts, that support cryptocurrency-based lending, prediction markets or other financial services.

While the emphasis on Ethereum may make it seem as if Bitcoin and DeFi don’t mix, some intriguing initiatives to merge the two do exist. However, those services will require some modifications to make them more appealing to those who use Bitcoin.

The State Of DeFi Services For Bitcoin

As the world’s leading cryptocurrency, everyone has to ask themselves if bitcoin can even benefit from newer DeFi applications. More specifically, can Bitcoin benefit from innovations being forged by the DeFi projects that the market seems to currently favor? With options such as yield generated on cryptocurrency lending and borrowing offering some potential, it seems worth exploring. But integrating BTC into these decentralized finance use cases has proven challenging.

Thanks to projects like RSK, DeFiChain and Sovryn, it is now possible for Bitcoin users to access decentralized finance solutions. There’s also Liquid by Blockstream, a sidechain that one can use to obtain L-USDT assets with bitcoin holdings and explore DeFi through services like Hodl Hodl. Through this platform, users are able to lend and borrow cryptocurrency in a non-custodial way: borrowers deposit bitcoin as collateral, which is repaid once the borrowed money is paid back in full. 

As innovative or appealing as these services may appear, some still require users to wrap their bitcoin holdings (through “wrapped bitcoin,” users create an ERC-20 token with a one-to-one peg to BTC, with both assets being interchangeable), which many see as an unnecessary extra step. No one cannot deny the extra functionality of an asset like wrapped bitcoin, that does not necessarily mean people are eager to use bitcoin in a DeFi setting. As BTC already has a far more robust price than any other DeFi asset that one can “farm” (or, earn yield on), there doesn’t appear to be an immediate need to explore these options. 

Better Incentives Could Help

In the current DeFi landscape, Bitcoin users do not have too many options to explore, unless they want to wrap tokens, convert to other assets or take other risks. This situation is far from ideal. But I’m convinced that there are better methods to explore, such as the liquidity provision on automated market maker (AMM) decentralized exchanges. This provides a way for users to empower themselves by picking a decentralized exchange and liquidity pair from which they aim to earn fees, instead of those fees going to centralized exchange operators. Unfortunately, finding such an exchange that supports bitcoin in its native form is nigh impossible. 

In this white paper of SIL Finance, I found an exciting reward structure that might make more sense: Not only would users earn AMM fees from trading in the liquidity pool, but they would also earn native DeFi tokens. This would provide two revenue streams and, all the while, users only have to provide one type of liquidity. Reducing risks and increasing the rewards, as this application potentially could, is one way to get more bitcoin users enthusiastic about decentralized finance. 

Although the white paper doesn’t mention any native BTC support, the idea could be implemented on a bitcoin sidechain like RSK, for example.

But Does Bitcoin Even Need DeFi?

As bitcoin makes for a substantial long-term investment on its own, one has to wonder if people are willing to take any risks with their BTC holdings. That said, sitting by idly while waiting for the price to go up will not suit everyone’s tastes either. Empowering users by giving them “investment options” to explore will always prove beneficial to some. 

On the other hand, the DeFi industry, in its current form, is still marred by insecurity, trust issues and greed. Most people look for ways to get rich quickly through yield farming, which is an unsustainable approach. I think AMM DEXes have a far better chance of succeeding in the long run, especially compared to services with no apparent use cases. Creating a DeFi token to farm yield without offering any long-term use cases for the asset is a business model that will eventually disappear into obscurity. 

There is also the apparent increase in institutional demand for bitcoin exposure to contend with. It has taken a decade to get companies to notice Bitcoin. As this wave is now slowly swelling in momentum, launching DeFi on bitcoin may not be the most opportune. The world’s leading cryptocurrency has gained recognition as an investment and store of value, rather than as play money. The introduction and rampant use of DeFi products for bitcoin could potentially erode that image. 


Although I find certain aspects of DeFi fascinating, I remain unconvinced that the Bitcoin ecosystem needs any of these solutions today. Granted, it could be useful to do more with my BTC holdings, but for now, I am more than content to keep the funds in a private wallet and play the long-term game. 

Should any AMM DEXes eventually integrate support for bitcoin in its native form, I will gladly check out the options. That is, assuming the smart contracts are appropriately audited, the approach is non-custodial and the earnings justify the effort. If these three conditions can’t be met, there is no need to introduce decentralized finance — as we know it today — to Bitcoin. 

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

The post Bitcoin Has No Real Use For DeFi In Its Current Form appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

Crypto News Updates

4 Reasons Why Bitcoin Has Finally Surpassed $20,000

All vital statistics favor bitcoin continuing to set new all-time highs in price. But not only has the $20,000 price level been reached; Bitcoin is likely to go much higher altogether. Weak hands and scalpers squeezing every dollar out of their position are now being left behind as bitcoin keeps trending higher. 

The Case For $20,000-Plus Bitcoin

It is pertinent for everyone to look beyond the trading value exchanges may depict at any given time. Every time someone looks at the price, that figure represents a temporary snapshot of the inevitable. Whether bitcoin is at $17,000 or $19,000 at any given time won’t make much of a difference. 

The world’s leading cryptocurrency has now broken that next psychological barrier of $20,000 in search of even higher price targets. Most weekly red candles have failed to affect the price long-term throughout 2020 and it’s important to look past them now that we have eclipsed this pivotal mark.

Source: MXC Exchange

When one begins to look at the core statistics, there is no solid argument against bitcoin staying above $20,000 in the future. All of the critical metrics confirm that fewer bitcoin are going around to buy at these prices. It is a mere matter of time until the price responds positively. 

And the illustrious $20,000 level is merely a stepping stone for what is yet to come in the future.

1. Exchange Reserves Keep Dropping

One of my favorite metrics to track is the supply of bitcoin across centralized exchange wallets. 

The chart below confirms that there is an ongoing downtrend of available supply since March 2020. This trend is not slowing down either, despite some minor increases in BTC values along the way. For some time now, there have been fewer than 3 million BTC in exchange wallets. A remarkable trend, considering how the value remained above $18,000 in recent months without any problems. 

Source: CryptoQuant

One can argue that this is still over 10 percent of the circulating supply. And that’s a valid point, but it isn’t significant in the grand scheme of things. If 90 percent of something is not available for convenient purchase, the price of that item or asset will always go up. For bitcoin, the conveniently-accessible supply is dwindling rapidly. 

Part of this momentum is aided by all of the companies suddenly investing in bitcoin. The information below shows how companies approach the world’s leading cryptocurrency today.

None of these companies appear to be in it for the short-term either. All of these treasuries helped to reduce the available BTC supply further, creating a new degree of scarcity that pushed us past $20,000.

2. Fewer People Store BTC On Exchanges

Making matters more intriguing is the ongoing Bitcoin netflow (the difference between bitcoin flowing into and out of exchanges’ wallets) among known exchanges. 

Throughout 2020, there is more negative outflow compared to positive numbers. This is another remarkable trend considering that the value of BTC has risen spectacularly since March 2020. That alone tends to trigger more people to move their money off of exchanges. I plan to keep my funds in a hardware wallet until we reach a six-figure price.  

Source: CryptoQuant

As more and more BTC leave exchanges daily than can be added in ongoing deposits, the scarcity factor will become more outspoken. Bitcoin already has a limited supply. Bigger and bigger chunks of its available supply are made inaccessible every month. 

It was only a matter of time until the market shifted into a higher gear and blazed past that $20,000 “resistance level.” This expected price surge took place before 2020 came to a close, indicating that next year may prove an exception for bitcoin. 

3. Dormant Supply Remains Unaffected

One aspect of the bitcoin price that many newcomers and speculators tend to overlook is the dormant supply. The Glassnode chart below confirms that 33.153 percent of the bitcoin supply has not moved to a new address over the past three years. Owners of these BTC balances have held during the 2017 price run and are now doing the same. 

Souce: Glassnode

As an analyst, these statistics indicate to me that BTC holders are not interested in selling before a much higher value becomes the new normal. That may be $50,000, or even six figures per BTC, for all we know. More importantly, traders may not find this supply on exchanges or other trading platforms for some time to come.  

Again, this is a chunk of BTC that no one may be able to access for some time to come. 

4. New Use Cases For Bitcoin Holders

Finally, I am impressed by how exchanges and other platforms aim to bridge the gap between bitcoin and decentralized finance. For instance, Lightning Labs has launched its Lightning Pool liquidity marketplace, IOVlabs has introduced a new sidechain model to enable more flexibility with RSK and at MXC Exchange, we’re planning a subscription product that offers returns on locked up BTC.

While this model is not just applicable to bitcoin, the world’s leading cryptocurrency is finally receiving the support it deserves. Decentralized finance without Bitcoin will have no chance of surviving in the long term. Additionally, there is a lot of liquidity among bitcoin holders who have no interest in selling at the current price. 

If all of the above does not make one bullish on bitcoin and its potential to go well beyond the $20,000 price tag, I don’t know what will. 

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

The post 4 Reasons Why Bitcoin Has Finally Surpassed $20,000 appeared first on Bitcoin Magazine.

Source: Bitcoin magazine