Bitcoin is doing rather well as of late, but among all the reasons why, one of them has really got advocates scratching their heads. It looks like the world’s number one cryptocurrency by market cap is getting a lot of support from its biggest competitor: Ethereum.
Ethereum Has Really Moved BTC Forward
As the second-largest cryptocurrency in the world, Ethereum was introduced in 2015, roughly six years after bitcoin was first brought to the trading table. The currency is widely recognized for two major contributions to the crypto space. The first is smart contracts, while the second is decentralized finance, otherwise known as DeFi.
The DeFi space works to bring users closer to full anonymity and privacy when engaged in trades. It is designed to be a fully trustless environment, and as it turns out, many people who are engaged in DeFi are using bitcoin units as “collateral” while trading assets. The process – known as wrapping bitcoin or WBTC – takes the currency and uses it in popular apps so people can gain commissions and interest.
Here’s how the process works. Bitcoin is deposited into accounts governed by custodial firms. The money is held in a single depository and is then used to fund both applications and projects stemming from the DeFi space. It is believed that the amount of bitcoin being used in this way could jump from about 0.6 percent – which is the present figure – to roughly ten percent within the next two years alone.
Chen Fang – the chief product officer at Bit Go and the man largely behind the process of wrapping bitcoin – explained in an interview:
WBTC has meant there’s more flow-through from the DeFi boom to BTC’s price. It also means that BTC still has a place in a possible DeFi centric future.
The process has become so popular that many mainstream crypto trading platforms – such as Coinbase Pro, designed primarily for institutions and professional traders – have given their customers the option of wrapping bitcoin, thereby ensuring their customers can gain access to this new and growing trend.
Bill Noble – chief technical analyst at crypto research firm Token Metrics – mentioned:
DeFi turned bitcoin into some of the world’s best collateral. Now, you have something else to do with your bitcoin other than sell it.
Thus far, roughly $1.5 billion of the world’s bitcoin is involved in the wrapping process. Just last June, this figure stood at only $12.5 million, meaning the popularity of WBTC has exploded in record time. Bitcoin’s price has also surged more than 30 percent.
The Wrapping Process Has Exploded in Popularity
Noble further stated that wrapped bitcoins present less risk to traders given they involve more anonymity and prevent regulators from viewing people’s activity too much. He says:
Bitcoin is a highly surveilled blockchain. Everybody and their brother know what’s going on. This wrapped coin just gives regulators a little less transparency.