Jan 12, 2024 - Economy

ETFs represent bitcoin's most popular use case

Illustration of a hand plucking a golden coin with a bitcoin logo of a chain of other bitcoins

Illustration: Sarah Grillo/Axios

One of the most popular use cases for bitcoins, in recent years, has been plucking them off of the Bitcoin blockchain and using them somewhere else.

Why it matters: Finding new ways to use coins makes each one more valuable.

The big picture: The Bitcoin blockchain is basically a platform for value. Other blockchains and physical bitcoins are all applications on that platform.

  • Bitcoin ETFs are as well. They are plucking bitcoins out and putting them on traditional finance rails.

Be smart: This item is a bit facetious. Bitcoins cannot leave the Bitcoin blockchain. But they can become provably locked up, held to back IOUs (or derivatives) that can be used elsewhere.

  • The effect at least, is that they have been removed.

Zoom out: So, with the launch of bitcoin ETFs this week, it's worth checking in on the health of some of Bitcoin's other applications.

The Lightning Network is a payments system for Bitcoin. It's what is known as a sidechain, where people can send bitcoins around super fast and cheap while sacrificing some of the security guarantees of Bitcoin proper.

  • Bitcoin (BTC) deposits into Lightning have been holding steady at about 5,000 BTC ($232 million) since early December, but it hopped up a lot (about 800 BTC) at the start of October. About 200 BTC was withdrawn on Thursday, however.
  • Lightning is what people in El Salvador largely use, as much as they use it.

Wrapped Bitcoin (WBTC) is the most popular way to load bitcoins on other blockchains, largely on Ethereum, so it can be used in decentralized finance (DeFi).

  • Bitcoin custodian BitGo takes them and issues tokens on the desired blockchain.
  • According to The Block Research, people have been mostly redeeming WBTC (that is, taking it off Ethereum) since November, while net inflows and outflows had been fairly tepid going back to March.
  • There has been about 5,500 BTC ($260 million) in net redemptions of WBTC in the last two months of 2023.

Thorchain is a decentralized exchange that serves multiple blockchains.

  • It's seen a big uptick in BTC deposits, going from 870 BTC at the end of August to around 1,400 BTC ($65 million) today.
  • That said, about 200 BTC have left it since early December.

The bottom line: When the SEC allowed bitcoin futures ETFs, bitcoin in DeFi popped.

  • But this time, pure crypto use cases of the original cryptocurrency have been muted by Wall Street coming in.
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