Bitcoin on Ethereum Falls by $120 Million in Just Two Weeks

In letter

  • The amount of Bitcoin locked up with Ethereum rose from nearly zero to $ 2 billion from June through October.
  • Now that number is starting to drop.
  • Bitcoin’s rising price could have something to do with it, and DeFi incentives could dry up.

The amount of bitcoin locked in Ethereum is declining as traders withdraw their bitcoin from Ethereum’s DeFi smart contracts and sell it on the open market.

In the past 12 days, the amount of Bitcoin on Ethereum has dropped from 153,591 on Nov. 20 to 147,350 today, a drop of 6,421, or about $ 120 million – just as Bitcoin began its upward journey to beat its previous high.

Bitcoin reaches Ethereum through synthetic representation. You buy a bitcoin, connect it to a decentralized smart-smart contract and bing! An Ethereum token appears for it represents the bitcoin.

The number of bitcoins on Ethereum spiked this year as Ethereum’s decentralized financial boom was in full swing in July. Traders could earn lucrative returns by investing in credit protocols and decentralized exchanges.

That was attractive to Bitcoin HODLers who wanted to use their idle crypto. The phenomenon known as “wrapped bitcoin” increased.

But then, last month, the number of bitcoin locked in Ethereum began to decline. Take wBTC, or Wrapped Bitcoin, the largest with about 80% of the market share: on June 1, there were 4,000 Wrapped Bitcoins, or about $ 38 million. That number hit a high of 124,260 Bitcoin, or $ 1.9 billion, on November 9th. But since then it has dropped to 119,893 bitcoin. The value Of that, Bitcoin rose to $ 2.3 billion, but the number of Bitcoins fell by 4,367 Bitcoin.

Two things happened that could have caused the drop.

First, the price of Bitcoin soared like a rocket. Bitcoin rose from around $ 10,500 in early October to nearly $ 20,000 this week. Bitcoin HODLers who invested in DeFi smart contracts while waiting for BTC’s big break may have cashed out money to sell Bitcoin in the open market.

Second, the DeFi rewards have dried up for months. In their prime between late June and October, some DeFi protocols offered yields of up to 1000% per year. However, the market collapsed when the penny fell, and the only way DeFi protocols could prop up the market was to mint increasing numbers of tokens to cater to the desires of profit-hungry customers.

“The DeFi bull run, however, was driven by the craze for income farming as those incentives to run out of liquidity diminished as did DeFi protocol trading, causing traders to demand less for token assets like WBTC,” said Charlie Humberstone, a Product Manager at CryptoCompare said Decrypt.

Elias Simons, a protocol specialist at blockchain infrastructure firm Bison Trails, reiterated the assessment: “One of the reasons BTC is plateauing on Ethereum could be a decline in defi-earnings activity. In the past few weeks we’ve seen Uniswap its activity has finished. ” Liquidity mining program leading to less compelling return opportunities in DeFi for WBTC, “he said. As a result, Coinlist ended its own Uniswap liquidity provision program and redistributed capital back to its participants, which likely contributed to the effect.”

Simons added that as bitcoin price volatility rises again, “higher returns will become available in competing ecosystems,” for example through cross-exchange arbitrage in basic trading and “even on the financing side of centralized derivatives.”

It will be interesting to see DeFi’s next trick to keep its customers.

Disclaimer of liability

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.