Will you brag one day, Anon? If you keep reading these guides and keep stacking, we can assure you, you will get to brag  ;)

Inscription Drama

What an eventful week it has been! BTC shattered the $40K barrier effortlessly and is steadily approaching its previous ATH. The BTC ecosystem has undergone remarkable transformations since the last bull run, notably with the advent of inscriptions, which have revolutionized the way many engage with BTC. 

This ecosystem now boasts a plethora of exciting developments and innovations, attracting a broader user base compared to the earlier focus on initiatives like the Lightning Network. However, not everyone shares the same enthusiasm for how Bitcoin's ecosystem is evolving, including notable Bitcoin Core developer Luke Dashjr.

Luke Dashjr contends that Inscriptions are exploiting a vulnerability within Bitcoin Core, causing spam on the blockchain. He aims to implement a definitive solution before the release of v27 next year. Additionally, Dashjr asserts that Ordinals has been an attack on Bitcoin from its inception.

These viewpoints have sparked considerable debate within the community, as some argue that inscriptions generate substantial fees for miners and believe that the Bitcoin network should be a hub for innovation and growth, rather than solely serving as a transactional network. You can find his initial tweet on the matter below.

And another tweet to put things further in context. 

The M6 Labs team had some perspectives to share on this issue and responded to Dashjr regarding what appeared to be an inconsistent aspect of his vision for the BTC network.

Unfortunately, Dashjr did not respond. 

Furthermore, Dashjr's recent claims regarding the -datacarriersize parameter in Bitcoin development were inaccurate and misleading, causing unnecessary concern in the crypto community. He misunderstood the parameter's function, thinking it applies to inscriptions like Ordinals, when it actually relates to OP_RETURN output size.

• No Consensus Impact: These parameters are configurable and affect mempool transaction scrutiny but don't reject transactions at the consensus mechanism level. They wouldn't significantly alter the Bitcoin ecosystem.

In summary: Dashjr's misunderstanding of the -datacarriersize parameter led to inaccurate claims, causing unnecessary confusion in the crypto community about its impact on inscriptions like Ordinals. Read more below for a deeper understanding of this issue. 

Inscriptions are not going anywhere and are likely here to stay. And for a final summary on the entire issue, Udi Wertheimer gives his expert opinion on this issue.

Bitcoin Monthly

In this analysis of Bitcoin's monthly performance, we're comparing the current 2023 cycle with historical data from 2016. As the famous saying goes, "History doesn't repeat itself, but it often rhymes," and we're witnessing some interesting patterns.

Firstly, we've recently seen Bitcoin reach the $42K mark. Interestingly, in previous cycles, Bitcoin has consistently hit the 0.5 Fibonacci retracement level, which corresponds to $42K, just before the halving events. This pattern has held true once again in this cycle.

However, it's important to note that while Bitcoin might still experience short-term fluctuations that take it above $42K, it's expected to close the monthly candle below this level. This suggests that there may be some resistance around this price point.

One factor that's currently influencing Bitcoin's performance is the hype surrounding the ETFs. This excitement has introduced some uncertainty into the market. As a result, there's some debate about whether Bitcoin will follow the previous market structure (indicated by the purple line in the chart). It's possible that we might not see a direct repetition of this structure.

Instead, many analysts believe that Bitcoin could experience a correction, potentially dropping to the 0.382 Fibonacci retracement level, which is around $36K. This level is often considered a key support area.

Guest Post from Kairos Trading. Join their Telegram & follow their Twitter.

Bitcoin News & Metrics

• The SEC has been actively engaging with various asset managers, including Grayscale, BlackRock, Bitwise, VanEck, Fidelity, Invesco, Hashdex, and 21Shares, regarding their proposed spot Bitcoin ETFs. These meetings took place in late November and focused on different aspects of the ETF proposals. 

• Tether has announced a new investment strategy to strengthen its reserves. This strategy involves allocating up to 15% of its net realized operating profits towards purchasing Bitcoin. 

• FTX received court approval to sell $744M worth of Grayscale and Bitwise Trust assets. 

• El Salvador's President Nayib Bukele announced that the country's investment in Bitcoin has been highly profitable, with a current value that covers 100% of their initial investment and even generates a profit of $3.62M USD. The nation has expressed its intent to hold onto its Bitcoin assets.

• Marathon, one of the largest publicly traded mining companies, shared its November performance results, producing 1,187 Bitcoins and holding a total of 14,025 unrestricted BTC as of November 30. They also chose to sell 700 BTC to cover operating expenses.

• Riot made a substantial purchase, ordering 18 EH/s of the latest generation MicroBT Bitcoin miners for $290.5M. This acquisition is notable as one of the largest recent orders for Bitcoin mining machines and provides Riot with a path to achieve over 100 EH/s in self-mining capacity.

• Jim Lee, the director of criminal investigations for the U.S. IRS, revealed that around half of the digital asset investigations in the past year focused on tax issues. These issues ranged from taxpayers failing to report income from capital gains or mining activities to individuals deliberately concealing their cryptocurrency holdings.

• MicroStrategy made a significant investment, purchasing $600M worth of BTC in November, thereby increasing its holdings by 10%.

• The world's largest Bitcoin futures ETF, ProShares' BITO, reached a record high of $1.47B in assets under management. This surge indicates growing institutional interest in Bitcoin as various spot ETF applications are filed in the U.S.

• Grayscale Investments hired John Hoffman, a former Invesco ETF lead, for the role of managing director. This move is in line with Grayscale's efforts to convert its flagship fund into a spot Bitcoin exchange-traded fund.

• Open Source Chrome Extension for Bitcoin Ordinals and BRC20 UniSat closed a strategic funding round led by LK Venture. However, the specific amount raised was not disclosed.

• Hut 8 Mining Corp. and US Bitcoin Corp have completed a merger, resulting in the formation of a new U.S.-based entity called Hut 8 Corp (New Hut). This newly merged company, combining the strengths of both Hut 8 and USBTC, is preparing strategically for the upcoming Bitcoin halving. 

Gold & BTC: Often viewed as a safe-haven asset, gold is concurrently experiencing a surge, recently surpassing $2,060 and approaching its all-time high. This simultaneous increase in both Bitcoin and gold prices highlights the complex relationship between traditional and digital assets. 

The anticipation of macroeconomic changes, including potential rate cuts by the Federal Reserve, seems to be a key factor influencing the behavior of both asset classes. As such, both Bitcoin and gold are reacting to broader economic signals, reflecting investor sentiment and expectations about future monetary policy and economic conditions.

Inflows surge: Digital asset investments experienced significant inflows of $176M last week. Over the past 10 weeks, total inflows reached $1.76B, accounting for 4% of assets under management. This 10-week streak of inflows is the largest since October 2021 when the US launched futures-based ETFs for digital assets. 

Despite the recent increase, total AuM remains at $46.2B, well below the all-time high of $86.6B in 2021. The majority of inflows were in Canada, Germany, and the US, with minor outflows observed in Hong Kong. Bitcoin attracted $133M  in inflows, while Ethereum received $31M.

BTC Dominates: In 2023, Ethereum has experienced substantial dollar value growth, up by 88%. However, it has underperformed Bitcoin, losing 25% of its value against the leading crypto. This raises questions about whether Ethereum's performance might deteriorate further. 

The BTC-ETH Dominance metric, which tracks the performance trends between Bitcoin and Ethereum, currently indicates an era of Ethereum dominance, but its value is at its lowest since May 2021. This prompts speculation about whether Bitcoin could potentially outperform Ethereum in this bull market, which would be a departure from the norm.

The Stablecoin Supply Ratio (SSR), which assesses the purchasing power of stablecoins compared to Bitcoin, has shown significant movement recently. When the SSR is lower, it indicates more buying power for stablecoins in acquiring Bitcoin. In late October, the SSR exceeded its upper limit, suggesting an oversupply of Bitcoin relative to stablecoins. However, recent data reveals a renewed influx of stablecoins into Bitcoin, potentially signaling a shift in the market.

Bitcoin Ecosystem Update

The Lightning Network has seen significant developments and challenges in 2023. One of the notable improvements is the introduction of channel factories, allowing users to create multiple payment channels within a single transaction. This has enhanced network capacity and reduced on-chain transaction fees. Furthermore, the network has benefited from an enforcement layer, simplifying channel management and potentially reducing transaction costs.

• However, the Lightning Network faces challenges, particularly concerning its reliance on custodial wallets, which contradicts the Bitcoin principle of "not your keys, not your coins". While these custodial solutions are convenient, they raise concerns about privacy and centralization, as they require trust in third-party providers. Efforts like the Fedi protocol aim to provide a more privacy-centric route for using Bitcoin and Lightning, reducing reliance on third parties.

• Running a Lightning node also presents challenges due to its complexity compared to running a Bitcoin node. Despite improvements in user experience with software like Amboss and Umbrel, setting up and operating a Lightning node still requires a deeper understanding of Bitcoin.

• Additionally, the network faces the ongoing issue of managing increased transaction volumes without compromising its speed and efficiency. Concerns regarding privacy, routing inefficiencies, channel liquidity management, and interoperability with other blockchain networks continue to be areas of focus.

Stacks Performance: Stacks, a Bitcoin layer 2 solution, has experienced a significant surge in its native token, STX. This spike is attributed to the growing popularity of Ordinals. Since the launch of the Ordinals protocol on January 21st, STX has seen a tremendous increase in both its price and market capitalization. Specifically, the price of STX skyrocketed, and its market cap surged from $370M to $1.2B. The daily trading volume of STX also recorded a staggering 14,925% increase, rising from $4M to $601M​​.

• Stacks is also preparing for a significant upgrade on March 20th. The Stacks 2.1 upgrade aims to improve the platform’s connection with Bitcoin and add major improvements to its Layer-2 network. 

• This includes the rollout of a new consensus protocol, “Stacking 2.0”, allowing users to lock up their tokens to secure the network and earn rewards. This upgrade is expected to further boost the performance of STX​​.

BitcoinFi and OrdiFi Tokens: Tokens like $SYS, $MUBI, and $ORDI have shown remarkable growth. $SYS, being the DA layer, plays a pivotal role, while $MUBI has been gaining traction due to its role as the ERC > BRC20 bridge. 

• $ORDI, has been particularly noteworthy, being the first BRC20 token to reach a $1B market cap. This milestone signifies a growing investor interest in the broader Ordinal ecosystem.

Supporting Tools and Platforms: Tools like Xverse, Magic Eden, and Sparrow have been instrumental in supporting this ecosystem. Xverse, for instance, offers a user-friendly interface for engaging with Bitcoin-based NFTs, while Magic Eden provides a platform for trading and showcasing these unique digital items. Sparrow, on the other hand, aids in the mining and acquisition of rare sats, further fueling the ecosystem's growth.

Emerging Trends and Projects: New developments such as the Runes token standard and the Trac/Tap protocol are pushing the boundaries of what's possible within the Bitcoin ecosystem. 

• These innovations are blending the best aspects of BRC20s and Runes, aiming to enhance the functionality and interoperability within the network. 

• Exciting projects like Udi's project, Taproot Wizards, and Nodemonkes, along with the emergence of new memecoin standards, signify a rapidly evolving space that is attracting both developers and investors alike.

Opportunities

First is first, with $ORDI's significant market cap of  $1B, attention is turning towards other low-cap gems on popular chains that share a similar narrative of being the first deployed inscription tokens.

Dogecoin's first deployed inscription token, $DOGI, presents an opportunity with its current $15M market cap. For Solana enthusiasts, $SOLS, the first deployed inscription token on this network, has a market cap of $11.7M. These tokens represent early-stage investments in their respective chains, which might appeal to users looking for potential growth.

Avalanche's $AVAS and BNB's $BNBS are notable for their nascent stages in the market. $AVAS hasn't hit the market yet but is already generating significant community interest. $BNBS, trading over-the-counter at around $0.20 each, places its market cap at $4.2M. These tokens could be attractive for users seeking to get in early before these tokens gain broader market recognition.

Other networks like Fantom, Optimism, Celo, and Gnosis also have their first deployed inscription tokens - $FTCX, $OPTI, $XPAY, and $GNOS, respectively. These tokens are all EVM-compatible and are expected to be integrated into the EVM Ink marketplace, offering additional avenues for user engagement and investment.

An interesting development in this space is the PIPE protocol, a UTXO standard built on Bitcoin. $PIPE, the first deployed token on this standard, currently has a $31M market cap. Its trading platforms include the Trac discord and a dedicated marketplace.

Enjoyed this article?

1. Subscribe to Crypto Pragmatist by M6 Labs newsletter for crypto-native industry insights and research read by 30k+ subscribers

2. Follow us on Twitter for Tweets providing top-notch insights and bridging the gap between users, builders, and leaders in the crypto space