The possibility of hosting Bitcoin NFTs on Stacks pushed STX price to new yearly highs, but there are concerns on whether the bullish thesis becomes reality.
Stacks is one of the first blockchains to enable a way for minting Bitcoin (BTC) Ordinals, which puts it in an excellent position to benefit from the hype. However, Ordinals have invoked an issue from the past where Bitcoin maximalist ideologies will be tested if the NFTs lead to network congestion.
On top of that, Stacks has yet to deliver all the functionalities required to support an NFT trading ecosystem and it faces competition from projects in other blockchain ecosystems. The fundamental and technical analysis of the project suggests that the price surge might have reached overbought conditions and may correct in the near term.
Ordinals development is unpredictable for now
The recent focus on inscribing NFTs on the Bitcoin network peaked in the last month after Casey Rodarmor inscribed an Ordinal on Jan. 29. While the trend took off to an overwhelming start, the minting is limited to technical users with a Bitcoin node and trading primarily takes place through OTC channels.
In comparison to Ethereum NFT marketplaces, the infrastructure for Bitcoin NFT trading remains significantly underdeveloped in regards to complex activities like decentralized trading. Many investors have expressed their belief that there needs to be a way to spin up marketplaces and NFT minting platforms for Ordinals.
The Bitcoin developer community has previously discouraged using the network for anything other than payments because it clogs the space and increases transaction fees. In the bull run of 2020 and 2021, many Ethereum (ETH) users paid hundreds of dollars in fees per transaction as user activity on it exploded. On the other hand, Bitcoin’s fees stayed at optimum levels throughout the bull run, but the usage and earnings of the protocol lagged behind Ethereum.
According to a CoinShare report, the adoption of Ordinals will again be subject to the social acceptance of the method to inscribe additional data on the Bitcoin blockchain, which is bound to present challenges such as network congestion and increased fees.
The report goes on to review previous failed attempts to use the Bitcoin blockchain for smart contract activity, saying that “similar projects of Bitcoin’s past have had little impact on investors and users alike.”
The number of Ordinals inscribed on Bitcoin surged significantly at the start of February as the instrument exploded. However, the trend slowed down due to a lack of trading infrastructure, with less than 10,000 NFTs inscribed on most days.
Stack blockchain’s native STX token jumped by 256% in February, thanks to hype around Bitcoin NFTs and an upcoming upgrade to the project.
Number of ordinals inscribed on Bitcoin daily. Source: Dune
It remains to be seen how the Bitcoin community reacts to an increase in network congestion and Bitcoin fees if the Ordinals hype grows.
Stacks price rises on speculation, while activity is low
The idea is that Stacks will make Bitcoin Ordinals more accessible to users by facilitating minting processes and hosting marketplaces.
Stacks Foundation, the team managing the blockchain, also announced a new upgrade to the protocol, Stacks 2.1, on Feb. 22, which seeks to improve the blockchain by adding EVM compatibility and synthetic Bitcoin (sBTC) through a secure bridge to Bitcoin.
On top of that, the .BTC naming service lives on the Stacks network, which could generate a lot of trading activity if the demand for .BTC addresses increases. In its current state, a .BTC Stacks address is largely detached from the Bitcoin network. Meaning, users cannot send and receive Bitcoin at these addresses like its .ETH counterpart.
After the 2.0 upgrade, Stacks will enable direct sending of Stacks assets to Bitcoin addresses. It will enable proxy access to the Bitcoin blockchain without creating a separate Stacks address. It remains to be seen if Bitcoin users find the feature attractive.
While the upgrades sound promising, there’s still insufficient blockchain activity to justify the STX price surge. Only around 1,000 unique active wallets engaged with dApps on Stacks in February. The most striking part of Stack’s usage data was that the NFT marketplace, Gamma, also failed to attract considerable users to its platform, less than 100 wallets traded daily on the marketplace.
Top used dApps on Stacks between Jan. 28 and Feb. 27. Source: DappRadar
Gamma supports minting and sending Bitcoin ordinal NFTs via Stacks. However, many users have faced UX related problems while using the feature as it requires a separate address in a Stacks wallet that is Ordinal compatible. Many users have mistakenly sent their NFTs to wrong addresses. The wallet issue has also restricted trading of Bitcoin NFTs.
Gamma NFT marketplace stats. Source: DappRadar
Developers in the Stacks ecosystem, like the Xverse team, are working on a wallet to bring user-friendly Ordinals support. There’s also an experiment with atomic swaps between Bitcoin NFTs and STX in the works. The aim is to develop this functionality into a complete marketplace.
However, other ecosystems are also looking to bank on this trend. For instance, Ordinex is developing an Ordinals trading platform, which will be accessible for Ethereum users through Metamask. Some Ethereum native projects, like OnChainBirds and SappySeals, have also inscribed the NFTs on Bitcoin and enabled trading on OpenSea. However, the trading activity of these collections remains average, with little hype.
Besides Stacks, many other ecosystems are trying to bank on the opportunity by facilitating Bitcoin NFTs. While Stacks enjoys a technical advantage over others, Ethereum has a loyal user base and adequate liquidity to outperform Stacks’ ecosystem if a feasible solution emerges. Moreover, in the end, it will depend on the response and demand of these NFTs from the Bitcoin community, which may not support euphoria around it.
STX/USD reaches key resistances zones
The STX token dilutes at the rate of 2.5% annually. The inflation will reduce after the Bitcoin halving, which is expected to occur in April 2024. The rate of supply increase of STX is low compared to other layer-1 blockchains like Solana and Cardano, which is encouraging. However, the network’s total fees or token economics do not balance the inflation, which needs to change soon.
Technically, the STX/USD pair is near the top of its two year trading range at $1.02, which is a potential yellow flag for buyers. If bulls are able to overcome this level, STX can possibly take a shot at the all-time highs near $3.00. However, given that network activity doesn’t correlate to the price rise as of yet, there’s a chance of a pullback toward $0.68 and $0.24.
STX/USD daily price chart. Source: TradingView
Similarly, the STX/BTC pair is also near its all-time range of 0.00004350 BTC, which raises the possibility of a correction once those levels are tagged. The downside targets of STX are at 0.00002744 BTC and 0.00001233 BTC.
STX/USD weekly price chart. Source: TradingView
Bitcoin NFTs have a lot of potential, but it is still unclear if the Bitcoin community, which is usually against speculation and activities that clog the network, will allow the trend to prosper.
Currently, the most crucial aspect of NFT trading—an easily accessible marketplace and wallet—is still missing from the Ordinals ecosystem. As a Bitcoin sidechain, Stacks enjoys technical advantages with Bitcoin integration and it has a slight advantage over other blockchains in providing the tools to support an Ordinals craze.
However, the applications to support Ordinals are still in development. Meanwhile, Stacks faces competition from other more liquid ecosystems which could develop more feasible solutions to integrate Bitcoin NFTs on their chain.
The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
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