Original title: State of Bitcoin: 2024
Original article by Vaish Puri & Joey Campbell
Compiled by: TechFlow
Reprinted by: Luke, Mars Finance
When historians look back on 2024, they may see it as a year that marked the mainstreaming of Bitcoin. It was a year that saw Bitcoin hit all-time highs, became a hot topic in the U.S. presidential election, 11 Bitcoin ETFs were approved, and the halving event took place. And the global economy struggled with inflationary pressures.
This year, Bitcoin has shown its unique multifaceted charm. In economically troubled countries (such as Argentina and Turkey), it is seen as a safe haven against high inflation; in the eyes of Wall Street elites, it has become an investment tool recognized by financial giants such as BlackRock; for cypherpunks and developers, it is a new canvas for innovation; and in the eyes of governments, it has changed from a threat that needs to be controlled to an opportunity that can be exploited.
Bitcoin's technology is also evolving. The Bitcoin network, which once centered around the concept of 'simplicity,' is beginning to explore more new features. The re-enabled opcodes (such as OP_CAT) and revolutionary research (like BitVM) inject programmability and new possibilities for self-custody into Bitcoin's base layer. Layer 2 networks are rapidly developing, providing solutions for transaction scalability; at the same time, the emergence of liquid staking derivatives brings potential for yield generation to Bitcoin.
BlackRock's iShares Bitcoin Trust (IBIT) set a record, achieving $10 billion in assets under management in just a few weeks, far exceeding the development trajectory of its gold ETF. With a massive influx of institutional funds, Bitcoin is gradually entering retirement portfolios. This phenomenon excites Wall Street while causing concern among Bitcoin purists. The popularity of ETFs has made Bitcoin more accessible than ever—now, 62% of Americans can easily buy Bitcoin through brokerage accounts, just like purchasing Apple stocks. However, this convenience also brings issues. The Bitcoin spirit of 'not your keys, not your coins' is gradually overshadowed by the clamor of institutional trading.
However, Bitcoin always finds vitality in contradictions. In the U.S., Trump's crypto-friendly policies have made Bitcoin a legitimate institutional asset; in India, despite regulatory pressure, 75 million users have adopted Bitcoin as a tool for financial empowerment; in Turkey, Bitcoin has become a savings choice for millions amid a 50% inflation rate; and in Argentina, as currency rapidly depreciates due to 140% inflation, citizens have little time to deliberate over custody methods and instead use Bitcoin to protect their savings. In Latin America and Africa, Bitcoin is not an investment tool but a means of survival.
This adaptability runs through Bitcoin's development in 2024. Each region bestows different meanings to Bitcoin based on its needs. This flexibility does not undermine Bitcoin's core objectives; rather, it proves its robustness. Bitcoin acts as a mirror, reflecting the needs of different users while maintaining its core characteristics.
As 2024 approaches its end, Bitcoin faces important choices. It has gained the legitimacy early supporters anticipated, but this legitimacy may not manifest in the way they initially envisioned. The rise of ETFs has brought about significant changes while introducing risks that Bitcoin's design initially sought to avoid. Meanwhile, the network's scalability issues are finally being taken seriously, and the future of 2025 is filled with hope and possibilities.
Is the Bitcoin ETF a bridge to mainstream adoption or a centralized risk? Can Bitcoin staking enhance the network's functionality, or will it further divide its core philosophy? With the emergence of Layer 2 solutions and tokenized Bitcoin, can Bitcoin truly achieve scalability, or are we just repeating past debates? Does Trump's victory and the end of the Gensler era mark a new chapter for cryptocurrency in the U.S.? From the revival of OP_CAT to record ETF inflows, from MEV on Bitcoin to explorations of recursive contracts, the Bitcoin story of 2024 is still being written.
Institutional adoption: ETFs and MicroStrategy
1. Bitcoin ETF: Institutional demand
Bitcoin ETFs (such as BlackRock's IBIT) achieved a record $20 billion in assets under management (AUM) within 137 days, breaking historical records. In contrast, the previous fastest-growing ETF (JEPI) took 985 days to reach the same scale.
Currently, the total amount of Bitcoin held by ETF custodians has surpassed 1 million, accounting for over 5% of the current total Bitcoin supply.
Hedge funds and financial advisors occupy an important position among the investors in these ETFs, indicating strong institutional interest in Bitcoin.
2. Decline of Grayscale
Due to management fees as high as 1.5% and inefficiencies in the redemption mechanism, Grayscale's GBTC is no longer the market leader. Many users have shifted to lower-fee ETFs, resulting in a significant shrinkage of GBTC's managed assets, with a reduction of 152,000 Bitcoin in just one month.
3. MicroStrategy's strategy
Under Michael Saylor's leadership, MicroStrategy has accumulated 402,100 Bitcoin, valued at approximately $39.8 billion. They raised funds through issuing convertible bonds and stock offerings, continually increasing their Bitcoin holdings.
Although this strategy has sparked some controversy, MicroStrategy remains one of the largest holders of Bitcoin globally and is regarded as an indirect investment vehicle for Bitcoin, with its stock trading at a threefold premium over pure Bitcoin exposure.
4. Broader impact
As institutional investors join, Bitcoin's price volatility gradually decreases. ETF options trading further solidifies Bitcoin's position as a long-term store of value, becoming an important component of many portfolios.
ETFs provide retail investors and financial advisors with convenient investment channels, but they have also been criticized for overly relying on custodial models, which goes against the 'self-custody' spirit Bitcoin advocates.
BRC-20, Ordinals, and Runes
Through upgrades like Taproot and SegWit, the Bitcoin network introduced Ordinals and Runes, making NFTs and fungible tokens possible. These innovations have driven network activity growth but also sparked controversy. Critics argue they increase network burden, while supporters believe they help enhance the sustainability of transaction fees and showcase Bitcoin's permissionless innovation capabilities.
1. Trends and network impact
Due to the popularity of Ordinals collectibles, Bitcoin trading activity surged at one point, and network transaction fees rose accordingly. In May 2024, during the peak of the Ordinals craze, transaction fees accounted for over 75% of miner revenue, setting a historical high.
The size of the memory pool (mempool) gradually returned to normal after peaking at 350 million bytes at the end of 2023, while the introduction of Runes improved UTXO management efficiency.
Throughout the year, Ordinals, Runes, and BRC-20 have alternated as the main drivers of trading activity, with Runes having the highest trading share.
2. Market and adoption
Platforms like Magic Eden and OKX dominate the trading market, accounting for over 95% of trading volume. With improvements in user experience and cross-chain bridges with Solana, the adoption rate of Bitcoin NFTs has significantly increased.
Despite a strong performance of Ordinals collectibles at the beginning of the year, their price has fallen over 50% since the halving.
Protocols like Liquidium allow users to use Ordinals and Runes as collateral for loans, further expanding Bitcoin's native DeFi application scenarios. Meanwhile, stablecoins (such as USDh launched by Hermetica) attempt to use Bitcoin as collateral, although they still face technical limitations.
3. Cultural and economic shifts
Memecoins, digital art, and decentralized markets are redefining how Bitcoin is used. Although these trends carry speculative elements, they also showcase Bitcoin's core values of censorship resistance and permissionless innovation.
Tokenized Bitcoin: BTC on EVM Chains
Currently, using tokenized Bitcoin through EVM chains (Ethereum Virtual Machine chains) is the most popular way to unlock Bitcoin's utility, rather than relying on Layer 2 networks. Due to changes in the custodial model of WBTC, the market landscape for tokenized Bitcoin has undergone significant changes this year.
1. Tokenized Bitcoin and DeFi applications
Tokenized Bitcoin (such as WBTC, tBTC, and emerging cbBTC) accounts for over 25% of the total locked volume (TVL) in decentralized finance (DeFi).
While Ethereum is the main testing ground for DeFi innovation, some Bitcoin-centric solutions (such as Bitcoin's second layer networks) are attempting to reduce reliance on custodians, aligning better with Bitcoin's decentralization philosophy. However, these second layer networks still have a long way to go before official launch.
2. Failures and lessons learned
Early tokenized Bitcoin projects (like renBTC, imBTC, and HBTC) failed due to low adoption, hacks, or centralization risks. We summarized these failures, calling it the 'Bitcoin Wrapper Graveyard' to analyze their key vulnerabilities.
With changes in BitGo's custodial model, WBTC's dominance is being challenged, and user trust has declined. Meanwhile, Coinbase's cbBTC has rapidly risen, with a locked volume (TVL) exceeding 20,000 BTC.
3. tBTC and decentralized alternatives
tBTC offers a decentralized tokenized Bitcoin model, avoiding the risks of centralized custody. With widespread usage in protocols like Aave and GMX, tBTC's supply increased fourfold in 2024, indicating strong market demand for decentralized solutions.
4. Bitcoin-supported stablecoins
Bitcoin-collateralized stablecoins (such as USDe and crvUSD) are gradually gaining popularity, with 30-60% of collateral assets being Bitcoin. However, these stablecoins may carry risks that Bitcoin users are unwilling to accept.
Fully Bitcoin-backed stablecoins remain an important development direction as they align more closely with Bitcoin's decentralization and openness spirit.
5. Dominance of EVM
Despite the attention on Bitcoin's second layer networks, the EVM ecosystem and its mature applications continue to dominate Bitcoin's use in the DeFi space.
Although Bitcoin's second layer networks have great potential, they are currently mainly used for speculative activities (such as airdrop arbitrage). Future solutions need to align better with Bitcoin's core protocol to realize more meaningful application scenarios.
Bitcoin staking
In 2024, Bitcoin staking has experienced rapid development. Many new protocols leverage Bitcoin as the 'hardest currency' to support Proof of Stake (PoS) systems. Staking platforms have released Bitcoin's liquidity through native staking, liquid staking derivatives, and re-staking innovations, with total locked volume (TVL) exceeding $10 billion.
1. Native staking
Babylon Protocol allows Bitcoin holders to stake Bitcoin on PoS chains while retaining custody on the Bitcoin network.
Currently, 34,938 Bitcoin have been staked, with a total value of approximately $3.53 billion, and the number of active stakers has reached 82,440.
Through contracts and penalty mechanisms, the protocol can effectively ensure the security of PoS chains.
2. Liquid Staking Derivatives (LSDs)
Lombard: Users can earn LBTC after staking Bitcoin, allowing them to earn Babylon staking rewards while using it in DeFi applications (such as Curve and Uniswap). Currently, the platform's locked amount is $1.68 billion.
Solv Protocol: Unifies Bitcoin's staking operations through a staking abstraction layer (SAL). Its liquid staking tokens (LSDs) like solvBTC can aggregate Bitcoin liquidity across chains, with total locked volume exceeding $3 billion.
Example tokens include solvBTC.BBN (Babylon), solvBTC.CORE (CoreDAO), and solvBTC.ENA (Ethena).
3. Re-staking
Platforms like Lombard and Solv utilize re-staking to generate additional DeFi yields (such as liquidity provision and lending) from staked Bitcoin. Lombard's re-staking locked amount has exceeded $1.04 billion.
Bitcoin staking is still in its early development stage, primarily relying on reward mechanisms and high yields to attract users. In the long run, its sustainability depends on real demand growth. However, major players like Lombard and Solv dominate the market, which may trigger centralization risks. These two platforms have a total locked volume of $1.32 billion in Babylon.
Although liquid staking provides users with greater flexibility, it also introduces more trust assumptions. The future direction of Bitcoin staking still requires further observation.
Scalability: Sidechains, Rollups, and Layer 2 networks
1. New developments
Taproot and opcode revival: Taproot (launched in 2021) and proposals like OP_CAT enhance Bitcoin's programmability and privacy, supporting contract functionality.
BitVM: Introduces Turing-complete contract functionality without altering Bitcoin's consensus mechanism, supporting more complex off-chain computations.
2. Layer 2 Solutions
Sidechains:
For example, Rootstock (RSK), Liquid Network, and Mezo.
Sidechain technology introduces smart contract functionality to the Bitcoin network and enhances transaction throughput. However, these projects typically rely on joint security models or merged mining methods to secure the blockchain.
Rollups:
ZK-Rollups: Provide rapid transaction confirmation through zero-knowledge proofs while maintaining strong cryptographic security.
Optimistic Rollups: Assume transactions are valid by default and verify their authenticity through fraud-proof mechanisms. This approach significantly enhances network scalability but may introduce some delays in transaction confirmation. Example: The Citrea project utilizes zk-STARKs technology and Clementine bridging solutions to build a trustless Bitcoin cross-chain bridge.
State Channels (such as the Lightning Network):
Technologies like the Lightning Network allow users to make almost instant payments off-chain with very low fees.
The total capacity of the Lightning Network has now reached 5,380 BTC, achieving an annual growth rate of 11%.
Trends show that the number of channels in the network is decreasing, but the capacity of individual channels is increasing, raising concerns about network centralization.
In developed countries (like the U.S. and Germany), the Lightning Network is mainly used for large payments, while in emerging markets, it is more commonly used for small payments and microtransactions.
3. Build on Bitcoin (BOB):
Although the BOB project uses Ethereum as the settlement layer, its core goal is to build a Bitcoin-centered economy, utilizing tokens like WBTC and tBTC to realize this vision.
In 2024, BOB's total locked volume (TVL) grew from $1.5 million to $238.27 million, mainly due to deep integration with Uniswap V3 and Avalon Finance.
4. CoreDAO and ecosystem growth
CoreDAO combines Bitcoin's security with DPoW (Delegated Proof of Work) and DPoS (Delegated Proof of Stake) technologies through the Satoshi Plus mechanism.
The ecosystem has launched a core token called coreBTC, backed by Bitcoin, for DeFi applications, further expanding Bitcoin's functionality.
In 2024, CoreDAO achieved significant growth: the network growth rate reached 95%, with 13.3 million new addresses added and daily transaction peak exceeding 500,000.
