Original author: 0x LouisT

Original translation: TechFlow

The main reason investors often cite for Bitcoin's rise is the "digital gold" scenario, where BTC will serve as a hedge against inflation. In traditional finance, gold is used as an inflation hedge because its value generally rises with inflation. Gold does not generate income; its returns come only from price appreciation. In fact, gold can even generate negative returns due to storage and insurance costs. Investors buy gold to preserve purchasing power, not to earn income. There is no such thing as a free lunch: you can't have it both ways.

Coming back to Bitcoin, the main theory shared by most BTCfi (BTC L2s etc) investors is that even if only 5% of circulating BTC enters yield-generating protocols, it could expand the space 100x. Therefore, most investors are betting on top-down growth: this space will grow faster relative to other sectors.

While the BTCfi story is compelling, I believe BTC is more like gold than a yield-generating asset: at least that’s the theory held by many investors who see BTC as a macro asset and inflation hedge. Even if only 5% of BTC enters the BTCfi ecosystem, this expectation may be too optimistic.

The first conclusion is: if this is the base case, some valuations may already be high.

The second conclusion is this: if you have accepted BTC as a hedge against inflation, you may want to revisit your BTCfi theory. You may be bullish on two conflicting viewpoints at the same time. From a philosophical perspective, there is little overlap between BTC holders and yield seekers.

Counterpoint

While I am skeptical of the BTCfi theory, it is also worth considering the opposite scenario. The supply of wBTC over the last cycle and the BTC holdings of Celsius, BlockFi, and Voyager provide a good representation of the overlap between BTC holders and yield seekers. Currently, wBTC represents ~0.7% of BTC supply, while Celsius, BlockFi, and Voyager collectively hold ~$5B in BTC, or ~1.1% of total supply. Neither the decline of these platforms nor the stagnation of wBTC supply (see below) show a positive shift in demand for BTC yields in these metrics.

(Source: @tomwanhh)

Finally, one could argue that since BTC is easier to store and trade than gold, there could be a higher demand for yield-generating opportunities due to its higher liquidity. However, the active supply of BTC has been declining since 2012.

In summary, I remain skeptical of the BTCfi thesis at current valuations, as philosophically and economically, there is little overlap between BTC holders and yield seekers.

Thanks to @f_s_y_y for help and data.