The possibility of hosting Bitcoin NFTs on Stacks pushed the STX price to a new yearly high, but there are concerns about whether the bullish thesis will materialize.
Stacks is one of the first blockchains to support minting Bitcoin
Bitcoin Ordinals, which puts it in an excellent position to benefit from the hype. However, Ordinals cites a past issue where Bitcoin’s minimalist ideology would be tested if NFTs caused network congestion.
On top of that, Stacks has yet to offer all the features needed to support a trading ecosystem, and it faces competition from other blockchain ecosystem projects. Fundamental and technical analysis of the project suggests that the price surge may have reached overbought conditions and could correct in the short term.
The current development of ordinals is unpredictable
The interest in registering NFTs on the Bitcoin network peaked recently after Casey Rodarmor registered an NFT on the Bitcoin network on January 29. While the trend started with an overwhelming start, minting was limited to technical users who owned a Bitcoin node and traded primarily through OTC channels.
Compared to the Ethereum NFT market, the infrastructure for Bitcoin NFT trading is still significantly underdeveloped in terms of complex activities such as decentralized exchanges. Many investors have expressed their belief that there needs to be a way to launch a marketplace and NFT minting platform for Ordinals.
The Bitcoin developer community previously discouraged the use of the network for anything other than payments because it would clog the space and increase transaction fees. During the bull run of 2020 and 2021, many Ethereum
Ethereum
As user activity surges, users are paying hundreds of dollars in fees per transaction. On the other hand, Bitcoin’s fees have remained at optimal levels throughout the bull run, but protocol usage and revenue lag behind Ethereum.
According to a report from CoinShare, the adoption of Ordinals will once again depend on society’s acceptance of methods for recording additional data on the Bitcoin blockchain, which is bound to bring 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 activities, stating that “similar projects in Bitcoin’s past have had little impact on investors and users.”
The number of serial numbers engraved on Bitcoin surged in early February as the instrument exploded in popularity. However, the trend has slowed due to a lack of trading infrastructure, with fewer than 10,000 NFTs being traded on most days.
Stack blockchain native
STX
The token gained 256% in February due to the hype surrounding Bitcoin NFTs and the project’s upcoming upgrade.
It remains to be seen how the Bitcoin community will respond to network congestion and increases in Bitcoin fees if Ordinals hype grows.
Stack prices rise on speculation, while activity is sluggish
The idea is that Stacks will make Bitcoin serial numbers more accessible to users by facilitating the minting process and custodial markets.
The Stacks Foundation, the team that manages the blockchain, also announced a new upgrade to the protocol, Stacks 2.1, on Feb. 22, which aims to improve the blockchain by adding EVM compatibility and synthetic Bitcoin (sBTC) via a secure bridge to Bitcoin.
Most importantly, the .BTC naming service exists on the Stacks network, which could generate a lot of transaction activity if demand for .BTC addresses increases. In its current state, .BTC Stacks addresses are largely decoupled from the Bitcoin network. This means that users cannot send and receive Bitcoin at these addresses like they can with their .ETH counterparts.
After the 2.0 upgrade, Stacks will support sending Stacks assets directly to Bitcoin addresses. It will enable proxy access to the Bitcoin blockchain without creating a separate Stacks address. It remains to be seen whether Bitcoin users find this feature attractive.
While the upgrade sounds promising, blockchain activity is still not enough to justify the surge in STX’s price. There were only about 1,000 unique active wallets using dApps on Stacks in February. The most striking part of Stack’s usage data is that NFT marketplace Gamma has also failed to attract a large number of users to its platform, with less than 100 wallets trading on the market every day.
Gamma supports minting and sending Bitcoin Ordinal NFTs through Stacks. However, many users have encountered UX-related issues when using this feature, as it requires a separate address in the Stacks wallet that is compatible with Ordinal. Many users mistakenly sent their NFTs to the wrong address. Wallet issues also limit the trading of Bitcoin NFTs.
Developers in the Stacks ecosystem, such as the Xverse team, are working on a wallet to provide user-friendly support for Ordinals. There is also an experiment underway to perform atomic swaps between Bitcoin NFTs and STX. The aim is to develop this functionality into a full marketplace.
However, other ecosystems are also looking to capitalize on this trend. For example, Ordinex is developing an Ordinals trading platform that Ethereum users can access through Metamask. Some Ethereum native projects, such as OnChainBirds and SappySeals, have also engraved NFTs on Bitcoin and enabled trading on OpenSea. However, the trading activity of these collectibles remains mediocre, with little hype.
In addition to Stacks, many other ecosystems are trying to seize the opportunity by promoting Bitcoin NFTs. While Stacks enjoys a technological advantage over others, Ethereum has a loyal user base and enough liquidity to surpass Stacks' ecosystem if a viable solution emerges. And, ultimately, it will depend on the Bitcoin community's reaction and demand for these NFTs, which may not support the euphoria surrounding it.
STX/USD hits key resistance zone
STX tokens are diluted at a rate of 2.5% per year. Inflation is expected to decrease after the Bitcoin halving, which is expected to occur in April 2024. STX has a lower supply growth rate compared to other layer 1 blockchains such as Solana and Cardano, which is encouraging. However, the network's total fees or token economics are not balancing inflation, and this 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 signal for buyers. If the bulls can break above this level, STX could hit its all-time high near $3.00. However, given that network activity is currently uncorrelated with price gains, a pullback to $0.68 and $0.24 is possible.
Likewise, the STX/BTC pair is also approaching its historical range of 0.00004350 BTC, which increases the possibility of a correction once these levels are marked. Downside targets for STX are 0.00002744 BTC and 0.00001233 BTC.
Bitcoin#NFTCommunity has a lot of potential, but it’s unclear whether the Bitcoin community, which generally opposes speculation and activities that clog the network, will allow this trend to flourish.
Currently, the Ordinals ecosystem is still missing the most critical aspects of NFT trading - easily accessible marketplaces and wallets. As a Bitcoin sidechain, Stacks enjoys the technical advantage of integration with Bitcoin and has a slight advantage over other blockchains in providing the tools to support the Ordinals craze.
However, applications supporting Ordinals are still under development. Meanwhile, Stacks faces competition from other more liquid ecosystems that can develop more viable solutions for integrating Bitcoin NFTs onto their chains.
C3 Tip: This article does not contain investment advice or recommendations. Every investment and trading involves risk, and readers should conduct their own research when making a decision.
