In brief

  • More than 136,000 Bitcoin on Ethereum are now worth $4.9 billion, a new all-time high.
  • BTC locked on Ethereum is actually down 10% from its mid-November peak, as BTC holders eye profit taking after the remarkable run up.
  • BTC price gains vastly outpace withdrawals from the Ethereum blockchain, adding even more value for DeFi apps to play with.

Bitcoin locked on the Ethereum blockchain is worth more than ever, but Bitcoin holders have started looking elsewhere to make the most of their investments. 

More than $4.8 billion worth of Bitcoin is now locked on the Ethereum blockchain, a new all-time high and more than 4% of the total market cap of Ethereum, according to blockchain data provider Dune Analytics

But it’s not because more Bitcoin has been flowing into the de facto DeFi blockchain—in fact, the number of BTC locked is at its lowest level since September of last year. The source of the difference comes down to the surging value of Bitcoin that still remains locked in Ethereum, in a trend that may well continue if Bitcoin keeps shooting higher.

Bitcoin and Ethereum use entirely separate blockchains, but the rise of DeFi—shorthand for a group of peer-to-peer financial products—has attracted billions of dollars worth of BTC into cross-chain “wrapping” services. These services involve trusted third-party custodians or wallets controlled by automated smart contracts which hold native Bitcoin and mint tokens of equal value on the Ethereum blockchain.

But why go to all that trouble? The answer is that these services, which mostly exist on the Ethereum network, would otherwise be unavailable to Bitcoin users.

DeFi represents a collection of on-chain protocols that use smart contracts to automatically provide financial services like loans, asset swaps, or interest on user deposits. While many applications are still highly experimental, depositing tokens into DeFi to provide the capital to perform financial operations can yield sky-high annual returns impossible to find from traditional financial products. 

Cross-chain transfers like Wrapped Bitcoin or renBTC allow Bitcoin holders to get in on the action without needing to sell their BTC holdings to buy Ethereum-based digital assets.

The number of Bitcoin locked on Ethereum reached an all-time high in mid-November of nearly 152,000, worth approximately $2.5 billion at a BTC price of $16,150 at the time. Since then, the number of locked BTC has actually fallen a little more than 10%, during the same period the price of Bitcoin more than doubled.

It’s possible, then, that the exodus of BTC from Ethereum is due to Bitcoin investors cashing out in search of profits on those holdings. With the price of Bitcoin surging more than 100% since November, there’s plenty of pressure to sell BTC for a profit instead of putting it to work in protocols that, let’s face it, don’t have the best track record of securing user funds.

Whatever the reason, the amount of BTC flowing out of Ethereum lockups hasn’t been nearly enough to stop the total value from continuing its rise. More value in DeFi means better borrowing rates and capacity for even more users. Even if a few thousand Bitcoin are leaving the industry, rising value may still be viewed as a positive sign for the budding DeFi industry. 

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.