The main reason for Bitcoin's rise often cited by investors is the "digital gold" scenario, in which Bitcoin will serve as a hedge against inflation. In traditional finance, gold is used as an inflation hedge because its value typically rises with inflation. Gold does not generate income; its rate of return comes only from price appreciation. In fact, gold may even deliver negative returns due to storage and insurance costs. Investors buy gold to maintain purchasing power, not to generate income. There's no such thing as a free lunch: you can't have it both ways.

Back to Bitcoin, the main theory shared by most BTCfi (BTC L2s, etc.) investors is that even if only 5% of circulating Bitcoin enters a revenue generating protocol, it could expand the industry 100x. As a result, most investors are betting on top-down growth: this industry will grow faster than other industries.

While the BTCfi story is compelling, I think Bitcoin is more like gold than a yield-generating asset: at least that's the theory adhered to by many investors, who view Bitcoin as both a general economic asset and an inflation hedge. Even if only 5% of Bitcoin enters the BTCfi ecosystem, this expectation may be too optimistic.

  • First conclusion: If this is the base case, some valuations may already be on the high side.

  • Second conclusion: If you’ve accepted Bitcoin as a tool to fight inflation, you may want to revisit your BTCfi thesis. You may believe in two conflicting views at the same time. From a philosophical perspective, there is very little overlap between Bitcoin holders and yield seekers.

Opposition view

Although I am skeptical of the BTCfi theory, it is also worth considering the opposite scenario. The overlap between Bitcoin holders and yield seekers is well reflected in the supply of $wBTC during the last cycle and the Bitcoin holdings of Celsius, BlockFi and Voyager. Currently, $wBTC represents about 0.7% of the Bitcoin supply, while Celsius, BlockFi, and Voyager collectively hold about $5 billion in Bitcoin, accounting for about 1.1% of the total supply. Whether it’s the decline of these platforms or the stagnation of $wBTC supply (see below), none of these indicators show a positive change in Bitcoin yield demand.

Source: tomwanhh

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

Image source: Shenchao TechFlow

All in all, I remain skeptical of the BTCfi thesis at current valuations, as there is very little overlap philosophically and economically between Bitcoin holders and yield seekers.

Image source: Shenchao TechFlow

Thanks to @f_s_y_y for the help and data.
 

[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.

  • This article is reproduced with permission from: "Deep Wave TechFlow"

  • Original author: 0xLouisT