What’s Happening with Wrapped Bitcoin?
Wrapped Bitcoin, affectionately known as wBTC, has recently experienced its lowest supply since May 2021. And it’s not for lack of trying—rather, it was due to a significant event on February 27, where 11,500 wBTC (equivalent to around $260 million) were burned, much of it connected to the collapsed crypto lender, Celsius. This momentous burn flipped wBTC’s growth outlook into the negatives, currently standing at 164,396 wBTC with a -7.39% monthly growth rate.
What Exactly is Wrapped Bitcoin?
For the uninitiated, wBTC is an Ethereum-based ERC-20 token designed to mirror the value of Bitcoin (BTC) and is pegged 1:1 with BTC’s market price. Co-developed in 2019 by Bitgo, alongside protocol Ren and liquidity platform Kyber, wBTC operates under a decentralized autonomous organization (DAO) consisting of more than 30 core members. This flexibility allows for quick transfer processes, making wBTC faster to transfer than standard Bitcoin.
The Mechanics of Minting and Burning wBTC
Now, how does this whole mint-and-burn tango work? Merchants wanting to swap their beloved BTC for wBTC must initiate a burn transaction, that alerts custodians. A merchant sends real BTC to a custodian address on the Bitcoin blockchain, which is then locked safely away. Once the custodian receives the BTC, they mint an equivalent amount of wBTC on the Ethereum network. It’s like a trading card swap, only with way bigger stakes—no one wants to lose their rare collectible!
The Rise and Fall of wBTC Demand
Like a rollercoaster ride, wBTC’s popularity soared during the crypto bull run, with its peak supply hitting 285,000 in April 2022 while BTC was dancing above the $48,000 mark. However, the joyous ride took a nosedive after the market shifted into a bear mode. Events such as the Terra collapse sparked diminishing demand for wBTC, with Celsius Network redeeming about 9,000 wBTC as users scrambled to withdraw their assets.
The FTX Effect and Market Implications
Things got especially spicy during the fallout from the FTX collapse in November 2022. Reports surfaced that the ill-fated exchange attempted to redeem 3,000 wBTC right before its bankruptcy declaration. Let’s take a moment to highlight the irony here—wBTC experienced its largest monthly redemption post-FTX, with over 28,000 wBTC being swapped back to Bitcoin! A little nugget that came from one of the twitter discussions disclosed that during the FTX turmoil, there was an attempt to reclaim 3,000 wBTC for BTC, but BitGo didn’t play ball. They weren’t sure what to do with the 3,000 BTC now either! Talk about awkward moments.
Final Thoughts: Is wBTC a Safe Bet?
The shaky road wBTC has traveled raises questions about the viability of synthetic tokens as a mode for transferring value. The market contagion, primarily from the FTX collapse, sent wBTC’s pegs off-course, though only by about 1.5%. If that isn’t a reason for both optimism and skepticism in this rollercoaster crypto world, I don’t know what is! Keep your eyes peeled because this ride isn’t over yet.
