Stacks is one of the first blockchains to allow a way to mint Bitcoin (BTC) ordinals, which puts it in a great position to benefit from the hype. However, Ordinals invoked a problem from the past where Bitcoin’s maximalist ideologies will be tested if NFTs lead to network congestion.
On top of that, Stacks has yet to provide all the functionality needed to support an NFT trading ecosystem and it faces competition from projects in other blockchain ecosystems. Fundamental and technical analysis of the project suggests that the price surge may have reached overbought conditions and may be correcting in the near term.
The development of ordinals is unpredictable at the moment
The recent focus on listing NFTs on the Bitcoin network peaked last month after Casey Rodarmor registered an ordinal on January 29. While the trend has gotten off to a flying start, minting is limited to technical users with a Bitcoin node and trading is mostly taking place through OTC channels.
Compared to Ethereum NFT markets, the infrastructure for Bitcoin NFT trading remains significantly underdeveloped when it comes to complex activities like decentralized trading. Many investors have expressed their belief that there must be a way to keep the markets and NFT minting rigs going for ordinals.
The Bitcoin developer community has already discouraged use the network for anything other than payments as it takes up space and increases transaction fees. During the bull run of 2020 and 2021, many Ethereum (ETH) users paid hundreds of dollars in fees per transaction as user activity skyrocketed. On the other hand, Bitcoin fees remained at optimal levels throughout the bull run, but the protocol’s usage and revenue lagged behind Ethereum.
According to a CoinShare reportadoption of ordinals will again be subject to social acceptance of the method of registering additional data on the Bitcoin blockchain, which is bound to present challenges such as network congestion and increased fees.
The report then reviews previous failed attempts to use the Bitcoin blockchain for smart contract activity, saying that “similar projects from Bitcoin’s past have had little impact on investors and users.”
The number of ordinals listed on Bitcoin increased significantly in early February when the instrument exploded. However, the trend has slowed due to a lack of trading infrastructure, with less than 10,000 NFTs listed on most days.
Stack blockchain’s native STX token jumped 256% in February, thanks to the hype around Bitcoin NFTs and an upcoming project upgrade.
It remains to be seen how the bitcoin community reacts to an increase in network congestion and bitcoin fees if the ordinal hype grows.
Accumulates price increases on speculation, while activity is weak
The idea is that Stacks will make Bitcoin ordinals more accessible to users by facilitating minting processes and hosting marketplaces.
Stacks Foundation, the team that runs the blockchain, also announced a new protocol upgrade, Stacks 2.1, on February 22, which aims to improve the blockchain by adding EVM compatibility and synthetic Bitcoin (sBTC) via a bridge. secure to bitcoin.
On top of that, the .BTC naming service lives on the Stacks network, which could generate a lot of trading activity if the demand for .BTC addresses increases. In its current state, a .BTC Stacks address is largely detached from the Bitcoin network. This means that users cannot send and receive Bitcoin to these addresses like its .ETH counterpart.
After the 2.0 upgrade, Stacks will allow Stacks assets to be sent directly to Bitcoin addresses. This will allow proxy access to the Bitcoin blockchain without creating a separate Stacks address. Whether Bitcoin users find the feature appealing remains to be seen.
Although the upgrades look promising, there is still insufficient blockchain activity to justify the STX price surge. Only about 1,000 unique active wallets engaged with dApps on Stacks in February. The most striking part of Stack’s usage data was that the NFT market, Gamma, also failed to attract a huge number of users to its platform, less than 100 wallets traded daily in the market. .
Gamma supports mining and sending Bitcoin ordinal NFTs through Stacks. However, many users have encountered user experience issues when using the feature, as it requires a separate address in an Ordinal-compatible Stacks wallet. Many users have mistakenly sent their NFTs to wrong addresses. The wallet issue has also restricted Bitcoin NFT trading.
Developers in the Stacks ecosystem, like the Xverse team, are working on a wallet to bring ordinal-friendly support. There is also an experiment with atomic swaps between Bitcoin NFT and STX underway. The objective is to develop this functionality into a complete marketplace.
However, other ecosystems are also looking to capitalize on this trend. For example, Ordinex is developing an Ordinals trading platform, which will be accessible to Ethereum users via Metamask. Some native Ethereum projects, like OnChainBirds and SappySeals, have also listed NFTs on Bitcoin and enabled trading on OpenSea. However, the market activity of these collections remains average, with little media hype.
Besides Stacks, many other ecosystems are trying to capitalize on the opportunity by facilitating Bitcoin NFTs. While Stacks enjoys a technical advantage over others, Ethereum has a loyal user base and sufficient liquidity to outperform the Stacks ecosystem if a workable solution emerges. Moreover, in the end, it will depend on the response and demand for these NFTs from the Bitcoin community, which may not support the euphoria around it.
STX/USD hits key resistance areas
The STX token is diluting at the rate of 2.5% per year. Inflation will decrease after the Bitcoin halving, which is expected to take place in April 2024. The rate of increase in supply of STX is low compared to other layer 1 blockchains like Solana and Cardano, which is encouraging. However, the total network fee or token economy does not compensate for inflation, which must 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 flag for buyers. If the bulls are able to overcome this level, STX may eventually attempt to reach all-time highs near $3.00. However, since the network activity is not yet correlated with the price rise, there is a chance of a pullback towards $0.68 and $0.24.
Similarly, the STX/BTC pair is also near its historical range of 0.00004350 BTC, which increases the possibility of a correction once these levels are marked. STX’s downside targets are at 0.00002744 BTC and 0.00001233 BTC.
Bitcoin NFTs have a lot of potential, but it’s still unclear whether the Bitcoin community, which is generally against speculation and activities that clog the network, will allow the trend to thrive.
Currently, the most crucial aspect of NFT trading – an easily accessible market and wallet – is still missing from the Ordinals ecosystem. As a bitcoin sidechain, Stacks enjoys technical advantages with bitcoin integration and it has a slight edge over other blockchains by providing the tools to support an ordinal craze.
However, applications to support ordinals are still in development. Meanwhile, Stacks faces competition from other, more liquid ecosystems that may be developing more workable solutions for integrating Bitcoin NFTs onto their chain.
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