Stacks is one of the first blockchains to allow a way to mint Bitcoin (BTC) Ordinals, which puts it in an excellent position to benefit from the hype. However, the Ordinals invoked a past issue where Bitcoin’s maximalist ideologies will be tested if NFTs lead to network congestion.
Furthermore, Stacks has not yet provided all the necessary functionality to support an NFT trading ecosystem and faces competition from projects in other blockchain ecosystems. The project’s fundamental and technical analysis suggests that the price surge may have reached overbought conditions and may be corrected in the near term.
The development of ordinals is unpredictable for now
The recent focus on NFT enrollment on the Bitcoin network peaked in the last month after Casey Rodarmor registered an Ordinal on January 29th. While the trend started off overwhelmingly, minting is limited to technical users with a Bitcoin node and trading takes place primarily through OTC channels.
Compared to Ethereum NFT markets, the infrastructure for Bitcoin NFT trading remains significantly underdeveloped with regards to complex activities like decentralized trading. Many investors have expressed their belief that there must be a way to create NFT markets and coinage platforms for Ordinals.
The Bitcoin developer community has previously discouraged using the network for anything other than payments because it clogs up space and increases transaction fees. In the bull run of 2020 and 2021, many Ethereum (ETH) users paid hundreds of dollars in fees per transaction as user activity exploded. On the other hand, Bitcoin fees remained at optimum levels during the upswing, but the protocol’s usage and earnings lagged behind Ethereum.
According to a CoinShare report, the adoption of Ordinals will again be subject to social acceptance of the method for inscribing additional data on the Bitcoin blockchain, which will certainly present 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, saying that “similar projects from Bitcoin’s past have had little impact on investors and users.”
The number of Ordinals subscribed to Bitcoin increased significantly in early February when the instrument exploded. However, the trend slowed down due to the lack of trading infrastructure, with less than 10,000 NFTs signed up on most days.
The stack’s blockchain-native STX token jumped 256% in February, thanks to the hype surrounding Bitcoin NFTs and an upcoming update to the project.
It remains to be seen how the Bitcoin community reacts to an increase in network congestion and Bitcoin fees if the hype for Ordinals grows.
Accumulate price increases due to speculation while activity is low
The idea is that Stacks will make Bitcoin Ordinals more accessible to users by facilitating minting processes and hosting marketplaces.
The Stacks Foundation, the team that manages the blockchain, also announced a new update to the protocol, Stacks 2.1, on February 22, which seeks to improve the blockchain by adding EVM and synthetic Bitcoin (sBTC) compatibility via a secure bridge to the Bitcoin.
Additionally, the .BTC naming service resides on the Stacks network, which could generate a lot of commercial activity if demand for .BTC addresses increases. In its current state, a .BTC Stacks address is largely separate from the Bitcoin network. That is, users cannot send and receive Bitcoin to these addresses like its .ETH counterpart.
After the 2.0 update, Stacks will allow direct sending of Stacks assets to Bitcoin addresses. It will allow proxy access to the Bitcoin blockchain without creating a separate Stacks address. It remains to be seen whether Bitcoin users find the feature attractive.
While the upgrades look promising, there is still insufficient blockchain activity to justify the STX price hike. Only around 1,000 unique active wallets engaged with dApps on Stacks in February. The most impressive part of Stack’s usage data was that the NFT marketplace, Gamma, also failed to attract sizable users to its platform, less than 100 wallets traded daily on the market.
Gamma supports minting and sending Bitcoin ordinal NFTs via Stacks. However, many users have faced UX-related 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 the trading of Bitcoin NFTs.
Developers in the Stacks ecosystem, like the Xverse team, are working on a wallet to support easy-to-use Ordinals. There is also an experiment with atomic swaps between Bitcoin NFTs and STX in progress. The goal is to develop this functionality into a complete marketplace.
However, other ecosystems are also looking to bet 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 inscribed NFTs on Bitcoin and enabled trading on OpenSea. However, the commercial activity of these collections remains average, with little enthusiasm.
In addition to Stacks, many other ecosystems are trying to seize the opportunity by facilitating Bitcoin NFTs. While Stacks has a technical advantage over others, Ethereum has a loyal user base and adequate liquidity to outperform the Stacks ecosystem if a viable solution emerges. Furthermore, it will ultimately depend on the response and demand for these NFTs from the Bitcoin community, which may not withstand the euphoria surrounding this.
STX/USD hits key resistance zones
The STX token dilutes at the rate of 2.5% per annum. Inflation will subside after the Bitcoin halving, which is expected to take place in April 2024. The supply increase rate of STX is low compared to other tier 1 blockchains such as Solana and Cardano, which is encouraging. However, total network fees or token savings do not balance inflation, which 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 flag for buyers. If the bulls are able to overcome this level, the STX might try to reach all-time highs near $3.00. However, as network activity is not yet correlated with the price increase, there is a chance of a pullback to $0.68 and $0.24.
Likewise, the STX/BTC pair is also close to its all-time high of 0.00004350 BTC, which increases the possibility of a correction once these levels are marked. Negative STX targets are at 0.00002744 BTC and 0.00001233 BTC.
Bitcoin NFTs have a lot of potential, but it remains unclear whether the Bitcoin community, which is generally against speculation and activities that obstruct the network, will allow the trend to thrive.
Currently, the most crucial aspect of NFT trading – an easily accessible marketplace and wallet – is still missing from the Ordinals ecosystem. As a sidechain to Bitcoin, Stacks enjoys technical advantages with Bitcoin integration and has a small advantage over other blockchains in providing the tools to support an Ordinals craze.
However, applications to support Ordinals are still under development. Meanwhile, Stacks faces competition from other, more liquid ecosystems that could develop more viable solutions for integrating Bitcoin NFTs into its chain.
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