Stacks is one of the first blockchains to allow a way to mint Bitcoin (BTC) ordinals, putting it in a great position to profit from the hype. However, ordinals have invoked an issue from the past where Bitcoin’s maximalist ideologies will be tested if NFTs cause network congestion.
On top of that, Stacks has yet to offer all the functionality needed to support an NFT trading ecosystem and faces competition from projects in other blockchain ecosystems. The fundamental and technical analysis of the project suggests that the price increase could have reached overbought conditions and could be corrected in the short term.
The development of ordinals is unpredictable for now
The recent focus on NFT registration on the Bitcoin network peaked in the last month after Casey Rodarmor signed up an Ordinal on January 29. While the trend got off to a rocky start, minting is limited to technical users with a Bitcoin node and trading is mostly done 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 spin up the NFT minting markets and platforms for Ordinals.
The Bitcoin developer community has already discouraged using the network for anything other than payments because it clogs up space and increases transaction fees. In the 2020 and 2021 bull run, many Ethereum (ETH) users paid hundreds of dollars in transaction fees as user activity exploded. On the other hand, Bitcoin fees remained at optimal levels during the bull run, but the protocol’s usage and earnings lagged behind Ethereum.
According to CoinShare reportOrdinals adoption will again be subject to social acceptance of the method of writing additional data to the Bitcoin blockchain, which is sure to 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 activity, saying that “similar projects from Bitcoin’s past have had little impact on both investors and users.”
The number of ordinals enrolled in Bitcoin increased significantly in early February when the instrument exploded. However, the trend slowed due to a lack of trading infrastructure, with fewer than 10,000 NFTs signing up on most days.
The native Stack blockchain STX token jumped 256% in February, thanks to the hype around Bitcoin NFTs and an upcoming project update.
It remains to be seen how the Bitcoin community reacts to an increase in network congestion and Bitcoin fees if the Ordinals hype grows.
Battery price rises 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.
Stacks Foundation, the team that manages the blockchain, also announced a new protocol update, Stacks 2.1, on Feb. 22, which seeks to improve the blockchain by adding support for EVM and synthetic Bitcoin (sBTC) via a bridge. safe to Bitcoin.
On top of that, the .BTC name service lives on the Stacks network, which could generate a lot of trading 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 or receive Bitcoin at these addresses like their .ETH counterpart.
After the 2.0 update, Stacks will allow direct sending of assets from Stacks to Bitcoin addresses. It will allow proxy access to the Bitcoin blockchain without creating a separate stack address. Whether Bitcoin users find the feature appealing remains to be seen.
While the upgrades look promising, there is still not enough blockchain activity to justify STX’s price increase. Only around 1,000 unique active wallets interacted with dApps on Stacks in February. The most striking part of the Stack usage data was that NFT marketplace Gamma also failed to attract a sizable number of users to its platform, fewer than 100 wallets traded daily on the marketplace.
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 a Stacks wallet that is compatible with Ordinal. Many users have mistakenly sent their NFTs to the 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 provide easy-to-use Ordinals support. There is also an experiment with atomic swaps between Bitcoin NFT and STX in the works. The goal is to develop this functionality into a complete marketplace.
However, other ecosystems are also looking to take advantage of this trend. For example, Ordinex is developing a trading platform Ordinals, which Ethereum users will be able to access through Metamask. Some Ethereum-native projects, such as OnChainBirds and SappySeals, have also enrolled NFTs in Bitcoin and enabled trading on OpenSea. However, the commercial activity of these collections remains average, with little publicity.
In addition to Stacks, many other ecosystems are trying to seize the opportunity by facilitating Bitcoin NFTs. While Stacks enjoys a technical advantage over others, Ethereum has a loyal user base and adequate liquidity to outperform the Stacks ecosystem if a workable solution emerges. Also, in the end, it will depend on the response and demand for these NFTs from the Bitcoin community, which may not stand the euphoria around them.
STX/USD reaches key resistance zones
The STX token is diluted at a rate of 2.5% per year. Inflation will subside after the Bitcoin halving, which is expected to occur in April 2024. The rate of increase in STX supply is low compared to other layer 1 blockchains such as Solana and Cardano, which is encouraging. However, total network fees or token economics do not balance inflation, which should change soon.
Technically, the STX/USD pair is near the top of its two-year trading range at $1.02, which is a potential red flag for buyers. If the bulls can break above this level, STX can possibly try to reach all-time highs near $3.00. However, with the network activity not yet correlating with the price increase, there is a possibility of a pullback towards $0.68 and $0.24.
Similarly, the STX/BTC pair is also close to its all-time range of 0.00004350 BTC, raising the possibility of a correction once those 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 remains unclear whether the Bitcoin community, which is generally against speculation and network-clogging activities, 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 Bitcoin sidechain, Stacks enjoys technical advantages with Bitcoin integration and has a slight edge over other blockchains in providing the tools to support the Ordinals craze.
However, applications to support ordinals are still under development. Meanwhile, Stacks faces competition from other, more liquid ecosystems that could develop more feasible solutions to integrate Bitcoin NFT into their chain.
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
