David Canellis

Bitcoin block space looks set to be the hottest commodity in crypto.



Bitcoin once again occupies more than half the entire crypto market, having outperformed ether by nearly double so far in 2023. Now, the long-prophesied “flippening” of ether over bitcoin is even further in the future.



The market currently values Bitcoin three times higher than Ethereum. Bitcoin’s market cap, at $727 billion, has swelled by $400 billion in 2023 — a figure bigger than Mastercard’s entire stock valuation and about twice that of Netflix’s.



Ethereum’s valuation has grown by $100 billion, jumping from under $145 billion in January to nearly $245 billion today.&nbsp;



Some anticipate that Ethereum’s market cap will one day eclipse Bitcoin’s, despite the latter’s half-decade head start.&nbsp;



Things were looking good coming out of the 2019 bear market and into 2021’s explosive bull cycle. DeFi summer and NFT mania boosted interest in Ethereum, at times driving up fees for certain actions beyond $250.



<ul>
<li><a href="https://blockworks.co/tag/bitcoin">Bitcoin</a>&#8216;s market value was 925% of <a href="https://blockworks.co/tag/ethereum">Ethereum&#8217;s</a> — $130 billion to $14 billion — at the end of 2019 (bottom of the bear market).</li>



<li>That figure had shrunk to under 200% by the end of 2021 (peak bull market).</li>



<li>Bitcoin&#8217;s market value is now 300% of Ethereum&#8217;s.</li>
</ul>



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<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/15819231/embed#?secret=7P1yBenbDx" data-secret="7P1yBenbDx" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">The Bitcoin rally has widened the gap</figcaption></figure>



The case for flippening has recently taken a hit by a different flip: The Bitcoin network now rakes in more fees than Ethereum for the first time since December 2020.



Over the past four days, Bitcoin users have paid miners about $40 million to have their transactions processed.&nbsp;



Ethereum users, meanwhile, forked out less than $27 million ether (most of those fees have been burned, slightly reducing Ethereum’s overall supply).



Layer-2 Ethereum networks <a href="https://blockworks.co/tag/arbitrum">Arbitrum</a> and <a href="https://blockworks.co/tag/optimism">Optimism</a> haven’t bridged that gap as they each generate less than $200,000 in fees per day right now.



The fee-flippening (flee-pening?) is awkward when you consider the sheer amount of use cases supported by Ethereum. Decentralized exchanges, DAOs, memecoins, NFTs, stablecoins, DeFi and GameFi all run atop Ethereum.



Read more: <a href="https://blockworks.co/news/ethereum-bitcoin-merge">Ethereum’s Justin Drake is unconcerned despite ether’s middling year pricewise: Q&amp;A</a>



Bitcoin, on the other hand, had for the longest time mostly had one application — bitcoin transactions. But the rate of on-chain transactions had until recently sustained very little growth since 2015. Perhaps due to its “digital gold” narrative and the rising ubiquity of alternative cryptocurrencies.&nbsp;



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<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/15816806/embed#?secret=ANeyQ4Cjzu" data-secret="ANeyQ4Cjzu" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Over the past five years, Ethereum users have paid $17 billion in fees, Bitcoin users just $2.9 billion</figcaption></figure>



All that changed with Ordinals — a protocol for inscribing individual units of bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) with unique data to create digital collectibles, first launched in January.



Music, text, art, video and <a href="https://blockworks.co/news/play-doom-bitcoin">even code for browser-based</a> DOOM clones have since been inscribed to Bitcoin, resulting in an on-chain collectibles market worth thousands of BTC. Bitcoin users trade Ordinals as Ethereum or Solana users would trade NFTs.



Today, anywhere from around a third to one half of Bitcoin transactions contain Ordinals, driving up demand for blockspace as well as transaction fees. At times today, “medium priority” <a href="https://mempool.space/">transactions</a> went for around $11 compared to around $2.30 for the <a href="https://etherscan.io/gastracker">same</a> on Ethereum (more priority generally means faster processing), although those prices have since come down.



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<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/15818011/embed#?secret=CUyCOwRuzE" data-secret="CUyCOwRuzE" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Tron comes in third overall for monthly fees, mostly thanks to stablecoin Tether</figcaption></figure>



So is Bitcoin netting more fees than Ethereum good for Bitcoin? Maybe not.&nbsp;



Some Bitcoin insiders <a href="https://blockworks.co/news/play-doom-bitcoin">worry</a> the network isn’t properly equipped to handle Ordinals and potential influxes of interest in its original use case, BTC payments.



The CryptoKitties incident in December 2017 — during which a NFT game grew so popular that it spectacularly <a href="https://consensys.io/blog/the-inside-story-of-the-cryptokitties-congestion-crisis">clogged</a> Ethereum — first showed that Ethereum probably couldn’t handle serving as the “<a href="https://www.youtube.com/watch?v=j23HnORQXvs">World Computer</a>” just yet.



Then, the 2021 bull market saw NFT mint costs soar to $250 at <a href="https://www.coindesk.com/tech/2021/11/22/ethereums-fees-are-too-damn-high/">times</a> — a reminder of how necessary it was to port activity to smaller chains, including rollups. Still, <a href="https://blockworks.co/news/pepe-memecoin-red-flags-abound">memecoins and low quality token projects</a> ratcheted up fees beyond $20 earlier this year, drastically reducing Ethereum’s <a href="https://blockworks.co/news/ethereum-deflationary-model">usefulness for non-critical tasks</a>.



The NFT craze of 2021 made Ethereum block space the hottest commodity in crypto. Even while tanking its utility.&nbsp;



Ordinals may end up having the same effect on Bitcoin, especially if demand keeps up and the bull market truly hits.



At that point, it would seem reasonable to value Bitcoin and Ethereum more similarly. It might just take another run.



Updated Nov. 16, 2023 at 4:25 pm ET: Corrected reference to percentages in bullet points.



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Ethereum won’t flip Bitcoin anytime soon, but Ordinals could change that

Bessie Liu

Following the introduction of ERC-4626, tokenized vault deployments have remained steady.



ERC-4626 is a standard that is designed to introduce implementation techniques and parameters for yield-bearing vaults in crypto. The standard was introduced in early May.



<a href="https://dune.com/queries/2641987/4389806">Data</a> compiled by Dragonfly data scientist Hildebert Moulié shows that every week following the introduction of ERC-4626, over 50 tokenized vault deployments have occurred across EVM-compatible blockchains.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/ENb3fIooPdyQRszYXFkclInEJMDT5OImDj960O-GbJ0-J3sLyeQsQI3-GJOhR6GRnVN_3CVkhOXhOT7QPIpxpfvEMy9PHmQ--WxhGL8CG49KSE4ju6fp5CaiEMOMXX1IHt2ksCyeW_EXBgTs5b9PDgw" alt=""/></figure>



In a previous interview with Blockworks, Superform co-founder Blake Richardson contended that this new standard would be as important to DeFi as ERC-20 — a commonly used token standard — is to the <a href="https://app.blockworksresearch.com/glossary#initial-coin-offerings-icos">ICO boom</a>.



Read more: <a href="https://blockworks.co/news/tokenized-vault-standard-ethereum">Tokenized vault standard on Ethereum set to ‘kick off new DeFi summer’</a>



“I think the compound benefit of standardization will lead more people to adopt DeFi because they can start to trust it more,” Richardson said.



To a certain extent, Richardson was right. Although tokenized vaults already existed before ERC-4626, it wasn’t until these principles were introduced that their implementations became more consistent.



Prize savings protocol PoolTogether was one of the most recent to make use of the standard. PoolTogether revealed during a private beta launch that v5 of its protocol introduces the permissionless use of any token that has a 4626 yield source.&nbsp;



Users can deposit tokens into PoolTogether’s standard ERC-4626 vault in order to win prizes or customize their own vault. These vaults will create yield and liquidate the yield into POOL tokens, the protocol’s native asset, reflecting the vault’s likelihood of winning a prize.



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Tokenized vaults see steady deployments remain after ERC-4626 adoption

Darren Kleine

“The more broken a staking model and design is,” Chorus One chief information officer Xavier Meegan says, “the more urgent a liquid staking solution is needed for that network.”



“Necessity is the mother of invention” might be a nicer way to put it.



A key reason for the success of liquid staking on Ethereum, Meegan says, is that staked ether (ETH) was locked up and inaccessible until the long-awaited Shapella upgrade. This makes liquid staking an effective escape for eager DeFi users. 



Read more: <a href="http://blockworks.co/news/ether-price-predictions-after-shapella">How did ether price predictions fare after Shapella upgrade?</a>



On the Bell Curve podcast (<a href="https://open.spotify.com/episode/3kOAHbkbaRtWudoVvjp4Cg?si=ndqtco39SDuWw9zcksgN9w">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/what-ethereum-can-learn-from-easy-solana-staking-lucas/id1641356619?i=1000626067852">Apple</a>), Jito Labs CEO Lucas Bruder says this has never been the case on <a href="https://blockworks.co/tag/solana">Solana</a>, where <a href="https://blockworks.co/news/solana-defi-ready-rebirth">new liquid staking innovations</a> might offer opportunities on the nimble network.



Whereas staked <a href="http://blockworks.co/price/eth">ETH</a> might have been locked up for as long as two years, providing a strong value proposition for <a href="https://blockworks.co/tag/liquid-staking">liquid staking</a> tokens, Bruder notes that Solana has allowed for withdrawals “from day one.”



During the <a href="https://blockworks.co/news/will-defi-summer-return">DeFi summer of 2020</a>, <a href="http://blockworks.co/tag/ethereum">Ethereum</a> users witnessed a boom in protocols popping up, Bruder says, solving the chicken-egg problem for the network — “I have liquid staking tokens, but where am I gonna use them?”



Solana isn’t quite there yet, Bruder says, with far fewer DeFi applications in the wild. The chicken-egg problem persists: As DeFi protocol builders look at network’s lower liquid staking activity and total-value-locked (TVL) statistics, they <a href="https://blockworks.co/news/ethereum-rivals-doa">may be dissuaded from launching on Solana</a> at all.



But Bruder is optimistic. “I think we&#8217;ll see that change, especially when you look at what happened with MarginFi and Jito.” He says the MarginFi borrowing and lending service, along with Jito, saw “<a href="https://blockworks.co/news/solana-defi-new-users">a massive growth of TVL during the month of July</a>.”



“I think we doubled TVL in terms of SOL,” he says. Bruder expects many protocol builders might find the network more attractive following the recent boost. “Liquid staking tokens (LSTs) are one of the strongest base assets that you can have in a DeFi ecosystem,” he says. “We&#8217;ll see more protocols start to cater towards that.”



<h2 class="wp-block-heading">Building trust takes time</h2>



According to Bruder, one issue that’s holding things back is trust in Solana as a secure DeFi ecosystem, but he expects that will come with time. “The more TVL these ecosystems have and the more battle-tested they are,” he says, “the more people trust in them.”



Solana is “finally rounding the turn,” Bruder says, with more protocols increasing their TVL. He adds that protocols “are taking security very, very seriously.”



“As we see protocols taking security more seriously, some of these TVL numbers rise and these protocols get more adoption,” Bruder explains. “As we see some larger institutions start to deposit more SOL into LSTs, I think a lot of that will get this thing kick-started.”



Meegan notes that branding is critical in the “liquid staking arena,” noting that Jito Labs is building “cutting edge protocols in Solana,” <a href="https://blockworks.co/news/solana-spam-problem">focused on MEV and liquid staking</a>. “These are really at the core of security of any network,” he says.



“If there&#8217;s a team building there that you trust anyway, you trust that they have the best interests at heart.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG7706265842" width="100%"></iframe>







“Lucas and his team at Jito have a bunch of experience running validators and speaking with validators like us as well,” Meegan continues. “That really gives an element of trust with not just validators and node operators, but also delegators.”



“As Solana gets past this phase of the network that it&#8217;s in right now, as performance gets better,” Meegan says, “<a href="https://blockworks.co/news/solana-defi-frees-developers">people will be more willing</a> to provide liquidity into the network.”



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Liquid staking is building momentum on Solana, say Bruder and Meegan

Casey Wagner

<div id="highlights-block_62aa0cf6bfc2e" class="highlights">
 <ul>
 <li>European Central Bank holds rare unscheduled meeting as market conditions worsen</li>
 <li>S&#038;P and Nasdaq hold steady while BTC and ETH fall ahead of interest rate announcement</li>
 </ul>
 
</div>



The pullback in crypto markets continued Wednesday as firms cut staff while investors assess the damage from Celsius’ withdrawal halt and the <a href="https://cms.blockworks.co/crypto-fund-three-arrows-capital-facing-potential-insolvency-report/" target="_blank" rel="noreferrer noopener">apparent insolvency</a> of longtime digital assets hedge fund firm Three Arrows Capital.&nbsp;



The Federal Reserve is slated to announce an expected 0.75 percentage point interest rate hike Wednesday afternoon following the end of its two-day policy meeting. The European Central Bank, which was not scheduled to meet, issued a <a href="https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.pr220615~2aa3900e0a.en.html" target="_blank" rel="noreferrer noopener">statement</a> saying it would “apply flexibility” going forward to combat increasingly turbulent markets.&nbsp;



“It&#8217;s become very clear that central banks are going to have to be very aggressive in countering mounting price pressures around the globe and that the probability of recessions has increased,” Craig Erlam, senior market analyst at OANDA, wrote in a note Wednesday. “Stagflation is not yet here but the risks around it have risen considerably in recent months which makes central bank responses all the more critical.”&nbsp;



Many more rate hikes will be demanded in the short term to get a degree of control over runaway inflation, Erlam said — and markets are not reacting well.&nbsp;



Bitcoin inched lower toward $20,000 early Wednesday while ethereum slid closer to $1,000. The tech-heavy Nasdaq and the S&amp;P 500 were both trading slightly higher ahead of Fed Chair Jerome Powell’s press conference, signaling the market has largely priced in a 75-point hike, according to Erlam.&nbsp;



“There is still a huge gap between nominal rates and real rates, so there is much more room for the Fed and other central banks to hike in the months to come,” said Mikkel Morch, executive director at digital asset hedge fund ARK36. “Investors can’t realistically expect risk assets to have a more sustained uptrend until the Fed pivots.”



The risk-off sentiment is likely not going to dissolve anytime soon, in Erlam’s estimation.&nbsp;



“Risk appetite has been obliterated and the days of ultra-low rates are behind us, there isn&#8217;t the same speculative mood that existed when bitcoin was exploding higher,” Erlam said. “There may still be a belief that bitcoin can thrive in the future but something that offers little now beyond speculative rallies is going to continue to struggle. Especially when we&#8217;re seeing headlines like those around Celsius and Binance.”




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