This week, the spot price of Bitcoin dropped to a multi-year low of $15,801 amidst the FTX collapse, with BTC now -76.9% below the cycle top set in November 2021. Previous generational lows have recorded >75% market devaluations from the peak, bringing this bear market in line with prior cycle drawdowns. BTC drawdowns greater than 75% have persisted for several months in previous cycles, suggesting duration may still be ahead if history rhymes.
One of the standout phenomena of the 2022 bear market is that Hashrate has not seen any significant decline towards the lower band, even with ongoing financial stress on the Crypto industry.
There’s a lot of fud lately on WBTC (WBTC Depegging). Wrapped Bitcoin (WBTC) is an ERC20 token backed 1:1 with Bitcoin. WBTC standardizes Bitcoin to the ERC20 format, creating smart contracts for Bitcoin.
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This could be related to the Alameda Research and FTX crash, WBTC began to show signs of depegging on November 10, WBTC depegged to 0.9852 on November 25. WBTC and any other bridge-wrapping are old tech and risky because it’s centralized. Chain Key BTC (native bitcoin without bridge) powered by ICP is already here and it’s gonna conquer the Defi space from here onwards.
Mint and Burn WBTC
Users sends 1 BTC to Merchant, Merchant sends 1 BTC to Custodian for storage, Custodian mints 1 WBTC and sends 1 WBTC to merchant, then merchant sends 1 WBTC to the user. While Burning WBTC; User sends 1 WBTC to Merchant, Merchant sends 1 WBTC to Custodian, Custodian burns 1 WBTC and sends 1 BTC in his storage to merchant, then merchant sends 1 BTC back to the user.
Can WBTC Crash ?
There are currently 225,400 WBTC in total, and the custodian currently holds 228,734 BTC, which is enough for redemption. And you can verify the BTC kept by the custodian through the address on-chain. As long as the BTC kept by the custodian is enough to redeem WBTC, there is basically no possibility of WBTC crashing, but nothing is 100% in the Crypto Industry- compounding liabilities might lead to WBTC crashing.
Alameda minted 101,746 WBTC and only burned 29,435 WBTC. The outcry by Influencers on Crypto Twitter are mere FUD. The problems won’t start until Bitgo and Coinlist are under pressure; we’re just getting started.
Alameda is a merchant not a Custodian, and only initiate the process of minting and burning wrapped tokens, WBTC minted through Alameda can still be redeemed through other merchants.
DCInvestor tweeted, It’s funny seeing all the WETH offers accepted in the midst of a mega Crypto retribution, PTSD is real. Zagabond, a founding member of the OxProject and the Azuki NFT said;
WETH risk:
– on-chain smart contract risk (close to nil due to simplicity & long runtime)WBTC risk:
– off-chain custodian exploit (or theft) risk of underlying permissionless, censorship-resistant BTC assets which may not be recoverable
– censorship/blacklist risk by custodian— DCinvestor (@iamDCinvestor) November 26, 2022
In 2017, we (@0xProject) called on the Ethereum community to establish a canonical ERC20-compliant wrapped ETH token (WETH) in the interest of standardization across dApps and safer smart contract conventions. Five years later, the WETH contract has >$4b in ETH.
WBTC-BTC trading pair is only available on CEX, and you can’t unwrap WBTC fast like WETH. So whoever believed the fud simply ate the discount and panic dumped on CEX. Alameda minting WBTC by sending BTC to BitGo is a wholly different situation than FTX owning the entities which issue soBTC, one is arms-length transactional, the other is a forced intermingling of what should be siloed assets into customer fraud bankruptcy proceedings. The COO of BitGo, the custodian for the BTC that gets wrapped, says everything’s fine and burns are in queue. So everything should work as intended and this should be a free arb. But the market is not buying it clearly, $SoBTC keeps nuking.
The reality is that WBTC contract does not trace 1:1 locked BTC on chain. WBTC dashboard provides a proof of reserves which is great, but does not trace your locked BTC. You need to trust BitGo, same as CEX, to remain solvent to unwrap your locked BTC.
The actual Bitcoin however is held by a centralized entity, so if the actual bitcoin was ever compromised then your tokens that represents the Bitcoin’s WBTC would become worthless, there is no way currently to hold Bitcoin on Ethereum in a decentralized way.