Decentralised Finance (DeFi) enables cryptocurrency holders to profit from staking and funding liquidity pools. A tokenised version of bitcoin (BTC) running on the Ethereum blockchain, wrapped bitcoin (WBTC) allows BTC holders to participate in this DeFi ecosystem.
The global cryptocurrency market exceeded the $3trn market capitalisation for the first time In November 2021. During the same period, bitcoin (BTC) reached all-time highs of $68,789 according to CoinMarketCap. Wrapped bitcoin (WBTC) – a token mimicking the price of BTC – followed the same pattern.
However, investors’ anticipation for a sustained bull run came to a halt when the global cryptocurrency market fell sharply following the historic highs. At the time of writing (26 January,) wrapped bitcoin was trading at $36,210, down 47% from its November high.
Will the WBTC’s value recover later this year? First, let’s consider the project’s fundamentals and latest developments to get a clearer view of a plausible wrapped bitcoin price prediction.
What is wrapped bitcoin (WBTC)?
Launched in 2019, wrapped bitcoin (WBTC) is the compatible version of bitcoin for the Ethereum network and platforms built on its blockchain. WBTC is a token with 1:1 peg to bitcoin, which means that bitcoin holders can easily convert their BTC to the wrapped version and use it across the Ethereum network.
As many decentralised applications are built based on the Ethereum blockchain, most of them work under ERC-20 standards. WBTC is the ERC-20 token version of bitcoin that enables its holders to earn from the opportunities that DeFi offers.
Wrapped BTC allows bitcoiners to earn interest in platforms such as Compound, funding liquidity pools for APY (annual percentage yield), and participate in DEXs such as Uniswap. For example, the DeFi lending platform Hodlnaut offers an APY of 7.46% for the first two wrapped bitcoins deposited.
WBTC brings more liquidity to DeFi. As the cryptocurrency with the highest market capitalisation, bitcoin has gathered a huge user base and pool of liquidity, which can now be integrated with the Ethereum network. Since the value is pegged to bitcoin, BTC holders will no longer have to exchange their coins for different ERC-20 tokens but just wrap their bitcoins instead.
Additionally, other decentralised applications can benefit from the increased liquidity provided by a BTC token, as WBTC simplifies creating smart contracts using bitcoin. For example, bitcoin payments can be used in decentralised applications such as lending protocols, funds, prediction markets and token sales.
How does wrapped bitcoin work?
According to WBTC’s whitepaper, WBTC tokens are created under the centralised model for token assets. This means that assets are stored by an organisation that publishes proof of reserve. These ‘custodians’ store bitcoins in a smart contract and issue WBTC tokens in return.
Another key characteristic of WBTC tokens is that instead of relying on a single institution, diverse entities are involved in the validation process, taking part in the BTC to WBTC swap. In its whitepaper, WBTC explains that this process happens in a multi-signature chain and requires everyone’s approval.
Further, the WBTC network comprises four operational pillars:
-
Custodian: The term custodian refers to the institution that owns the asset and controls the minting process. For example, BitGo is one of the custodians of WBTC.
-
Merchant: Merchant is the term used to refer to the party to whom wrapped tokens are minted and burned. Merchants are crucial in the distribution of the WBTC since they hold the keys to the minting of new tokens and the burning of existing tokens. Currently, two of the WBTC network’s official merchants are Kyber and Republic Protocol.
-
User: The term ‘user’ refers to the holders of the WBTC, who can use it to transact in the Ethereum ecosystem just like any other ERC-20 token.
-
WBTC DAO member: A multi-signature contract governs contract updates and the rules for adding or deleting custodians and merchants. Institutions own the contract’s keys as part of the WBTC DAO.
Advantages and disadvantages of wrapped bitcoin
There are several major points we can highlight as wrapped bitcoin benefits.
-
Ethereum integration. Ethereum is the largest network for dApps. According to State of the dApps, it’s home to around 3,000 decentralised applications. These become available for BTC owners with the help of wrapped bitcoins.
-
Liquidity and scalability. Integrating bitcoin liquidity into Ethereum’s network helps fill the gap between DeFi platforms, which may lack the necessary liquidity for executing fast transactions. Since WBTC exists in the Ethereum network directly, rather than Bitcoin’s, transactions with WBTC are faster and cheaper.
-
WBTC staking. This popular DeFi functionality is now available for BTC owners. Traders can lock their wrapped BTCs in a smart contract for a predefined time in exchange for rewards.
There is just one disadvantage of wrapped tokens, and wrapped bitcoin in particular.
-
Wrapped tokens are sensitive to centralisation because they depend on the issuing platform. The issue emerges because wrapping can’t be performed automatically by a smart contract on the Ethereum blockchain but is conducted via a central program. This could open the door to manipulation and undermine the decentralisation principle of the blockchain industry.
The creator of Ethereum, Vitalik Buterin, expressed his concerns over the centralised nature of wrapped tokens on Twitter back in May 2020:
“I’m worried about the trust models of some of these tokens. It would be sad if there ends up being $5bn of BTC on Ethereum and the keys are held by a single institution.”
Wrapped bitcoin news and price drivers
The project has undergone a number of significant milestones and developments, which may drive the wrapped bitcoin value.
Collaboration with BitPay
WBTC network partnered with Bitpay, a bitcoin payment service provider, in January 2019. As an outcome of this arrangement, WBTC became a payment option on BitPay, enabling users to conduct transactions using WBTC as a medium of exchange.
According to the press release, the ability to transact in WBTC provides a bridge to the Ethereum network for blockchain traders, institutions and decentralised applications (dApps), while keeping exposure to bitcoin.
“BitPay merchants use crypto to solve real-world payment challenges, especially in transacting in countries with hyperinflation or unstable currencies. Adding WBTC to the mix of cryptos that BitPay supports offers these businesses fast, safe and secure alternatives to traditional payment methods,” said BitPay’s chief commercial officer Sonny Singh.
Listing on Coinbase
Coinbase, the second-largest cryptocurrency exchange by trading volume, listed WBTC on its network in October 2020, enabling users to exchange WBTC for other tokens on the platform.
Additionally, it enabled Coinbase clients to buy, sell, convert, transfer, receive and store WBTC using the Coinbase Android and iOS mobile applications.
Partnership with Hodlnaut
Hodlnaut, a cryptocurrency borrowing and lending platform, launched support for WBTC in July 2021, allowing customers to earn a 6.2% annualised percentage yield on WBTC.
Additionally, Hodlnaut integrated WBTC into its Token Swap tool. As a result, Hodlnaut users gained easy access to WBTC without having to find a merchant to wrap their BTC. People could use Hodlnaut to exchange its tokens for WBTC at a zero-fee rate.
“Having heard the increased demand for WBTC by our users, our team has worked hard on pushing this forward in this very short span of time,” said Simon Lee, CTO and co-founder of Hodlnaut.
WBTC/USD price analysis
Wrapped bitcoin vs bitcoin: what’s the difference? The fundamental difference between bitcoin (BTC) and wrapped bitcoin (WBTC) is that WBTC is a tokenised version of BTC compatible with the Ethereum network. Every wrapped bitcoin is backed by one bitcoin. This means the price for both cryptocurrencies should be the same.
WBTC has mimicked BTC’s price performance and has yielded a ROI of 990% since its inception, according to CoinMarketCap. The token showed a bullish start in 2021 and continued moving in a bullish trajectory to reach $41,338 on 8 January. However, bears pushed the price back to $30,431 on 27 January. The price rebounded and WBTC reached $63,436 on 13 April.
Following a broader bearish market, the WBTC token declined to $34,904 on 23 May and bottomed to $29,508 on 20 July. WBTC declined by more than 53% between the April and July low.
A fresh leg of bull took the WBTC price to $52,565 on 6 September and then to its all-time-high of $68,601 on 10 November. After reaching the high, WBTC started trading in a bear market and closed the year at $46,434 as of 31 December 2021.
Cryptocurrencies didn’t find a favourable start to 2022, and most coins have seen a massive slump over the past few days. Similarly, WBTC declined to a 90-day low of $34,467 on 22 January. At the time of writing (27 January), WBTC was trading at $36,365, with a market capitalisation of $9.86bn.
Wrapped bitcoin (WBTC) price prediction: Targets for 2022, 2025 and 2030
On 27 January 2022, CoinCodex’s short-term WBTC sentiment was bearish, with seven indicators showing a bullish signal and 21 bearish.
Almost all daily and weekly simple moving averages and exponential moving averages (except for the 100-day SMA and EMA) gave ‘sell’ signals. The volume-weighted moving average (VWMA) was also bearish.
The moving average convergence divergence (MACD), stochastic RSI (stoch RSI), and Williams percent range were neutral. Meanwhile, the average directional index (ADX), the relative strength index (RSI) and Hull moving average (HMA) were bullish.
The wrapped bitcoin price prediction from CoinCodex suggested the price could slightly increase 0.30% to reach $ 36,600 by 1 February 2022.
Algorithm-based forecasters gave longer-term wrapped bitcoin (WBTC) price predictions (as of 27 January):
-
Wallet Investor has a bullish WBTC forecast. It predicted the average price could reach $63,401 by the end of 2022 and $154,791 by 2025. The five-year estimate for WBTC/USD indicated that it could hit $187,182 in January 2027.
-
Meanwhile, Digital Coin has more conservative targets for the WBTC token. It estimated the average price of WBTC in 2022 could be $50,510, moving up to $57,533 in 2023, $73,278 in 2025 and $154,555 in 2029.
-
According to Price Prediction, the average price of WBTC/USD could reach $55,066 in 2022, $175,557 in 2025, and $1,041,712 in 2030.
When looking for a wrapped bitcoin future price estimates, bear in mind that analysts’ and algorithm-based predictions can be wrong. The WBTC forecasts are based on fundamental and technical studies of the cryptocurrency’s past performance, which offers no guarantee of future results.
It’s essential to do your own research and always remember that your decision to trade depends on your attitude to risk, your expertise in the market, and your investment portfolio spread. You should never invest money that you cannot afford to lose.
FAQs
Read more:
Rate this article
The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.
