Bitcoin (BTC) is taking center stage as its dominance increases and its prospects seem rosier by the day. If you hold Bitcoin, you’ll probably look into accumulating more of it, and there are a few options to do this.
The recent ETF buzz is leaving the OG cryptocurrency outperforming most other tokens, including ETH. At the same time, the halving is coming up around April-May 2024, which has been traditionally a very bullish marker. No matter how you slice it, historically we’ve seen that Bitcoin will start a run up a few months before the halving, and usually continue it afterwards until it eventually goes into a full bull market a year later. Though it’s important to highlight that these are long-term trends. The halving by itself isn’t really visible on charts.
The ETFs are also looking very promising, with BlackRock and a few other financial companies looking like they may just receive the regulatory approval they need. At the very least, the companies seem convinced, with BlackRock beginning the seeding process of the ETF (which involves buying some initial Bitcoin).
Amid all this, Bitcoin is also going through a technological renaissance through Ordinals, which brought NFTs and tokens to the chain. And now, you might just be able to stake with Bitcoin.
Isn’t Bitcoin Mined with Proof of Work?
Bitcoin is the original cryptocurrency that pioneered Proof of Work mining, and unlike Ethereum it has no plans of switching to Proof of Stake, a newer consensus model that is seen as less wasteful and more effective in guaranteeing the blockchain’s security.
Unless something truly dramatic happens, this part of Bitcoin will never change. Instead, some projects are looking to use BTC as an asset to secure other projects with staking.
This is the vision behind Babylon, a BTC re-staking protocol. The idea is that other chains, including Cosmos, Ethereum and others would be using Babylon to secure their chain with BTC.
What’s unique about Babylon is that it’s a fully native protocol, meaning that you don’t need to bridge your BTC anywhere else (which is usually a centralized process). Instead, Babylon uses some clever cryptographic tricks to keep the critical bits on Bitcoin.
Unfortunately, Babylon is currently in testnet, so it can’t be used to stake Bitcoin just yet. But with a mainnet launch slated for the Summer of 2024, it might just be out in time to capture the meat of the potential post-halving moves.
BTC staking is otherwise impossible right now, but you can earn yield on it. Here’s how:
Decentralized Finance on Ethereum and other chains offers some opportunities to earn yield on BTC.
A good example is the WBTC/tBTC pool on Curve, yielding 0.3% APY. These tokens are Bitcoin wrappers on Ethereum, meaning that they follow BTC price one-to-one (similar to how a stablecoin follows the USD one-to-one). The yield comes from swap fees between these wrappers and extra incentives from Curve.
There are other options like BNB Chain and Interlay for staking Bitcoin in DeFi. It’s possible to find higher yields, especially when you accept to dilute the BTC into another asset. But it’s important to remember that all of these carry the risk of the BTC wrapper failing to do its job.
Staking in Earn Programs
Bitcoin can be staked in an exchange’s Earn program. For example, Binance is currently offering 0.32% APY on staked BTC.
These programs will “rehypothecate” the BTC by letting others borrow them, usually for trading. The borrowers pay a yield for the privilege, which is distributed to Earn stakers. The terms are usually simple, though there may be some deposit lockup periods.
Here, you’re facing risks from the platform failing to deliver the BTC back, which did happen with other providers like BlockFi and Celsius. There are several other exchanges and platforms offering these services today, potentially with higher yields, but also higher implied risks.
Unfortunately, until options for native BTC staking like Babylon come along, native yield opportunities with Bitcoin will be limited.