Viewpoint: Why am I skeptical about BTC-fi?

Author: 0xLouisT

Compiled by: Deep Tide TechFlow

The main reason investors often cite for Bitcoin's rise is the "digital gold" scenario, where BTC serves as a hedge against inflation. In traditional finance, gold is used as an inflation hedge because its value typically rises with inflation. Gold does not generate income; its returns come solely from price appreciation. In fact, due to storage and insurance costs, gold can even yield negative returns. Investors buy gold to preserve purchasing power, not to generate income. There is no such thing as a free lunch: you cannot have both.

Returning to Bitcoin, the main theory shared by most BTCfi (BTC L2s, etc.) investors is that even if only 5% of circulating BTC enters yield-generating protocols, it could expand the sector by 100 times. Therefore, most investors are betting on top-down growth: this sector is growing faster relative to others.

While the BTCfi narrative is compelling, I believe BTC is more like gold than a yield-generating asset: at least that is the theory many investors adhere to, viewing BTC as a macro asset and an inflation hedge. Even if only 5% of BTC enters the BTCfi ecosystem, this expectation may be overly optimistic.

The first conclusion is: If this is the base case, some valuations may already be too high.

The second conclusion is: If you have accepted BTC as a tool against inflation, you may need to reassess your BTCfi theory. You might be optimistic about two contradictory viewpoints at the same time. From a philosophical perspective, there is little overlap between BTC holders and yield seekers.

Counterarguments

Although I am skeptical of the BTCfi theory, it is also necessary to consider the opposite scenario. The supply of wBTC in the last cycle, along with the BTC holdings of Celsius, BlockFi, and Voyager, can well reflect the overlap between BTC holders and yield seekers. Currently, wBTC accounts for about 0.7% of the BTC supply, while Celsius, BlockFi, and Voyager collectively hold about $5 billion in BTC, accounting for approximately 1.1% of the total supply. Whether due to the decline of these platforms or stagnation in wBTC supply (see below), these indicators do not show any positive change in BTC yield demand.

(Source: @tomwanhh)

Finally, some may argue that because BTC is easier to store and trade than gold, there may be a higher demand for yield-generating opportunities due to its greater liquidity. However, since 2012, the active supply of BTC has been declining.

In summary, at the current valuations, I remain skeptical of the BTCfi theory, as there is little overlap between BTC holders and yield seekers both philosophically and economically.

Thanks to @fsy_y for the assistance and data.