Stacks (STX) surges as Bitcoin NFT hype grows, but blockchain activity raises concerns

Stacks is one of the first blockchains to enable a way to mint Bitcoin (BTC) Ordinals, putting it in an excellent position to take advantage of the hype. However, Ordinals has invoked a problem from the past where Bitcoin maximalist ideologies will be tested if the NFTs lead to network congestion.

On top of that, Stacks has yet to deliver all the features required to support an NFT trading ecosystem, and it faces competition from projects in other blockchain ecosystems. The fundamental and technical analysis of the project suggests that the price increase may have reached overbought conditions and may be corrected in the short term.

Ordinal’s development is currently unpredictable

The recent focus on entering NFTs on the Bitcoin network peaked in the past month after Casey Rodarmor enrolled an Ordinal on January 29 While the trend got off to an overwhelming start, its impact is limited to technical users with a Bitcoin node and trading takes place primarily through OTC channels.

Compared to Ethereum NFT marketplaces, the infrastructure for Bitcoin NFT trading is still significantly underdeveloped with respect to complex activities such as decentralized trading. Many investors have expressed their belief that there must be a way to spin up marketplaces and NFT development platforms for Ordinals.

The Bitcoin developer community has previously advised against using the network for anything other than payments because it clogs up space and increases transaction fees. During 2020 and 2021, many Ethereum users were paying hundreds of dollars in fees per transaction as user activity exploded. On the other hand, Bitcoin’s fees remained at optimal levels throughout the bull run, but the usage and earnings of the protocol lagged behind Ethereum.

According to a CoinShare report, the introduction of Ordinals will again be subject to social acceptance of the method of writing additional data onto the Bitcoin blockchain, which is bound to present challenges such as network load and increased fees.

The report goes on to review previous failed attempts to use the Bitcoin blockchain for smart contract activity, saying that “similar projects from Bitcoin’s past have had little impact on both investors and users.”

The number of Ordinals subscribed to Bitcoin increased significantly in early February when the instrument exploded. However, the trend slowed due to a lack of trading infrastructure, with less than 10,000 NFTs subscribed on most days.

Stack blockchain’s native STX (STX) token jumped 256% in February, thanks to the hype surrounding Bitcoin NFTs and an upcoming project upgrade.

It remains to be seen how the Bitcoin community will react to an increase in network congestion and Bitcoin fees if the Ordinals hype grows.

Stacks prices on speculation, while activity is low

The idea is that Stacks will make Bitcoin Ordinals more accessible to users by facilitating minting processes and hosting marketplaces.

The Stacks Foundation, the team that manages the blockchain, announced on February 22nd a new upgrade to the protocol, Stacks 2.1, which seeks to improve the blockchain by adding EVM compatibility and synthetic Bitcoin (sBTC) through a secure bridge to Bitcoin.

On top of that, the .BTC name service lives on the Stacks network, which could generate a lot of trading activity if the demand for .BTC addresses increases. In its current state, a .BTC Stacks address is largely detached from the Bitcoin network. This means that users cannot send and receive Bitcoin on these addresses, like the .ETH counterpart.

After the 2.0 upgrade, Stacks will enable direct sending of Stacks assets to Bitcoin addresses. It will enable proxy access to the Bitcoin blockchain without creating a separate Stacks address. It remains to be seen whether Bitcoin users will find the feature attractive.

While the upgrades sound promising, there is still insufficient blockchain activity to justify the STX price increase. Only about 1,000 unique active wallets engaged with DApps on Stacks in February. The most striking part of Stack’s usage data was that NFT marketplace Gamma also failed to attract significant users to its platform, with less than 100 wallets traded daily on the marketplace.

Gamma supports the minting and sending of Bitcoin ordinary NFTs via stacks. However, many users have faced UX-related issues while using the feature, as it requires a separate address in a Stacks wallet that is Ordinal compatible. Many users have mistakenly sent NFTs to wrong addresses. The wallet problem has also limited the trading of Bitcoin NFTs.

Developers in the Stacks ecosystem, like the Xverse team, are working on a wallet to provide easy-to-use Ordinals support. There is also an atomic swap experiment between Bitcoin NFTs and STX in the works. The aim is to develop this functionality into a complete marketplace.

However, other ecosystems are also watching this trend. For example, Ordinex is developing an Ordinals trading platform, which will be available to Ethereum users through Metamask. Some Ethereum-based projects, such as OnChainBirds and SappySeals, have also written the NFTs on Bitcoin and enabled trading on OpenSea. However, the trading activity of these collections remains average, with little hype.

Besides Stacks, many other ecosystems are trying to use the opportunity by facilitating Bitcoin NFTs. While Stacks has a technical advantage over others, Ethereum has a loyal user base and sufficient liquidity to outcompete Stacks’ ecosystem if a viable solution emerges. Moreover, it will ultimately depend on the response and demand of these NFTs from the Bitcoin community, which may not support the euphoria surrounding it.

STX/USD reaches key resistance zones

The STX token is diluted at a rate of 2.5% annually. Inflation will decrease after the Bitcoin halving, which is expected to happen in April 2024. The supply increase of STX is low compared to other layer-1 blockchains such as Solana and Cardano, which is encouraging. However, the network’s total fees or token economy does not balance inflation, which must soon change.

Technically, the STX/USD pair is near the top of its two-year trading range at $1.02, which is a potential yellow flag for buyers. If bulls are able to overcome this level, STX could possibly take a shot at all-time highs near $3.00. However, given that the network activity is not correlating with the price increase for now, there is a chance for a pullback towards $0.68 and $0.24.

Likewise, the STX/BTC pair is also near its all-time range of 0.00004350 BTC, increasing the possibility of a correction once these levels are marked. The downside targets for STX are 0.00002744 BTC and 0.00001233 BTC.

Bitcoin NFTs have a lot of potential, but it remains unclear whether the Bitcoin community, which is usually opposed to speculation and activities that clog the network, will allow the trend to flourish.

Currently, the most crucial aspect of NFT trading – an easily accessible marketplace and wallet – is still missing from the Ordinals ecosystem. As a Bitcoin sidechain, Stacks has technical advantages with Bitcoin integration, and it has a slight advantage over other blockchains in providing the tools to support an Ordinals craze.

However, the applications to support Ordinals are still under development. Meanwhile, Stacks face competition from other more fluid ecosystems, which can develop more feasible solutions to integrate Bitcoin NFTs into their chain.