The Wrapped Bitcoin (WBTC 1.06%) cryptocurrency is a derivative of Ethereum (ETH 2.06%), which replicates the value of a regular Bitcoin token (BTC 0.82%). This peculiar mix provides Ethereum-based apps access to a Bitcoin-like mechanism for storing and transferring money. It’s also worth noting that it’s a kind of Bitcoin with Ethereum-like features such as smart contracts, albeit in an odd form.
Creating a hybrid product from the upside of two extremely different cryptocurrencies makes sense, but isn’t it too good to be true? After all, holders of Wrapped Bitcoin must bear the long-term ownership risks of both Ethereum and Bitcoin.
Let’s look at how the market has treated this one-of-a-kind currency.
Here is how closely the two cryptos have stayed together this year.
Federal Reserve Chairman Jerome Powell discussed his agency’s approach to future federal interest hikes in 2022, which weighed heavily on speculative assets like growth stocks and cryptocurrencies. Powell’s comments shook up the crypto market as a whole, and it was not surprising to see various currencies moving in different directions on January 28th. On January 28th, Ethereum still hadn’t recovered from its more severe correction, when it fell roughly 10% under Bitcoin’s year-to-date drop of 33%.
On January 25, the bitcoin price plummeted by almost 30 percent in a single day. However, on January 29, after the large drop, Wrapped Bitcoin returned to matching the regular Bitcoin token’s prices. That makes perfect sense; even if you believe that Ethereum is a greater risk investment than Bitcoin.
So what’s the difference?
Another benefit of utilizing Wrapped Bitcoin is that you may exchange it for any number of Bitcoin tokens at will. You can mint tokens by following a simple procedure, and you may convert them back into a Bitcoin by burning a Wrapped Bitcoin token. Furthermore, the development team behind Wrapped Bitcoins has custody of the original bitcoins that were placed in order to produce each Wrapped Bitcoin coin.
Today, the Wrapped Bitcoin project holds approximately 283,904 Bitcoins in its vaults. The market capitalization is $283,774 based on CoinMarketCap’s numbers. That’s a difference of 0.05 percent.
Because of the guaranteed conversion process, Wrapped Bitcoin should always be very close to the value of a typical Bitcoin. Sure, investors are betting on the success of three projects rather than one (including the Wrapped Bitcoin system itself), but there is no actual reason to include additional market risk into wrapped BTC.
The addition of Ethereum features to Wrapped Bitcoin, on the other hand, does not appear to offer much value. In the broader picture, the existence of Wrapped Bitcoin basically serves as a component in the overall value proposition for bitcoin’s underlying system, adding a tiny amount of extra market value to the greater ecosystem. Keep in mind that despite its small percentage share in total market value (1.5 percent), the Wrapped token has a sector-leading footprint.
Yes, you can buy this token — but it doesn’t really matter
You should feel free to use Wrapped Bitcoin tokens instead of, or in addition to, regular Bitcoin tokens as long as your selected cryptocurrency trading platform accepts them. If something goes wrong, you will be able to exchange these tokens for Bitcoin as needed.
There are no advantages to purchasing this token rather than Bitcoin unless you are an app developer that need its unique mix of Ethereum and Bitcoin capabilities, but there is no real downside either. For most of us, it’s just another oddity in a sector already rife with anomalies. Perhaps you’d be better off looking at the tried-and-true Bitcoin crypto system instead to keep things simple.