Bitcoin Ecosystem: Frenzy, Frustration, and the Dawn of Recovery

The sustainability of future revitalization depends on product implementation, increased developer activity, and market cycle promotion.

Written by: Luke, Mars Finance

From Peak to Valley: A Year of Contrasting Extremes

Looking back to spring 2024, the Bitcoin ecosystem resembled a dazzling supernova. The rise of the BRC-20 token standard, fueled by the inscription craze of the Ordinals protocol, ignited the market frenzy. Inscriptions—an innovation that embeds unique data directly into the smallest unit of Bitcoin, the "satoshi"—caused on-chain activities to soar like a rocket. The prices of tokens like ORDI skyrocketed, with some assets doubling or even tripling in market value within just a few weeks. Projects like SATS and RATS joined the celebration, bringing astonishing returns. Bitcoin's on-chain transaction volume surged, gas fees skyrocketed, and miner revenues rose significantly. This was a golden moment, where innovation, speculation, and enthusiasm intertwined, seemingly heralding a new era for Bitcoin—not just as digital gold, but as a vibrant decentralized finance (DeFi) platform.

However, the crypto world's craze is often short-lived. By mid-2024, the narrative of the Bitcoin ecosystem has fallen from heaven to rock bottom. Those tokens that once skyrocketed – ORDI, SATS, etc. – plummeted in price, retraceing more than 95% from their highs. On-chain activity has shrunk sharply, inscription transactions have continued to decline, and the pace of new project releases has slowed to almost a standstill. Community sentiment turned from high to low, the long-awaited airdrop disappointed, and the Runes Protocol – the highly anticipated BRC-20 Evolution – cooled quickly after a brief boom. By the beginning of 2025, the Bitcoin ecosystem will no longer be the darling of the market, but will become an "inverse indicator" of sector rotation, symbolizing unrealized potential and investor exhaustion.

Just at this low ebb, the Bitcoin ecosystem suddenly came back to life over the past week. ORDI surged nearly 97% in six days, PUPS became the vanguard of the rebound with a 127% increase, and SATS nearly doubled from its low this year, with an increase of 87%. Tokens like NALS, BANK, and BounceBit (BB) saw weekly increases ranging from 40% to 80%, while mainstream assets BRC-20 and Runes collectively welcomed a recovery. On-chain capital inflow has significantly increased, and the market's attention is once again focused on this long-dormant area. Is this a brief flash of brilliance, or the starting point of a larger recovery? To answer this question, we need to analyze the driving forces behind the rebound, the structural dilemmas of the ecosystem, and the conditions necessary for lasting revitalization.

The Logic of Rebound: Emotional Repair and Capital Rotation

Market Style Switch: The Forgotten Ones' Counterattack

The crypto market has always been known for its cyclical nature, and this rally in the Bitcoin ecosystem perfectly fits the classic logic of "low expectation reversal". After a year of continuous sell-off, the valuation of most tokens in the ecosystem has been compressed to the extreme. Top assets such as ORDI and SATS have fallen by more than 90% from their highs, and are regarded by the market as outcasts with "no trading logic". However, it is in this desperation that the spark of backlash often ignites quietly.

The trigger for this wave of market movement largely comes from a shift in market style. Ethereum rebounded by 50% amid significant skepticism from the community, validating the explosive power of undervalued assets during emotional reversals. This phenomenon has encouraged funds to flow into more undervalued sectors that have experienced more substantial corrections, while the Bitcoin ecosystem—long neglected by the market—has become a natural target for rotation. Due to the lower liquidity of these tokens and their valuations being at historical lows, a small amount of buying can trigger significant price fluctuations, resulting in remarkable short-term elasticity.

Speculative: The allure of marginal assets

Another driver of the rally is the inherently speculative nature of the crypto market. Compared with the steady trend of blue-chip assets such as Bitcoin and Ethereum, niche tokens such as PUPS and BSSB attract short-term funds with high volatility. These projects often rely on niche protocols or meme narratives, lack solid fundamentals, and become a playground for speculators due to their high-risk, high-reward nature. PUP's recent 127% gain is a case in point: a little-known token that has quickly become the focus of money chase thanks to the ignition of market sentiment. This phenomenon is not new in the crypto market, but it explains why the Bitcoin ecosystem – with a large number of low-cap coins – has become a hotspot for speculation in a short period of time.

The recovery of on-chain data

On-chain data also adds evidence for the rebound. The trading volume of BRC-20 and Runes tokens has shown signs of stabilization after months of decline, and the scale of capital inflow into related protocols has increased. Although it has not yet recovered to the peak levels of 2024, this trend indicates that some investors are tentatively re-entering the market, possibly attracted by the potential of undervalued assets. As barometers of the ecosystem, the leading performance of ORDI and SATS has further boosted market confidence, leading to a broader capital inflow.

The Indelible Shadow: The Structural Dilemma of Ecology

Despite the recent surge being exciting, a calm observation reveals that it resembles more of an emotion-driven correction rather than a signal of fundamental reversal. The deep-seated issues within the Bitcoin ecosystem still exist, limiting its potential for sustained performance.

Stagnation of Development Progress

The core dilemma of the Bitcoin ecosystem lies in its slow progress. Since the Ordinals protocol ignited the inscription craze in 2023, the vision of "Bitcoin-native DeFi" has been enticing, but actual delivery has been lackluster. Although the BRC-20 standard sparked enthusiasm, its rough design and low transaction efficiency have led to network congestion without bringing about genuine functional breakthroughs. The Runes protocol, launched in April 2024, was once highly anticipated and briefly accounted for over 60% of Bitcoin chain transactions, but its complex distribution mechanism and poor user experience caused its popularity to wane rapidly, with its current transaction share now in single digits.

Developer activity - a key indicator of ecosystem health - is also declining. The update frequency of several core projects on GitHub has significantly decreased, and the vibrancy of the technical community is far from that of Ethereum or Solana. Bitcoin's architecture, centered on security and simplicity, limits its programmability, which discourages developers accustomed to Ethereum's flexibility. Without a strong developer base, it is difficult for the ecosystem to transition from a speculative paradise to a functional platform.

The Split of the Agreement and the Dissipation of Heat

The Bitcoin ecosystem also faces the problem of protocol decentralization. Standards such as BRC-20, Runes, Ordinals, and the emerging BRC-2.0, Alkanes, compete with each other, distracting liquidity and users. This fragmentation weakens the network effect of the ecology and hinders long-term growth. The launch of Runes briefly ignited the market, but its complexity and inefficiencies led to the loss of users. BRC-2.0, which will be launched on the testnet in the first quarter of 2025, promises to bring smart contract functionality, but its actual effectiveness is still to be verified.

Community sentiment is similarly bleak. Poor airdrop results and slow project progress have led many investors to shift from excitement to disappointment. On social media, discussions about ORDI and SATS have turned from bullish to cautious, even apathetic. The difference in token preferences between Eastern and Western markets—ORDI being more popular in Asia, while DOG and others hold more appeal in the West—further exacerbates the division within the community, weakening cohesion.

The Unsolved Mysteries of Layer 2

Bitcoin's Layer 2 (L2) solutions are seen as key to expanding DeFi capabilities, but currently, they are underperforming. Over the past year, more than 25 L2 and sidechain projects have emerged, but most are idle, lacking mature products and user bases. Projects like BitcoinOS and B² Network have locked in $110 million in DeFi assets in 2024 through zero-knowledge proof technology, but they still lack competitiveness compared to Ethereum's Rollup ecosystem. If L2 cannot provide compelling use cases, they may become shells, further shaking market confidence.

The Road Ahead: Hopes and Challenges of Revival

Can the rebound of the Bitcoin ecosystem evolve into a long-term trend? The answer depends on whether it can address structural issues and fulfill long-term commitments. Here are the key elements for achieving revitalization.

Product Implementation: From Vision to Reality

The biggest shortcoming of the ecosystem is the lack of practical products. To achieve the goal of "Bitcoin native DeFi," developers need to build functional applications such as decentralized exchanges, yield farming protocols, or stablecoin systems that can compete with the Ethereum ecosystem. The smart contract exploration of BitcoinOS and the simplified token creation of BRC-2.0 are all potential breakthrough points. However, these projects must move from concept to actual implementation to attract users and capital.

Developer Revival

Reigniting developers' enthusiasm is crucial. The simplicity of Bitcoin is both its advantage and limitation, and the advancements in zero-knowledge proofs and Rollup technology indicate that scalability and programmability can coexist. Funding programs for projects like Lightchain Protocol AI may incentivize developers to return, but they need to be paired with better tools and documentation to lower the development threshold. An active developer community can not only drive innovation but also convey the long-term potential of the ecosystem to the market.

Community Cohesion and Narrative Reshaping

The Bitcoin ecosystem needs a unified narrative to bring the community together. The current competition between BRC-20 and Runes, along with the division between Eastern and Western markets, has weakened its appeal. A narrative focused on Bitcoin as a secure foundation for DeFi and real-world assets (RWA) might reignite enthusiasm. Community-driven meme activities—such as the revival of Dogecoin—can also help, but they must be backed by substantial progress to avoid becoming hollow hype.

Grasp the Market Cycle

The cryptocurrency market is driven by emotions, and the undervaluation of the Bitcoin ecosystem gives it explosive potential in a bull market. The recent rebound indicates that capital is willing to bet on high-risk assets. If Bitcoin's price continues to rise due to institutional adoption and ETF inflows, ecosystem tokens may benefit from the "halo effect." The sustainability of the upward trend in the coming weeks will be crucial; whether skeptics can be turned into believers depends on the continuation of market momentum.