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

Author: Luke, Mars Finance

From peak to trough: A year of contrasting highs and lows

Looking back at the spring of 2024, the Bitcoin ecosystem was like a dazzling supernova. The rise of the BRC-20 token standard, fueled by the inscription craze of the Ordinals protocol, ignited a frenzy in the market. 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 also joined the celebration, delivering astonishing returns. Bitcoin's on-chain transaction volume surged, gas fees skyrocketed, and miners' income increased 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.

At this low ebb, the Bitcoin ecosystem suddenly came to life over the past week. ORDI surged nearly 97% in just six days, while PUPS became the vanguard of the rebound with a 127% increase. SATS almost doubled from its yearly low, rising by 87%. Tokens like NALS, BANK, and BounceBit (BB) saw weekly increases between 40% and 80%, and mainstream assets like BRC-20 and Runes collectively experienced a recovery. On-chain capital inflows have significantly increased, and the market's attention is once again focused on this long-quiet field. Is this a brief flash of light, or the starting point of a larger revival? 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 a lasting resurgence.

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 cyclicality, and this rebound in the Bitcoin ecosystem perfectly aligns with the classic logic of "low expectation reversal." After a year of continuous selling, the valuations of most tokens within the ecosystem have been compressed to the extreme. Top assets like ORDI and SATS have fallen over 90% from their peaks, viewed by the market as the "abandoned children" with no trading logic. However, it is often in this atmosphere of despair that the spark of a rebound quietly ignites.

The fuse of this wave of market is largely due to the switch of market style. Ethereum previously rebounded 50% amid huge community skepticism, validating the explosive power of undervalued assets when sentiment reverses. This phenomenon incentivizes capital to flow to sectors with lower valuations and more adequate corrections, and the Bitcoin ecosystem – which has been neglected by the market for a long time – is a natural rotation target. Due to the low liquidity of these tokens and historically low valuations, a small number of buying orders can trigger wild price swings, creating surprising short-term resilience.

Speculative Frenzy: The Allure of Fringe Assets

Another driving force behind the rebound is the inherent speculative nature of the cryptocurrency market. Compared to the stable performance of blue-chip assets like Bitcoin and Ethereum, niche tokens such as PUPS and BSSB attract short-term capital with high volatility. These projects often rely on niche protocols or meme narratives, lacking solid fundamentals, yet due to their high-risk, high-reward characteristics, they become a paradise for speculators. The recent 127% increase of PUPS is an example: a little-known token quickly became the focus of capital chasing, ignited by market sentiment. This phenomenon is not new in the cryptocurrency market, but it explains why the Bitcoin ecosystem—home to many low market cap tokens—can rapidly become a hotbed for speculation.

On-chain data recovery

On-chain data also adds evidence for the rebound. The trading volume of BRC-20 and Runes tokens has shown signs of stabilization after several months of decline, with an increase in capital inflow to related protocols. Although it is far from recovering 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 bellwethers of the ecosystem, the leading performance of ORDI and SATS has further boosted market confidence, driving a broader capital return.

The Indelible Shadow: The Structural Dilemma of Ecology

Despite the recent surge being encouraging, a calm observation reveals that this 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 sparked the inscription frenzy in 2023, the vision of "Bitcoin-native DeFi" has been enticing, but actual delivery has been disappointing. The BRC-20 standard, while generating excitement, has a rough design and low transaction efficiency, leading to network congestion without bringing about any real functional breakthroughs. The Runes protocol, launched in April 2024, was once highly anticipated, capturing over 60% of on-chain Bitcoin transactions at one point, but its complex distribution mechanism and poor user experience caused its popularity to fade rapidly, with its current transaction share remaining in single digits.

Developer activity - a key indicator of ecosystem health - is also declining. The GitHub update frequency of several core projects has significantly decreased, and the vitality of the technical community is far less than that of Ethereum or Solana. Bitcoin's architecture, which focuses on security and simplicity, limits its programmability, making it daunting for 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 Enthusiasm

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 equally bleak. The poor performance of airdrops and slow project progress has transformed many investors from excitement to disappointment. Discussions on social media regarding ORDI and SATS have shifted from bullish to cautious, even indifferent. The differences in token preferences between Eastern and Western markets — ORDI being more popular in Asia and DOG being more appealing in the West — have further exacerbated the division within the community and weakened cohesion.

The Unsolved Mysteries of Layer 2

Bitcoin's Layer 2 (L2) solutions are seen as key to expanding DeFi capabilities, but currently 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 through zero-knowledge proof technology in 2024, but still lack competitiveness compared to Ethereum's Rollup ecosystem. If L2 cannot provide compelling use cases, they may become shells, further undermining market confidence.

The Road Ahead: Hope and Challenges of Renewal

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 exploration of smart contracts by BitcoinOS and the simplification of token creation by BRC-2.0 are both potential breakthrough points. However, these projects must move from concept to actual implementation to attract users and capital.

Developer Revitalization

Reigniting developer enthusiasm is crucial. The simplicity of Bitcoin is both its advantage and its limitation. The advancements in zero-knowledge proofs and Rollup technology indicate that scalability and programmability are not mutually exclusive. 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 barrier. 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. Currently, the competition between BRC-20 and Runes, along with the division between Eastern and Western markets, weakens its appeal. A narrative focused on Bitcoin as a secure foundation for DeFi and real-world assets (RWA) may help reignite enthusiasm. Community-driven meme activities—such as the revival of Dogecoin—can also contribute, but they need to be backed by substantial progress to avoid becoming hollow hype.

Grasp the market cycle

The cryptocurrency market is driven by sentiment, and the undervaluation of the Bitcoin ecosystem gives it explosive potential during 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 sustained upward momentum in the coming weeks will be key; whether skeptics can be turned into believers depends on the continuation of market momentum.