Happy Tuesday!

There’s more BTC locked up for use on other networks than held by disclosed private company treasuries. For today’s newsletter, we break down how much bitcoin is custodied for cross-chain use, and how this compares to total bitcoin custody for other market sectors.

Cross-chain bitcoin rivals other custodial holdings

Since the first bitcoin ETFs launched last January, one of the industry’s biggest stories has been the rise of the corporate and sovereign bitcoin treasuries. ETFs, corporations, and nation states have hoovered up over 14% of the bitcoin supply. Demand for bitcoin the asset is clearly the strongest it’s ever been, but these entities don’t transact on-chain very much – so Bitcoin network demand is currently weak.

However, there’s a parallel phenomenon occurring that almost all of the Microstrategy and Strategic Bitcoin Reserve trackooors have missed: bitcoin continues to proliferate as the pristine asset for the entire crypto ecosystem. Everyone wants to use Bitcoin across the cryptoeconomy, from DeFi protocols to layer 2s.

And for some reason, nobody is accurately accounting for this trend when tracking Bitcoin treasuries. We should track cross-chain Bitcoin with the same attention that we give to private corporations, sovereigns, and publicly traded companies, since it can offer us insights into how other networks impact bitcoin demand.

All of the custodian trackers have missed the cross-chain phenomenon

Surprisingly, none of the publicly available treasury trackers accurately report the bitcoin locked up across the crypto ecosystem in comparison to other Bitcoin treasuries. (I suspect that certain paid intelligence sites such as Arkham Intelligence may accurately track wrapped bitcoin assets. But I doubt they have such a clear and strict definition for what qualifies as wrapped bitcoin and their information is paywalled.)

The leading site Bitcoin Treasuries (datasource, Bitbo) only tracks BitGo’s wrapped bitcoin, and it actually uses an outdated number (155,986 BTC, which it pulled from a Messari blog post). Messari’s figure was current as of January 31, 2024, but the post also links to a WBTC dashboard that states there is currently 129,167.83 BTC locked up in wrapped bitcoin custody. Bitcoin Layers gives a figure of 129,143.80 BTC for its own wrapped bitcoin tracking. 

Similarly, Timechain Index (which was deprecated as of last month) only reported outdated and incomplete metrics for Babylon and BTC that is bridged to a handful of L2s.

“Cross-chain” – an overlooked metric

Looking at all wrapped, bridged, or otherwise-custodied bitcoin for use on other chains, there’s now over 327,000 BTC locked up across the crypto ecosystem. It’s actually quite difficult to arrive at the number due to the broad definition of what constitutes “wrapped,” “staked,” and “bridged” bitcoin, not to mention the problem of asset rehypothecation. Our friends over at Bitcoin Layers have painstakingly worked to define and track these flows, but it is still an inexact science.

Some tracking sites use the term “DeFi’ and “wrapped” assets, but I think a broader term should be “cross-chain” since this bitcoin serves as a collateral asset for networks and contracts across the crypto ecosystem.

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Cross-chain bitcoin matched private corporate treasuries

Breaking down the most-accurate data from Bitcoin Layers with the existing tracking data from BitBo, we see that cross-chain Bitcoin accounts for 10% of all bitcoin locked for treasury purposes. Private corporate treasuries that we know of, including behemoths such as Block.one and Tether, have some 368k BTC on their balance sheets vs. the 327k in cross-chain BTC.

Additionally, the rate at which traders are locking up cross-chain bitcoin appears to be increasing at a faster rate than other groups. Cross-chain lock-ups increased 50% in the past year (233k to 327k), whereas private company holdings only increased 13%. Of course, private companies are not required to disclose their bitcoin holdings publicly so we don’t have the complete number – it could be, and likely is, larger.

Where do we go from here?

Bitcoin is clearly the asset-du-jour for many different groups. Whether you are a baby boomer wanting to diversify your retirement account with gold 2.0 or you are a hot new Cosmos chain looking to reduce the unstaking time of your validators, Bitcoin is clearly the asset you want.

This could have broad implications as we may be underestimating the number of bitcoin buyers for the entire crypto ecosystem. Let’s say you are a multi-chain maxi and you think crypto is going to 100s of trillions; this could be an early indication that value accrual may not happen along the “fat chain” path, where value accrues to your PoS token (proof-of-stake, not…well, you know). Instead bitcoin may become – if it isn’t already – the reserve asset for chains beyond its own. 

Just some food for thought.

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