Bitcoin: boom of the Ordinals

For a few days now, there has been a real boom of Ordinals on the Bitcoin blockchain. 

This is not the only boom happening in the crypto markets, as demonstrated by the recent case of Bonk, and this suggests that it is mainly the general context that is causing them at the moment. 

The boom of Ordinals

The Ordinals had the biggest boom in May, when they were launched. 

I am a kind of NFT on the Bitcoin blockchain, enabled by the use of so-called inscriptions.

At the time of launch, they were the cause of the spike in Bitcoin blockchain fees, going from $2.5 to $30 in the span of about ten days in early May. 

According to fee data, the current boom could be even greater, as the average transaction fees have skyrocketed to over $37, but this could also be due to the fact that the market value of BTC paid as fees is higher. 

According to the data from Dune, the daily number of new Ordinals created is not higher, for example, than what it was in September. And yesterday’s peak fees are in line with those in May.

At this point, it really makes you think that the current boom seems greater than the one in May only because today the market value of BTC is higher. 

This boom has been going on since the beginning of the month, so it is still longer than the one in May. 

For example, a few days ago an Ordinal created on the Bitcoin blockchain at a cost of about $1 was then resold for $40,000.

The euphoria in the markets

If we combine this data with that of the recent Bonk boom, or with the current one of ACE, the picture that emerges is that of a probable excess of euphoria in the crypto markets.

To be honest, when it comes to Bitcoin, such excess does not seem to exist, as the Crypto Fear & Greed Index has not exceeded 75 in recent days, and yesterday it even dropped to 65. Generally, when there is an excess of euphoria, this index hovers at levels above 80. 

Both things, namely the excessive euphoria in the crypto markets and the lack of excessive euphoria in Bitcoin, are quite curious at this time. 

The price of Bitcoin in the last two months has risen by 54%, with a peak of +65%, and it is quite strange that this has happened without a real excess of enthusiasm. 

In fact, this excess has spilled over elsewhere, especially in this month of December since the price of BTC stopped growing. Probably the level of enthusiasm was not enough to generate excesses on BTC, but it is enough to generate excesses elsewhere. 

The increase in fees on the Bitcoin network

The boom of Ordinals is causing quite a few problems for those who want to carry out transactions on the Bitcoin blockchain. 

It should be remembered that not many people are yet using Lightning Network to send BTC, despite the fact that it completely and fundamentally solves the problem of fees by simply not writing transactions on the blockchain. 

Still at the end of October, the average fees for on-chain Bitcoin transactions were less than $1.5, but on November 9th, they rose above $15. After dropping below $6 at the end of November, they skyrocketed to $27 about ten days ago, and then yesterday to $37. 

Now almost all the latest mined blocks allow miners to earn more than 2 BTC in fees each, with some even allowing them to earn more in fees alone than they do with the 6.25 BTC reward. 

For example, block 821,485, mined on December 16th, allowed AntPool to earn a whopping 7.3 BTC in fees in addition to the 6.25 BTC reward. In total, 13.565 BTC earned for mining a single block, equivalent to over half a million dollars.

Yesterday the median fee for a single transaction was $22, slightly lower than the $25 on Saturday, December 16th. These are numbers that should make it clear how important it would be to use LN for transactions of limited amounts, since with LN the costs are far below $1. 

The success of the Ordinals

Since most of the Ordinals are actually composed of texts written on the Bitcoin blockchain, it is very difficult to identify what could be the reason for their success. 

The hypothesis is that the boom is mainly due to speculation, as it occurred simultaneously with other speculative booms in the crypto markets. 

In short, it could be a temporary mini-bubble similar to the one in May but longer. 

Moreover, in May the crypto market was definitely sleepier than it is now, and this could be enough to justify a longer duration. 

If, as it seems plausible, it is only a mini-bubble then it is likely to run out more or less soon, and this could be favored by a possible retracement of Bitcoin. 

However, it is not at all certain that this retracement will actually occur, and this could also prolong the existence of this mini-bubble.