Dormant Bitcoin Holds $5 Billion Potential in DeFi

Bitcoin, the leading cryptocurrency, is recognized as one of the world’s top 10 most valuable assets, primarily due to its role as a store of value. However, a significant portion of the Bitcoin supply remains dormant for extended periods, meaning the crypto market operates with only a fraction of the circulating supply each year. This idle Bitcoin holds enormous untapped financial potential.

Dormant Bitcoin, which has not been used for long periods, usually one or more years, is held in wallets that show no activity on the blockchain. These wallets remain inactive for various reasons, including long-term holding strategies or permanent loss due to negligence or the death of their users. The existence of this group implies that they could enter the market at any time, producing significant volatility in the price of Bitcoin. However, the question remains: why isn't this Bitcoin being utilized in DeFi right now?

If large quantities of dormant Bitcoin were to reactivate immediately, it could significantly affect the cryptocurrency market, creating a noticeable event. These movements could dramatically affect Bitcoin's price negatively due to potential selling pressure and influence the market with a significant increase in active circulating supply. However, if the reactivated Bitcoin is reintegrated into productive DeFi ecosystems rather than sold en masse, it could provide liquidity without destabilizing the market. With that amount of active liquidity, Bitcoin would not only be a “store of value” but also a productive asset with utility and application.

Integrating dormant Bitcoin into DeFi platforms offers interesting opportunities for both Bitcoin and decentralized finance. Bitcoin would encourage transactions and fees on the network to support miners. The total value locked (TVL) in DeFi would be tremendous compared to all the liquidity Bitcoin will add to the DeFi market. Advances like wrapped tokens and crosschain bridges have enabled Bitcoin holders to engage in flash loans, lending, staking, restaking, and yield farming on DeFi platforms. However, the current levels are insufficient and will not be the only way to take advantage of this enormous liquidity injection.

As of March 10, Bitcoin’s TVL in DeFi stood at over $5 billion. This represents only 6% of the TVL of all the current blockchains on the market. If Bitcoin became the new king of TVL in DeFi, it would only need to use some of the dormant Bitcoin mentioned above. In this scenario, Bitcoin will provide more stability to DeFi, as its holders, including institutional and long-term investors, are not prone to selling during market downturns. In addition, activating even a small fraction of currently idle Bitcoin could unlock billions of dollars of liquidity for decentralized finance applications.

Restaking is emerging as an innovative, engaging way to integrate Bitcoin into DeFi while maintaining its appeal as a conservative, secure investment vehicle. Restaking enables holders to stake their assets in decentralized protocols and earn passive income while contributing to the economic security of the network. This mechanism offers several benefits, including passive income with minimal risk and economic security, by supporting the development of new products. It parallels traditional finance by offering predictable returns while preserving capital, which appeals more to conventional investors. Restaking aligns with the conservative mindset typical among many Bitcoin holders, allowing them to participate in innovations within the DeFi space. Restaking is desirable for every Bitcoiner to obtain yield with their reserves.

Dormant Bitcoin is a vast, untapped reservoir within the Web3 ecosystem. By integrating Bitcoin into DeFi platforms today, individual investors and the broader ecosystem will significantly benefit from the increased stability, liquidity, and growth opportunities.