Since the beginning of the year, Cardano (ADA -1.86%) has been skyrocketing in value. Cardano is now up 60% for the year, and is largely keeping pace with Ethereum and Bitcoin (BTC 0.77%). A large part of Cardano's gain has been propelled by its growing success in the area of decentralized finance (DeFi), where Cardano was a non-player until early 2022.
It now looks like Cardano is starting to make a real push to become one of the leaders in the DeFi space. The latest DeFi innovation from Cardano is called Cardano Bitcoin, and as you might have guessed from its name, it combines the best qualities of Cardano and Bitcoin into a single crypto token. The project is still in its infancy, but the long-term potential impact of Cardano Bitcoin is staggering.
What is Cardano Bitcoin, and why does it matter?
Cardano Bitcoin is Cardano's version of Wrapped Bitcoin, which has existed on the Ethereum blockchain since January 2019. Cardano Bitcoin is a way for Bitcoin to be used on the Cardano blockchain for decentralized applications, just as Wrapped Bitcoin is a way for Bitcoin to be used on the Ethereum blockchain for decentralized applications.
Image source: Getty Images.
The logic behind Cardano Bitcoin is straightforward: Some people who hold Bitcoin may not want to convert it into Cardano, so you offer them the option to "wrap" the Bitcoin into the Cardano chain. This move makes it easy to use your Bitcoin assets on the Cardano blockchain. Then, when owners are finished using the Bitcoin on Cardano-powered services, they can simply "unwrap" it and get their original Bitcoin back again.
Theoretically, a "wrapped" token is pegged exactly 1:1 with the underlying token, so it's a very clever way to get Bitcoin onto other blockchains using smart contracts and a bit of financial alchemy. So, for example, the current spot price of "wrapped" Bitcoin for Ethereum is $27,362 and the current spot price of "regular" Bitcoin is $27,314.
This might seem like a lot of trouble for a lot of nothing, but the ability to work with a wrapped Bitcoin token is actually profound. It's potentially a huge DeFi win for Cardano. There is tremendous liquidity in Bitcoin, and giving Bitcoin investors the option of a wrapped token means that Cardano would be able to access all that liquidity. Put another way, it will make it very easy for anyone in the world who holds Bitcoin to participate in the Cardano ecosystem, which should increase Cardano's value.
DeFi as a growth catalyst
From my perspective, DeFi is the key to boosting the value of Cardano. That's because so many metrics used to value a blockchain are based on having a strong foundation in DeFi. The total value locked (TVL) metric, for example, can only increase in value if a blockchain is able to stimulate ecosystem participation in different DeFi protocols.
That's why I'm so excited about what's happening with Cardano and DeFi right now. Cardano has new decentralized exchanges. It has a new algorithmic stablecoin. The TVL metric for Cardano just reached a 10-month high. And now comes Cardano Bitcoin, which could be huge in terms of liquidity for Cardano DeFi.
The big caveat, of course, is that the launch of Cardano Bitcoin is still in its infancy. It was first announced in early March, and the first demo took place in mid-April. The demo was simple: It only transferred some Bitcoin to a blockchain wallet on the Cardano blockchain. But it got Charles Hoskinson, the founder of Cardano, very excited. Being able to integrate Bitcoin into the Cardano ecosystem would be huge.
Should you buy Cardano?
I remain bullish on Cardano, especially for the long term. With all of the new DeFi innovations coming out of Cardano these days, there is reason to be excited about the blockchain's long-term growth prospects. Right now, Cardano ranks only No. 18 among all blockchains in terms of TVL. I think it is quite possible Cardano could finally crack the top 10 in 2023 if the pace of DeFi growth continues. That's an achievement that could capture the attention of investors and catapult Cardano higher.
Right now, at a price of just $0.39 per token, Cardano seems remarkably undervalued. Even with a nice run in 2023, Cardano is still 87% below its all-time-high of $3.10 from September 2021. If you are looking for a promising but bargain-priced crypto to turbocharge your portfolio, look no further than Cardano.
