Most investors associate minting non-fungible tokens (NFTs) with blockchain protocols like Solana and Ethereum. However, with the launch of its Ordinals protocol in January of 2023, Bitcoin (BTC 5.08%) is technically capable of hosting NFTs, too, and in recent months, it's become an NFT hot spot.
Does this development make the king of cryptocurrencies worth buying, considering that it's substantially trailing the significant inroads made into this field by newer cryptocurrencies? Below, I'll examine the situation carefully to figure it out.
CRYPTO: BTC
Key Data Points
Is this a capability with niche appeal or the potential for a permanent impact?
Let me clarify some terminology about how NFTs work on Bitcoin so you can understand the measurements you'll need to determine how significant a catalyst this might be.
In short, the Ordinals protocol means it's possible to make "inscriptions," which are imprints of metadata processed by the blockchain, onto each satoshi -- each 0.00000001 of a Bitcoin. Adding metadata to these satoshis means they can be used as a representation of the ownership of other assets, like NFTs. In practice, Bitcoin can now be used for minting NFTs that live on its blockchain -- but in theory, other assets could be tracked there, as well.
As of Jan. 1, approximately 2.7 million inscriptions were being committed to Bitcoin's chain per month, and around 2.5 million of those inscriptions were mints. As of Feb. 4, a total of 77.4 million inscriptions had been made onto the Bitcoin blockchain.
That's no small amount of activity. Each of those transactions generates fees that increase the volume on the network and, in the long run, could drive demand for more coins by stimulating the entire ecosystem of projects.
Institutional investors are watching the impact of higher NFT minting activity closely as it could pave the way for regulators to legalize the process more explicitly, which would have major positive implications for the coin's price over the long term. That would make the increasing adoption of using the Ordinals protocol to mint NFTs a major element of the investment thesis for buying Bitcoin.
But the real new development that makes these NFTs a potential major catalyst in the near term is that in mid-January, a collection of NFTs minted on the chain sold for $6.2 million, evoking the heights of the 2021 bull market for Ethereum and its wild NFT valuations. Big transactions like that don't occur unless investors have serious confidence that real items of value are being exchanged. Because the transaction is inscribed onto the blockchain, it's effectively a record of ownership that's permanent, which could come in handy down the line for certain kinds of investments.
Does that really justify buying Bitcoin right now?
Don't let this be a serious influence on your thesis (yet)
As interesting as it may be to consider the idea of owning all sorts of assets via proofs held on the Bitcoin blockchain, and as exciting as a big NFT sale may be, the Ordinals protocol is not in and of itself a new reason to invest in Bitcoin with any kind of urgency.
Most people aren't even thinking about tracking ownership via the blockchain right now. And they're not interested in minting or buying or selling images or videos via NFTs. If they were, they'd probably prefer to do it on the blockchains of Solana or Ethereum, rather than on Bitcoin, as transactions on those chains are processed faster, more cheaply, and in most cases, with an easier user interface and ecosystem of software tools to perform the required actions.
Put simply, the time is not right for NFT minting capabilities to drive major appreciation in Bitcoin's price. The best time for that dynamic to play out was in 2021, before the Ordinals protocol existed. The next best time may be in the future -- or perhaps never, considering that other chains have significant leads over Bitcoin in this domain.
There are still quite a few reasons to buy Bitcoin, like its status as an inflation hedge, as well as its distributed nature and resilience against certain economic phenomena. If you want to invest in it, go ahead -- it's an asset that's worth owning. But at least for now, don't count the NFT-minting ability or big NFT sales as reasons to buy Bitcoin, as they haven't proven to be relevant in the bigger picture yet.
