Ordinals Market Update for 10th May 2023: timing the BRC-20 Token top
BRC-20 Tokens are up like a rocket but when will they come down? Perhaps Bitcoin’s fee market is the crystal ball.
There’s a famous quote by Citigroup’s ex-CEO:
“When the music stops, in terms of liquidity, things will get complicated. But as long as the music is playing, you’ve got to get up and dance.“Chuck Prince
Prince was talking about leveraged buyouts, but it could apply just as well to the current BRC-20 party. Everyone’s having fun right now, sure, but the smart people are staying reasonably sober and making their plans for the after party. Keep that in mind when reading hype on social media.
Consider ordi. As a BRC-20 token with a $400 million market cap, the highest by roughly 16x, ordi is a good proxy for the market. From 2 cents on the 3rd of April, it’s now at either $31.20 on BRC-20.io, $20.55 on Ordspace.org, or $20.69 on Ord.io. Let’s call it $20 for a 1000x increase over 5 weeks, though ordi reached even higher. That’s a meteoric rise, even in crypto world.
Timing the Fall
At the time of writing, the BRC-20 market is turning red, with ordi down over 15%, new entrant at #2, VMPX, down 31% and most other top tokens also down by double digit percentages. But how to tell if this is just a dip or the end of the mania?
It seems to me that the fee market can clue us in. Fees have been elevated due to inscription activity arising directly from BRC-20 tokens. The leading marketplace, UniSat, requires a history of 20 inscriptions before granting trade access and this surely bulks up related transactions. Even more significantly, inscribers of hot new BRC-20 tokens are in a race to mint before supply is exhausted. This has greatly elevated recent fee levels:
Bitcoin fees over the past 3 months, courtesy of Mempool.Space. Note the top bands now starting to fade.
This data suggests that market appetite for transactions above 100 – 125 sats per virtual bye is diminishing. Note that demand is steady (as represented by sideways bands) at the 10 – 12 sats teal-colored level and below. From this, we can assume that the race to inscribe BRC-20 tokens is slowing, indicating demand may have peaked for now.
I’m not saying this is the turning point, more likely a pause until prominent new BRC-20 tokens are introduced and new marketplaces come online. Quite possibly, the listing of more BRC-20 tokens on centralized Chinese exchanges like Gate.io and OKX will add fuel to the fire. Binance may soon enter the market too, which would be pure jet fuel.
But for now, and in the absence of tools which allow us to analyze the total BRC-20 market in isolation, fees are pointing to a slackening in demand. What will the future hold? I believe the Gartner hype cycle points to the expected picture:
In greater detail, it seems BRC-20 Tokens are storming up the first slope, sitting around “Mass media hype begins.”
Of course, some of the details must be adjusted to better fit the nature of cryptocurrency.
Full Disclosure: the author holds no financial stake in any products or services mentioned above.