The Wrapped Bitcoin Boom: Fueling the Next Crypto Bull Run (And Crash?)

Imagine if there was a single factor that could predict whether a major altcoin like Ethereum (ETH), Solana (SOL), or Sui (SUI) would pump. A factor that could even forecast price surges for other altcoins in their ecosystems. In the last crypto bull market, this very factor propelled ETH and many Ethereum-based altcoins to massive all-time highs. And in this cycle, it could do the same for SOL, SUI, and even Bitcoin (BTC). The kicker? This factor is making a comeback, and it’s about to shake up the market once again.

So what is this powerful force? DeFi leverage—specifically, borrowing against Bitcoin in decentralized finance (DeFi). While it may not seem significant at first glance, this mechanism has played a critical role in every crypto bull market’s rise and fall. And if history is any indication, we need to start paying close attention now.

How Wrapped Bitcoin Fuels Altcoin Growth

During bull markets, crypto whales often borrow stablecoins against their crypto holdings to buy altcoins. Historically, Ethereum whales would use ETH as collateral in DeFi protocols to borrow stablecoins (usually USDC), which they would then use to invest in Ethereum-based altcoins. As ETH’s price increased, so did borrowing activity and investment in Ethereum’s ecosystem.

But Bitcoin has always been seen as the best form of collateral in crypto. It’s the least volatile, the most liquid, and the safest asset in the space. The only problem? Bitcoin doesn’t natively support smart contracts, making it difficult to integrate into DeFi. That changed in January 2019 when BitGo and a group of DeFi protocols introduced Wrapped Bitcoin (WBTC) on Ethereum.

Wrapping Bitcoin involves locking BTC on the Bitcoin blockchain and minting an equivalent amount of WBTC on another blockchain—Ethereum, in this case. In theory, WBTC can be redeemed for real BTC by burning the equivalent amount of tokens. Despite early adoption challenges, WBTC saw explosive growth during the 2020 DeFi boom, and by mid-2021, 1% of Bitcoin’s total supply was wrapped on Ethereum.

The success of WBTC led to the creation of alternative wrapped Bitcoin solutions like RenBTC and later, centralized lending platforms like Celsius. These platforms allowed users to borrow against their BTC holdings, fueling even more leverage and speculation—until the excessive leverage contributed to their eventual collapse.

The Next Evolution of Wrapped Bitcoin

Fast forward to today, and the game has changed yet again. Bitcoin has become an even better form of collateral, thanks to the launch of spot Bitcoin ETFs and associated financial instruments. At the same time, exchanges like Coinbase have begun launching their own wrapped Bitcoin protocols, making it easier than ever for users to mint and redeem wrapped BTC across multiple blockchains.

This is a big deal because it makes BTC-backed borrowing in DeFi significantly more accessible. As we saw in the last cycle, large amounts of BTC could be locked into wrapped Bitcoin protocols, restricting supply and driving up prices. With better infrastructure, improved accessibility, and increasing demand, we could see a surge in wrapped Bitcoin usage that dwarfs what happened in 2020.

Which Altcoins Will Benefit Most?

To understand which altcoins stand to gain from the wrapped Bitcoin boom, we need to look at the blockchains currently supporting wrapped Bitcoin protocols:

• WBTC: The largest wrapped Bitcoin token, with over 140,000 WBTC minted, mostly on Ethereum. This means ETH and Ethereum-based altcoins will be the primary beneficiaries.
• Coinbase’s CB-BTC: Since launching in September, CB-BTC has rapidly grown to become the second-largest wrapped Bitcoin token, with around 18,000 CB-BTC minted on Ethereum, Base, and Solana. While it’s too early to tell exactly how CB-BTC will impact the market, Base and Solana-based altcoins could see significant growth.
• Threshold Network’s tBTC: A decentralized wrapped Bitcoin solution with over 5,000 tBTC in circulation, primarily on Ethereum. Unlike WBTC and CB-BTC, tBTC is designed for broader cross-chain functionality, meaning it could benefit multiple ecosystems, including Cosmos, Aptos, and Sui.

The bottom line? Ethereum, Solana, and their respective altcoin ecosystems are likely to experience major inflows from BTC-backed borrowing. However, newer blockchain networks that integrate wrapped Bitcoin protocols could also benefit as the trend expands.

Could Wrapped Bitcoin Trigger the Next Crypto Crash?

While wrapped Bitcoin is set to fuel a market boom, it also brings significant risks—namely, excessive leverage. Every major crypto crash in history has been triggered by excessive leverage, and this cycle will likely be no different.

As BTC’s price rises, more traders will borrow against their wrapped Bitcoin to buy altcoins. At some point, however, the borrowing will stop—either because altcoins start dropping or BTC itself takes a hit. When this happens, we could see mass liquidations of wrapped BTC collateral, leading to cascading sell-offs across multiple blockchains.

Here’s where things get dangerous: wrapped Bitcoin isn’t native to any blockchain except Bitcoin itself. That means liquidity on DeFi platforms could dry up quickly, causing massive price swings. Imagine a scenario where $100 million worth of CB-BTC collateral is liquidated, but only $50 million in market depth exists to absorb the sell-off. The result? A potential liquidity crisis similar to what we saw with FTX in 2022.

If centralized exchanges and DeFi platforms aren’t prepared for this scenario, it could spark a market-wide panic—potentially dragging down not just crypto but parts of the traditional financial system as well.

Final Thoughts

The wrapped Bitcoin boom is here, and it’s going to have a massive impact on the crypto market. On the way up, we could see a surge in altcoin prices, especially in the Ethereum and Solana ecosystems. On the way down, we could see a wave of liquidations that trigger the next big crypto crash.

While no one can predict exactly how things will play out, one thing is clear: wrapped Bitcoin will be a driving force in this cycle. If you’re in the market, it’s time to pay attention.

Got thoughts on the wrapped Bitcoin boom? Let’s discuss in the comments!