Bitcoin Ecosystem: Frenzy, Frustration, and the Dawn of Recovery

Author: Luke, Mars Finance

From Peak to Valley: A Year of Contrasting Extremes

Looking back to the spring of 2024, the Bitcoin ecosystem was like a dazzling supernova. The rise of the BRC-20 token standard, fueled by the inscription craze of the Ordinals protocol, ignited market fervor. The innovation of inscriptions—embedding unique data directly into the smallest unit of Bitcoin, "satoshi"—sent on-chain activities skyrocketing. Tokens like ORDI soared in price, with some assets doubling or even tripling in market value within just a few weeks. Projects like SATS and RATS also joined the celebration, bringing astonishing returns. On-chain transaction volumes surged, gas fees skyrocketed, and miner revenues soared. It was a golden moment, where innovation, speculation, and enthusiasm intertwined, seemingly heralding a new era for Bitcoin—not just as digital gold, but as a vibrant decentralized finance (DeFi) platform.

However, the excitement in the crypto world often fades like a fleeting flower. By mid-2024, the narrative of the Bitcoin ecosystem had plummeted from heaven to the depths. Tokens that once soared—like ORDI and SATS—saw their prices crash, retreating over 95% from their peaks. On-chain activity sharply declined, inscription trading volumes continued to drop, and the pace of new project launches slowed to a near halt. Community sentiment shifted from exuberance to gloom, with long-awaited airdrops disappointing, and the Runes protocol—an anticipated evolution of BRC-20—quickly cooled after a brief surge. By early 2025, the Bitcoin ecosystem was no longer the darling of the market but had become a "contrarian indicator" of sector rotation, symbolizing unfulfilled potential and investor fatigue.

Amidst this downturn, the Bitcoin ecosystem suddenly experienced a revival in the past week. ORDI surged nearly 97% in six days, PUPS became the rebound leader with a 127% increase, and SATS nearly doubled from its low this year, with an 87% rise. Tokens like NALS, BANK, and BounceBit (BB) saw weekly gains between 40% and 80%, while mainstream assets in BRC-20 and Runes collectively welcomed a recovery. On-chain capital inflows significantly increased, and market attention once again focused on this long-dormant area. Is this a brief flash of light or the starting point of a larger revival? To answer this question, we need to analyze the driving forces behind the rebound, the structural dilemmas of the ecosystem, and the conditions necessary for a lasting resurgence.

The Logic of the Rebound: Emotional Recovery and Capital Rotation

Market Style Shift: The Counterattack of the Forgotten

The crypto market is known for its cyclical nature, and this rebound in the Bitcoin ecosystem perfectly aligns with the classic logic of "low expectation reversal." After a year of continuous selling, the valuations of most tokens in the ecosystem have been compressed to extremes. Leading assets like ORDI and SATS have dropped over 90% from their highs, regarded by the market as "orphaned without trading logic." However, it is often in this atmosphere of despair that the spark of a rebound quietly ignites.

The catalyst for this wave of market activity largely stems from a shift in market style. Ethereum rebounded 50% amid significant community skepticism, validating the explosive potential of undervalued assets during emotional reversals. This phenomenon encouraged capital to flow into more undervalued and deeply corrected sectors, with the Bitcoin ecosystem—long neglected by the market—becoming a natural target for rotation. Due to the low liquidity of these tokens and their historically low valuations, even a small amount of buying can trigger dramatic price fluctuations, creating remarkable short-term elasticity.

The Frenzy of Speculation: The Allure of Marginal Assets

Another driving force behind the rebound is the inherent speculative nature of the crypto market. Compared to the stable performance of blue-chip assets like Bitcoin and Ethereum, niche tokens like PUPS and BSSB attract short-term capital with their high volatility. These projects often rely on niche protocols or meme narratives, lacking solid fundamentals, yet their high-risk, high-reward characteristics make them a paradise for speculators. The recent 127% surge of PUPS exemplifies this: an obscure token quickly became the focus of capital pursuit, ignited by market sentiment. This phenomenon is not new in the crypto market, but it explains why the Bitcoin ecosystem—home to many low-market-cap tokens—can quickly become a hotbed for speculation.

The Recovery of On-Chain Data

On-chain data also supports the rebound. After months of decline, trading volumes for BRC-20 and Runes tokens show signs of stabilization, with capital inflows into related protocols increasing. Although far from recovering to the peak levels of 2024, this trend indicates that some investors are tentatively re-entering the market, possibly attracted by the potential of undervalued assets. As barometers of the ecosystem, ORDI and SATS's leading performance further bolstered market confidence, driving broader capital back into the ecosystem.

The Unshakeable Shadow: Structural Dilemmas of the Ecosystem

Despite the recent surge being exhilarating, a calm observation reveals that it resembles more of an emotion-driven recovery rather than a signal of fundamental reversal. The deep-seated issues within the Bitcoin ecosystem still exist, limiting its potential for sustained performance.

Stagnation of Development Progress

The core dilemma of the Bitcoin ecosystem lies in its slow progress. Since the Ordinals protocol sparked the inscription craze in 2023, the vision of "Bitcoin-native DeFi" has been enticing, but actual delivery has been lackluster. While the BRC-20 standard generated excitement, its rough design and low trading efficiency led to network congestion without delivering any real functional breakthroughs. The Runes protocol, launched in April 2024, was once highly anticipated, capturing over 60% of Bitcoin's on-chain transactions, but its complex distribution mechanism and poor user experience caused its popularity to fade rapidly, with its current transaction share reduced to single digits.

Developer activity—a key indicator of ecosystem health—is also declining. The update frequency of several core projects on GitHub has significantly decreased, and the vibrancy of the technical community is far behind that of Ethereum or Solana. Bitcoin's architecture, centered on security and simplicity, limits its programmability, deterring developers accustomed to Ethereum's flexibility. Without a strong developer base, the ecosystem struggles to transition from a speculative playground to a functional platform.

Protocol Fragmentation and Waning Popularity

The Bitcoin ecosystem also faces the challenge of protocol fragmentation. Competing standards like BRC-20, Runes, Ordinals, and emerging BRC-2.0 and Alkanes dilute liquidity and user attention. This fragmentation weakens the ecosystem's network effects and hinders long-term growth. The launch of Runes briefly ignited the market, but its complexity and inefficiency led to user attrition. The upcoming BRC-2.0, set to launch on the testnet in Q1 2025, promises to bring smart contract functionality, but its actual effectiveness remains to be seen.

Community sentiment is similarly low. Poor airdrop results and slow project progress have shifted many investors from excitement to disappointment. Discussions about ORDI and SATS on social media have turned from bullish to cautious or even indifferent. The differences in token preferences between Eastern and Western markets—ORDI being more popular in Asia, while DOG and others have more appeal in the West—further exacerbate community fragmentation, weakening cohesion.

The Unresolved Mystery of Layer 2

Bitcoin's Layer 2 (L2) solutions are seen as key to expanding DeFi functionality, but their performance has been lackluster. Over the past year, more than 25 L2 and sidechain projects have emerged, but most remain idle, lacking mature products and user bases. Projects like BitcoinOS and B² Network have locked in $110 million of DeFi assets in 2024 through zero-knowledge proof technology, but they still lack competitiveness compared to Ethereum's Rollup ecosystem. If L2 cannot provide compelling use cases, they may become hollow shells, further undermining market confidence.

The Path Ahead: Hopes and Challenges for Revival

Can the rebound of the Bitcoin ecosystem evolve into a long-term trend? The answer depends on whether it can address structural issues and fulfill long-term promises. Here are the key elements for achieving revival.

Product Implementation: From Vision to Reality

The ecosystem's biggest shortcoming is the lack of practical products. To achieve the goal of "Bitcoin-native DeFi," developers need to build functional applications such as decentralized exchanges, yield farming protocols, or stablecoin systems that can compete with the Ethereum ecosystem. The smart contract explorations of BitcoinOS and the simplification of token creation in BRC-2.0 are potential breakthroughs. However, these projects must transition from concept to actual implementation to attract users and capital.

Revitalizing Developer Engagement

Reigniting developer enthusiasm is crucial. Bitcoin's simplicity is both an advantage and a limitation; advancements in zero-knowledge proofs and Rollup technology indicate that scalability and programmability are not mutually exclusive. Funding programs for projects like Lightchain Protocol AI may incentivize developers to return, but they need to be paired with better tools and documentation to lower the barriers to entry. An active developer community can not only drive innovation but also convey the ecosystem's long-term potential to the market.

Community Cohesion and Narrative Reshaping

The Bitcoin ecosystem needs a unified narrative to bring the community together. The current competition between BRC-20 and Runes, along with the division between Eastern and Western markets, weakens its appeal. A narrative focusing on Bitcoin as a secure foundation for DeFi and real-world assets (RWA) may reignite enthusiasm. Community-driven meme activities—such as the resurgence of Dogecoin—can also help, but they need to be backed by substantive progress to avoid becoming hollow hype.

Seizing Market Cycles

The crypto market is driven by sentiment, and the Bitcoin ecosystem's undervaluation gives it explosive potential in a bull market. The recent rebound indicates that capital is willing to bet on high-risk assets. If Bitcoin's price continues to rise due to institutional adoption and ETF inflows, ecosystem tokens may benefit from the "halo effect." The continuation of upward momentum in the coming weeks will be crucial; whether skeptics can be turned into believers depends on the persistence of market momentum.