Thematic Spotlight: Bitcoin Might Be Getting Smarter

Bitcoin’s status as a mere digital store of value could be changing. Momentum is building in the Bitcoin community for a change in Bitcoin’s programming, specifically the addition of a new snippet of code called OP_CAT.1 Implementing OP_CAT would allow developers to build smart contracts and other DeFi applications directly on the blockchain, partly bridging the ‘programming gap’ between Bitcoin and Ethereum. If approved by the majority of the Bitcoin community, the change would be the biggest update since ‘Taproot’ in 2021 which improved system security and transaction speeds.2

Why does the implementation of OP_CAT matter? Ever since their inception, Bitcoin and Ethereum have had differing identities and goals. Developed and launched in 2009, the Bitcoin blockchain was created to provide a decentralised, digital currency that operates without the need for intermediaries like banks and reduces reliance on traditional financial systems.3 Ethereum on the other hand, was created to extend blockchain technology by enabling decentralised applications (dApps) and smart contracts. Given their differing purposes, the two cryptocurrencies have always had different investment cases – Bitcoin as a storage of value (akin to digital gold), and Ethereum as a call option on the success of blockchain technologies. Bitcoin potentially becoming a ‘smarter’ blockchain has significant implications on how investors may position themselves between Bitcoin and Ethereum. While Bitcoin is unlikely to lose its status as a storage of value, Ethereum could potentially face competition from the largest cryptocurrency in the industry.

Still, this change is yet to come to fruition. Bitcoin has long been known to be a slow-moving, ossified asset, with proposed changes on the blockchain often taking months, if not years, to reach consensus and deployment. Ethereum’s deep ecosystem of dApps and long-standing status as the leading ‘smart’ blockchain is also unlikely to disappear with a single change of Bitcoin’s programming. One thing is for sure, interest in the industry has skyrocketed in 2024 – Bitcoin has rallied 56% YTD on US’s approval for spot Bitcoin ETFs and Ethereum has returned 30% on enthusiasm toward a possible spot Ethereum ETF approval.4

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Forecasts are not guaranteed and undue reliance should not be placed on them. This information is based on views held by Global X as at 04/06/2024. Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit nor guarantee against a loss.

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This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is not intended to be individual or personalised investment or tax advice and should not be used for trading purposes. Please consult a financial advisor or tax professional for more information regarding your investment and/or tax situation.