Welcome to BitcoinFi Weekly. We cover where people use their BTC and what is changing in the Bitcoin world.

This week, we're looking at the slow death of Bitcoin's volatility and who might be to blame for that. Spoiler: it isn't a bad thing. Yet another yieldy BTC-wrapper complex has emerged, this time on Sonic. Arbitrum made waves with its trustless Bitcoin bridge, powered by Fiamma Labs. Binance funding goes negative, which is an interesting indicator if we are still in a bull market.

Here’s this week’s rundown:

💀 Feature Piece: Volatility is Dead, Long Live Volatility

⚠️ Yieldy-BTC Wrappers Are Out of Control

📉 Funding Goes Negative: Bull Market Over?

❌ The Umpteenth "Trustless" Bitcoin Bridge Launches

Everything that Bitcoin does is dramatic. Reactions are always extreme, and this past week’s volatility has demonstrated that.

The actions of the White House are profoundly impacting crypto markets. Many felt the Trump victory was a positive outcome for the industry, finally freeing us from the vice grip of unfair regulatory practices. Instead, we’ve been dealt a perpetual flip-flop of headlines regarding tariffs and the crypto strategic reserve.

The reserve, in particular, sparked quite a fiery reaction from the industry, as Trump originally announced a reserve that included XRP, ADA, and SOL—complete shitcoins in the minds of many. Perhaps the only group that enjoyed the intensity of markets over the weekend were volatility traders:

While this weekend was an exception, Bitcoin’s volatility is fleeting. On one hand, it is expected. As Bitcoin’s market cap expands, volatility must compress. No asset can sustain 100%+ annualized volatility rates with a market cap over $2 trillion.

But just because it is expected doesn’t mean it will be predictable. Bitcoin’s volatility has been in an aggressive downtrend since 2018. The onboarding of institutional capital via ETFs has created the beginnings of a “perpetual bid” that has positively impacted the stock market for years. As access to retirement plans, and general investing awareness and competence increases, it creates a higher and higher floor for the valuation of S&P500 companies.

Since 2015, the S&P500 has only traded below a 20x P/E ratio three times — all of them being short wicks, before continuing the trend into the mid-to-high twenties. Source.

The same could be expected for Bitcoin, as Blackrock recently advised people to take a 1-2% Bitcoin allocation in their portfolio. Although we are in the early stages, this passive bid dampens volatility, which has already been suppressed through the growth of crypto markets globally.

One way or another, Bitcoin's volatility is shrinking, which means there will likely no longer be rampant opportunities to scoop up coins at steep discounts like in previous cycles.

Would you like some rehypothecation with that?

It seems as if we have learned nothing from previous implosions of hyper-leveraged and rehypothecated yield wrappers.

The latest flavor comes from Sonic (fka Fantom), which touts themselves as the fastest EVM Layer-1 blockchain. The chain has grown to 670m in TVL after starting the year at just $30m. A key contributor to this growth has been Avalon, a lending market for BTC on EVM chains.

Sonic’s announcement of their new yieldy-BTC:

Rings is teaming up with Lombard to introduce scBTC — a fully backed, yield-bearing Bitcoin asset on Sonic collateralized by LBTC, eBTC, and wBTC.

DeFi yields for BTC wrappers have been a reliable strategy since DeFi’s inception, namely through WBTC. However, Sonic’s tokenized Bitcoin represents other versions of tokenized Bitcoins, which simply introduces too much custodial risk into the system. We’ve seen the story play out before: one of the tokenized BTC assets backing scBTC will become unbacked, and users holding scBTC will have to take a haircut, get bailed out by the foundation’s ecosystem fund, or cross their fingers for some other buyer to step in.

It’s not just Sonic... NEAR Protocol, building the “blockchain for AI”, recently added their natively supported nBTC wrapper. It’s not much, but they are finally seeing some DeFi activity happening with their flavor of Bitcoin. It’s become quite apparent that every chain needs to have a BTC strategy to have a successful DeFi ecosystem. All of these Ethereum L2s, or EVM-compatible L1s are understanding that demand for Bitcoin is only increasing, and they’re trying to create the BitcoinFi ecosystems that can support that financial activity.

Binance Funding Rate Goes Negative

Bitcoin funding rate is an important market gauge, especially for those trading on a shorter time horizon. In bullish trends and sentiment, we find positive funding rates, where people pay to get long exposure to BTC. As sentiment shifts, the market cools, or demand otherwise dries up, funding flips negative, where people taking short Bitcoin positions have to pay up to those taking the long exposure. Funding rates have only been negative for two periods since October 2023. One of them was during the summer chop of 2024, where we briefly wicked down below $50k, and one of them came last week during the heightened volatility week.

Now, relying on the funding rate to create a directional bias on where the price is going to go is a horrible idea. There is no way to predict whether funding will continue to be negative due to a broader market correction. But it is a sign that optimism and froth are waning, even if it is temporary.

Arbitrum, The Ethereum L2, Solved Bitcoin’s Bridging Problem

Not really.

This week, Arbitrum decided to join in on an announcement from Fiamma Labs. Arbitrum called the implementation a “trustless and secure” way to bridge BTC to Arbitrum. We originally covered Fiamma in September when they first began protocol testing. It might just be me, but we shouldn’t be throwing the word “trustless” around in 2025 when it comes to Bitcoin bridging. Too many people have gotten burned in the past from these types of baseless claims.

The semantics continued on X from Bitcoin Layers providing their opinion. The most valuable takeaway for us:

And this thread ignores the fact that many BitVM bridges will launch with “training wheels” - meaning a centralized admin will have upgrade permissions over the bridge.
In practice, no one has been able to create an overcollateralized two-way peg. All live two-way pegs are honest majority federations. BitVM bridges offer us an alternative. That is why it’s so exciting.

The facts are that BitVM is still purely theoretical, and anything claiming otherwise is simply incorrect. Sure, the semantics aren’t going to decide what succeeds and what doesn’t. However, baseless claims, especially from a brand as trusted as Arbitrum, are dangerous.

Thank you for tuning in to this week’s BitcoinFi Weekly. See you next week.

If there's a topic you’d like us to cover or have questions, reach out at [email protected].