5 min readSoon hours after Donald Trump’s presidential inauguration at the White House, the DeFi (decentralized finance) project World Liberty Financial - one of his crypto ventures - purchased significant amounts of cryptocurrencies. Notably, $47 million worth of wBTC was acquired, followed by another purchase of 95 tokens (roughly $20 million) of the same asset on January 24th, according to the data firm Arkham Intelligence. Those acquisitions led many media and observers, including the firm itself or this crypto media founder, to claim that Donald Trump’s company had acquired Bitcoin. Crypto is complex, however oversimplified narratives can mislead less knowledgeable investors into risky decisions. That’s why it is important to explain why wBTC is not Bitcoin.
What does wBTC mean?
wBTC is the ticker of “wrapped Bitcoin”: a tokenized version of Bitcoin designed for use within the Ethereum ecosystem. Launched in 2019, wBTC allows Bitcoin to operate on Ethereum’s blockchain. Bitcoin and Ethereum are distinct blockchains with incompatible technologies—for example, you cannot send Bitcoin to an Ethereum address because the formats are fundamentally different. Yet, Bitcoin, as the most well-known digital asset with the most liquidity, is very coveted but its technical limitations prevent it from being used natively in Ethereum’s DeFi ecosystem. DeFi platforms, powered by Turing-complete smart contracts, allow for decentralized lending, borrowing, and derivatives trading. To bridge this gap, members of the Ethereum DeFi community and the custodian BitGo created wBTC, which operates as an ERC-20 token (Ethereum’s standard for fungible tokens).
How does wBTC work?
To transfer Bitcoin onto Ethereum, a custodian—BitGo, in this case—locks the Bitcoin and issues an equivalent amount of wBTC tokens. When a user wants to retrieve the original Bitcoin, the ERC-20 token is burned, and the Bitcoin is released.
As an ERC-20 token, wBTC can be used like any other Ethereum asset. It can serve as collateral for loans, be lent to earn yields on platforms like MakerDAO, Compound, AAVE, or Morpho, or be swapped for native Ethereum tokens like ETH, USDT, or USDC.
Limited use of wBTC
While wBTC enables new use cases for Bitcoin and adds liquidity to Ethereum, it remains underutilized by DeFi users.
As of January 24th, 2025, only about 3,680 addresses hold a non-zero balance of wBTC, according to Glassnode.
Since its peak of May 2022, its supply has dropped from 283,000 tokens to roughly 123,000. Meanwhile, its market cap has only increased by 34.6%—from $9.8 billion to $13.24 billion—according to Dune Analytics.
What are the limitations of wBTC?
wBTC comes with certain risks, primarily tied to its reliance on third-party custodians like BitGo (now linked with Tron founder Justin Sun’s firm Bit Global). While BitGo has a solid reputation since its inception in 2013, it still represents a potential point of failure. Issues with the custodian could destabilize wBTC’s issuance or redemption mechanisms.
Additionally, while wBTC governance is distributed across a DAO involving respected crypto organizations like BitGo, Kyber Network, Gnosis, MakerDAO, and Ren, problems within the DAO could compromise the token’s stability.
As an ERC-20 token, wBTC also depends on Ethereum’s network. Changes in Ethereum’s consensus mechanism or vulnerabilities in the wBTC smart contract pose risks. Although they seem far-fetched, those uncertainties are unacceptable for many long-time Bitcoin holders attached to the native stability of the ‘digital gold’. Furthermore, wBTC transactions require gas fees paid in ETH, which can become expensive during periods of high Ethereum network usage.
Are there other versions of tokenized Bitcoin?
wBTC is the most popular tokenized version of Bitcoin but not the first or only one. For instance, as soon as 2013-14, the now-forgotten BitShares blockchain had a tokenized version of Bitcoin, named BitBTC, though the network’s deprecation highlights the risks of relying on such bridged assets.
Other versions of tokenized Bitcoin include the recently launched cbBTC, Coinbase’s own tokenized Bitcoin product.
Is there an investment case?
In a purely investment context, the acquisition of wrapped or tokenized Bitcoin does not make much sense, as holding the original asset comes with fewer risks.
However, wBTC has opened up new possibilities for Bitcoin in the DeFi ecosystem, even though its adoption remains limited. As more tokenized Bitcoin solutions emerge, it remains uncertain whether wBTC will maintain its position as the dominant choice. Nonetheless, the existence of tokenized Bitcoin, in any form, is likely to persist, especially with the increase of crypto adoption by institutions or the demand from other blockchains in need of their version of Bitcoin. Although potential upgrades to Bitcoin’s native layer-1 in the future could reduce the need for tokenized assets like wBTC.
