1) Market Cap
Ethereum (ETH) and Bitcoin (BTC) have taken a back seat this past month in market cap growth to leading alts like SHIB.
The Ethereum hashrate is at a fresh record high as the Chinese miners who relocated to other jurisdictions in July-August have come back online, resuming production. Ethereum’s hashrate saw a dramatic July pullback after topping in late June at roughly double the prior high in 2018, due to the escalated crackdown since June on Chinese miners and exchanges by the Chinese government.
3) Network Fees
Ethereum network fees remained above that of Bitcoin between much of September 2020-September 2021, reflecting rising Ethereum congestion due to the rapidly growing use of stablecoins and DeFi apps (operating on Ethereum). The relatively high Ethereum fees and the slow Ethereum network will be less a drag on DeFi’s growth with the August 4th network implementation of EIP (Ethereum Improvement Proposal) 1559 which algorithmically sets a base transaction fee (attempting to keep the fee fair and prevent it from soaring prohibitively high).
4) Wallet Addresses
Since March 2019, the growth in ETH wallet addresses has tracked fairly closely, BTC wallet address growth.
The crypto universe is nearing USD 2.5T in market cap as of Oct 17th. The crypto industry retail market is gaining momentum once again as hinted by Coinbase (COIN) going through a bottoming phase after its 50% plus drop from its opening day peak April 14th to its lowest level May 19th. Watch for retail FOMO to return through Robinhood metrics now that Robinhood is publicly listed and obliged to disclose more details around client crypto trading activity. In Q1, Robinhood had 9.5M clients trading crypto, a more than 5.5x increase from Q4.
Market sentiment recovered after Musk hinted that Tesla owns 42k BTC, valued at roughly USD 1.47B as of Jun 30, 2021. With a large portion of the dirtier coal-fuelled China-based crypto mining having migrated to cleaner sources in other jurisdictions in June and July, fresh crypto investments can be expected from corporates up until now on the sidelines due to BTC’s energy consumption. Sentiment began rebounding with Musk mentioning in his Jul 22nd YouTube stream with Ark Invest’s Cathie Wood and Jack Dorsey, that Tesla may soon begin accepting BTC for payment again, and that SpaceX already holds BTC. The Chinese government crackdown on crypto mining and crypto exchanges in China appears to be easing.
The DeFi market cap is just above USD 137B as of Oct 17th (as per CoinGecko), with DeFi representing above 5% of the entire crypto market and 30% of Ethereum’s market cap.
A key factor behind the surge in activity on decentralized exchanges (DEXs) like Uniswap is the ability to participate on DeFi project tokens before they list on centralized exchanges. For DeFi to continue to grow, DeFi projects’ll need to become more user-friendly for the mainstream masses and collaborate more with the more popular centralized exchange (CEX) partners in packaging and distribution. Regulators will eventually sweep in as well on this space, as much of what’s available to trade in DeFi are arguably securities.
With the crypto market cap nearing USD 2.5T, Coinbase’s volumes remain just above that of the leading decentralized exchange Uniswap’s.
The majority of DeFi activity has been in lending and DEXs.
Stablecoins provide an onramp and offramp for those looking to enter or exit the crypto ecosystem in jurisdictions like China where crypto cannot be converted directly into fiat apart from through the grey practice of dealing with OTC brokers. Often with new Tether (USDT) issuances, Bitcoin sees a surge in price shortly after through fresh fiat entering the crypto ecosystem and looking for long exposure in Bitcoin. Crypto market volatility also tends to result in exiting of Alt Coins into USDT.
Liquidity on USDT is higher than with newer, competing USD-backed, independently audited stable coins (e.g. USDC, PAX, TUSD), due not in small part to USDT enjoying first mover advantage. Aside from USDT benefiting from network effects resulting from having the longest established history, USDT also has crosschain compatibility. As of Oct 17th, 2021, USDT continues its slide in its stablecoin market share towards 55%, still benefiting from the superior liquidity that comes from being listed on more crypto exchanges. USDT’s trading volume as of Oct 10th was more than USD 61B, dwarfing the USD 31B of Bitcoin. In August 2020, USDT’s daily value transferred of USD 3.55B exceeded Paypal’s equivalent metric of USD 2.94B (if pro-rating its Q2 figure). Bitfinex and Tether were fined an additional USD 42.5M in mid October for fully backing Tether only one-quarter of a period between 2016-2018, for comingling of corporate funds with reserve funds and for holding reserve funds in non-cash equivalent products. This follows the settlement in late February 2021 of USD 18.5M with the New York Attorney General, where Bitfinex was accused of not fully backing at times its Tether issuance with US Dollars. With Bitfinex/Tether’s legal overhang behind it, and Bitfinex’s first ever disclosure of its reserve mix in mid May, any concerns over USDT usage (other than in New York state) being barred by US government authorities (and its impact on BTC liquidity) have dramatically lifted.
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