1) Market Cap
Ethereum (ETH) and Bitcoin (BTC) have taken a back seat this past month in market cap growth to leading alts like CRO.
The Ethereum hashrate is at a fresh record high as the Chinese miners who relocated to other jurisdictions (especially to the United States and Kazakhstan) 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 average fees have greatly exceed that of Bitcoin snice August 2021, reflecting rising Ethereum congestion due to the rapidly growing use of stablecoins, DeFi apps (operating on Ethereum) and NFTs. 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 May 2021, the number of active ETH wallet addresses has tracked fairly closely that of BTC.
The crypto universe is just above USD 2.6T in market cap as of Nov 21st. Sentiment remains strong with more Bitcoin futures ETFs being approved and listed following the ProShares BTCUSD futures ETF launch on Oct 19th. The ProShares listing was the biggest ETF debut (in terms of being the fastest ETF to reach USD 1 billion in traded value and AUM) in history. The crypto industry retail market is gaining momentum once again as hinted by Coinbase (COIN) having bounced roughly 1/3rd off its bottom after its 50% plus drop from its opening day peak April 14th to its lowest level May 19th. Retail FOMO can be seen with Robinhood’s recently announced crypto wallet already having reached 1 million users in its waitlist. In Q1, Robinhood had 9.5M clients trading crypto, a more than 5.5x increase from Q4.
The DeFi market cap is just above USD 153B as of Nov 21st (as per CoinGecko), with DeFi representing above 5% of the entire crypto market and just shy of 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.
Coinbase’s volumes have been roughly twice in recent months 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 Nov 21st, 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 Nov 21st was more than USD 70B, dwarfing the USD 27B 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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