Data & Insights Recap - May 29, 2023

Truly astounding

Source: The Block

• TrueUSD, or TUSD, has emerged as the second most dominant quote asset for spot trading volume across Binance, Poloniex, Bitfinex, Huobi, OKX, Bittrex, Coinbase, Kraken, and Bitstamp.
  • We talked about this chart before in early April, when TUSD was just entering the top 5 on the heels of Binance adding back fees on bitcoin pairs, but leaving BTC/TUSD feeless, as well as shifting some fee benefits that previously existed for BUSD over to TUSD instead.
  • The end of April saw pairs with TUSD as the quote asset making up 8.8% of volume, coming in behind USDT, USD, and BUSD-denominated pairs. It marked the first-month TUSD’s quote asset market share had exceeded 1%. 
• Now we are closing in on the end of May and TUSD has managed to climb more ranks, on pace to account for 13% of quote asset volume, ahead of USD and BUSD.
  • On Binance, the share of spot volume coming from pairs with BUSD either as the base or quote asset has dropped to 11.72% so far this month, on track to be the lowest level since November 2020. 
  • On the other hand, TUSD pairs are set to account for 20% of Binance spot trading volume in May, the highest level ever and also the first-month TUSD will account for more volume than Binance’s previous stablecoin golden child. 
• TUSD’s emergence, while primarily eating into BUSD’s declining share, has also taken a chunk of what once belonged to the most dominant quote asset, USDT. 
  • USDT held  69% of quote asset volume in March and now only accounts for 62.12% so far in May. 
  • We have seen what was once the highest-traded pair on Binance, BTC/USDT, take a drop in volumes after fees were added back to the pair, allowing BTC/TUSD to take the spotlight.

A (Deri)bit of open interest

Source: The Block

• Roughly $2.3 billion in bitcoin options open interest and $1.3 billion of ether options open interest was due to expire this past Friday across the May 26th monthly contracts. 
  • Deribit options contracts are European, meaning they can only be exercised on the expiration date, and they are exercised automatically on the exchange, although users can close a position early if they so desire. 
  • These large expiration dates can sometimes cause a bit of a market disruption. Traders who will likely end up in the money on their options can unwind their hedges against the option to maximize profits, for example.
• Despite the large value of open interest set to expire, the chief commercial officer of Deribt, Luke Strijers, says market impact was not a cause for concern since volatility was so low. 
  • Low volatility can help traders be more confident in their decisions ahead of their options’ expiration, leading to less frenetic trading on the day of. Low volatility tends to depress the prices of options contracts themselves, so people who bought options early on, expecting to be able to sell them for a profit prior to expiry, might have also been left holding their bag. 
  • Bitcoin’s 30-day annualized volatility did hit 31.48% this weekend, a far cry from the over 70% we were seeing at the start of April. As a reminder, the 30-day annualized volatility is calculated by taking the standard deviation of the previous 30 days’ price percentage changes and then multiplying it by the square root of 365 to annualize the rate. 
  • What is maybe more interesting is that Strijers points out that the last time we saw volatility this low was January, and then we saw it rise shortly after. Arthur Hayes, the former CEO of BitMEX, is also expecting a volatile 2023. With even more open interest already on deck for options that expire on June 30th, it’ll be interesting to see if the volatility landscape changes by then. However, bitcoin’s implied volatility based on options data has been trending downward since the end of March, indicating large price movements in the future might be less likely.

Core elation

Source: CryptoCompare

• While the correlations between the price of bitcoin and gold, the Nasdaq composite, and the S&P 500 tend to be somewhat similar given the similar movements between the three assets that are strongholds in traditional finance investing. 
  • The one that is most likely to diverge from the group is gold, which exists as its own asset, whereas the S&P 500 and the Nasdaq composite both track baskets of stocks and have some overlap. 
  • However, recently, we have seen a three-way split amidst a heated AI stock boom and a looming debt crisis in the United States.
• On May 8th, the 30-day correlation in price movement between gold, the Nasdaq composite, and the S&P 500 were 0.43, 0.45, and 0.35, respectively, indicating that in the 30 days leading up to the 8th, the price changes in bitcoin had a moderate positive correlation to all three of these assets.
  • Then, come May 26th, the correlations diverged to 0.48, -0.3, and -0.63 in the same order as before. 
  • The sum of the absolute values of the pairwise differences between these correlations comes out to over 2.2, the highest it's been since April 2022. 
  • The bad news for crypto investors? Futures on an ounce of gold were priced at $2,055 on May 4th and were valued at $1,963 on Friday, so gold is not exactly the asset you want to have a positive correlation to right now. While the recent drop off is a bit unprecedented given gold is being viewed as an ultra-safe asset while U.S. Treasuries look a bit risky right now, gold is up over 10% for the past 6 months.
  • The tech-heavy Nasdaq composite, on the other hand, is up over 6% for the last month as many quarterly earnings focused on AI advancements that made investors happy. NVIDIA, in particular, had a strong performance this week after their outlook was strengthened by sales of their chips for artificial intelligence usage.
• In something to maybe look forward to for bitcoin buyers, JPMorgan analysts have said that the price of gold at around $2,000 an ounce implies a price of bitcoin of $45,000.
  • It is also worth noting that the last time the assets being tracked against bitcoin were traded was Friday since today is a market holiday, and BTC had a bit of a rally this weekend, so it will be interesting to see how the correlations will change when the market opens.

Fee-rocious

Source: The Block

• It has come quite a few times in this newsletter that the Bitcoin network is having somewhat of a renaissance.
  • The 14-year-old blockchain saw its transaction count reach new highs this month, pushing its average transaction fee to levels not seen since May 2021.
  • This all came on the heels of a surge in popularity in Ordinals, a protocol allowing NFT issuance on Bitcoin, and the recently developed BRC-20 token standard. 
  • Bitcoin has since emerged as a dominant NFT blockchain and is second only to Ethereum in weekly NFT volume. 
• But new trends and new highs seem to happen in crypto all the time, although I suppose a bit less frequently for a blockchain that has previously been considered pretty stagnant. Something that really puts into perspective the recent shift is the monthly percentage of miner revenue coming from transaction fees.
  • Bitcoin miners have two sources of revenue; the first is the block reward. If you are the miner that successfully mines the next block, you currently receive a 6.25 BTC reward. The miner also receives the fees for the transactions that were included in the block. 
  • The block reward is the more sizable chunk of the prize, given average transaction fees in terms of bitcoin had been below 0.0001 BTC from August 2021 to April 2023, and they’ve stayed below 0.0003 BTC in the recent surge.
  • This past month, though, on the heels of transaction fees rising, we saw a dramatic change in the share of miner profits that came from these fees, on track to be 14.32%, the highest since April 2021’s 14.49%. 
  • Between July 2021 and May 2023, the percentage hit a high of 3.11%, so it marks a significant divergence from the norm, 4.6 times higher than the previous 22-month high. 
  • We have really not seen transaction fees making up a double-digit percentage of miner revenue since the early 2021 bull market, and it’s a metric that’s remained virtually unchanged for almost 2 years, only to be shaken up by the latest Bitcoin trend.

Curve your enthusiasm

Source: The Block

• While May is on pace to be a record for the ratio of DEX to CEX spot volumes, it is on track to be quite a low month of volume for Curve, the exchange known for efficient token trading of pegged assets.
  • Part of the reason for the ratio surge is the dropoff in spot volumes we’ve seen on centralized exchanges, which seems partially related to Binance’s decline in high trading volume pairs after reinstating fees and also to the pull back from crypto of some major trading firms.
  • However, part of the rise in the ratio has come from the ability of decentralized exchanges to quickly add memecoins for trading, which drove much of the narrative we’ve seen this month. Centralized exchanges typically have some due diligence requirements and need people to actually agree to list a token, leading to a more time-consuming process. DEXs had an edge here in being able to offer what users wanted to trade.
  • However, this main draw of DEXs this month was largely missed out on by Curve, which has only put up just over $2.5 billion in volume so far, on track to be the lowest amount since December 2020. Curve’s focus on mostly stablecoins and ETH and BTC pegged assets has largely left it outside of the memecoin hype. 
  • This is unlike March, where the USDC depeg has Curve’s volume almost quadrupling its February numbers.
  • Curve’s market share of DEX volume is on pace to be lower than 5% for the first time ever. While its volume is low for May so far, it's comparable to April’s, the main driver of the decline in share is due to PancakeSwap’s rise in dominance, which we talked about last week. Curve does still remain the third largest DEX by volume, even with the recent downturn.