Data & Insights Recap - August 28, 2023

Friends till the end

Source: The Block, Dune Analytics

• The latest crypto craze seems to be centered around the new social platform friend.tech. The protocol allows users to buy keys (previously known as shares) of other users, which then lets them message whoever they invested in. 
  • With accounts on friend.tech being linked to X, it's no shocker that the crypto community took a liking to the project. Some of the most prominent voices on Crypto Twitter had their keys trading at a pretty penny as people wanted to buy in to both support and converse with their favorite creators. 
  • Even some more broadly known celebrities joined in, like NBA player Grayson Allen and Youtuber Faze Banks. 
  • The protocol is also built on a hyped-up network. We have talked a lot in the past month about Coinbase's new optimistic rollup solution, Base. It launched to the public this month and has already started dominating its much older competitors in terms of daily transactions. So, it is perhaps not surprising that we would see the breakout protocol of the summer be hosted on the breakout layer 2. 
  • Another factor contributing to the project's rapid growth could be the exclusivity of it - you need an invite code to create an account, so once people finally are able to enter the network everybody is talking about, they are all the more eager to dive in. There is also heavy anticipation of an airdrop with friend.tech already doing "Friday Points Airdrops" that people think might convert to a token in the future. 
  • Paradigm invested in a seed round for friend.tech, but the amount was not disclosed. 
• Friend.tech launched on August 10th, just over two weeks ago, and has already posted $4 million in profits and over 2.35 million transactions.
  • While peak activity on the protocol seemed to peak on Monday of last week, metrics still remain strong, with transactions staying above 50,000 and daily revenues also topping $80,000.
• But it has not been a completely clean ride for crypto's new darling protocol. In particular, the fact that accounts are connected to Twitter, it is possible to link wallet addresses to real-life users. It is a point of contention whether this is a feature or a bug, with many privacy focused individuals criticizing this model, especially since their website says a privacy policy is "Coming soon!" But friend.tech said the information was publicly available through their API, seemingly suggesting that this was expected behavior. 
  • Since you do have to link a social media account to gain access, many have suggested joining with a fresh wallet to avoid linking any revealing on-chain activity.

Showing no interest

Source: The Block

• The aggregated open interest for ether futures across exchanges dipped to $4.43 billion on August 27th, the lowest it has been since December 2022. 
  • One of the main reasons for the drop-off is the bout of liquidations that hit the crypto futures market amid a volatile trading period in the middle of the month. Open interest on ether futures dropped from $6.17 billion on August 17th to just $4.98 billion a day later, falling almost 20% after many positions were wiped out. 
  • Open interest in terms of ETH slid from 3.41 million to 2.95 million over the same day's time and continued dropping for two more days but has held between 2.65 and 2.75 million ETH since August 20th. 
  • The slight decline in ETH terms between August 18th and 20th is likely due to people closing out of futures positions amidst fears of future volatility after ETH fell from over $1,800 at the start of August 17th to below $1,600 that same day. 
  • So the recent low of $4.43 billion, which was reached after open interest in terms of ETH had begun stabilizing, seems to be a side effect of both price declines as well as people leaving the futures market. 
  • It is a similar story for BTC open interest, which slipped from $11.68 billion to $9.22 billion between the 17th and 18th, and it has continued dropping to $8.4 billion, but that is only the lowest it has been since March of this year.  
• The most recent drop-off sent us to lows for ETH futures open interest that we have not seen since the market was still fresh off the collapse of FTX at the end of last year. For the most part, the open interest of ETH was showing a slow but strong upward trend through most of this year. 
  • ETH futures volumes are also on pace to be the lowest since November 2020 this month, with just under $230 billion in volume put up so far. But considering that for roughly half the month, the price of ETH will be consistently lower than it has been in recent months, it's not too surprising to see a drop off in USD terms.

Circle of life

Source: The Block

• USDC's dominance on Ethereum has been dwindling. A stablecoin that earlier this year grabbed 45% of the stablecoin supply on the largest blockchain has now seen its share fall to under 33%. 
  • The supply of USDC has been struggling since it depegged back in March, around the time Silicon Valley Bank collapsed. Circle had $3.3 billion in USDC reserves with the fallen bank, which caused the dollar-pegged stablecoin to falter as fears about whether or not those funds could be recovered caused a mass selloff of the token. 
  • While all the funds on SVB were backstopped and USDC remained redeemable for $1, a lot of trust was broken over the handling of the situation. 
  • Before this all transpired, USDC was the Ethereum stablecoin. Its supply was larger than that of its competitors, despite USDT having the larger supply overall because of its hefty Tron share, and its monthly on-chain volumes would often account for over half of the total across all stablecoins. It was typically perceived to be safer than USDT due to Tether's past legal dramas and the fact that Circle was a U.S.-based company, whereas Tether was not. 
• This leaves the question of how can USDC return to greatness? USDC's supply has slipped from over 41 billion before the depeg to just 24 billion this month as burns continue to outpace mints. Is there a way for USDC to fully recover from one of the scariest events of crypto in 2023?
  • Circle and Coinbase seem to think so! Coinbase has taken an equity stake in the stablecoin issuer, with the exchange being "committed to the long-term success of the stablecoin ecosystem and USDC, specifically."
  • The move gave Circle full control of the stablecoin's issuance and governance, disbanding the Centre Consortium, which was originally created as a broader organization to help manage USDC. 
  • The two firms are now looking to expand the stablecoin to more jurisdictions, strike up more institutional deals, and open up USDC to more blockchains as a means to boost sentiment and supply.
  • The six new networks of focus are Polygon PoS, Base, Polkadot, NEAR, Optimism and Cosmos, with USDC becoming available sometime between September and October.
  • Coinbase, in its past few earnings, has boasted a lot of revenue from interest income on USDC holdings. It makes sense that Coinbase would want to commit to helping the stablecoin flourish, given how much USDC is able to contribute to its profits. 

Dollar in my profit

Source: Glassnode

• The percentage of supply of both bitcoin and ether that is in profit has slipped significantly over the last two weeks. On August 14th, 73% of BTC was in profit and so was 55.5% of ETH, as of yesterday, though, only 61.37% and 43.93% were in profit, respectively.
  • The percentage of supply in profit refers to the percentage of the outstanding tokens whose price is currently higher than the last time they were moved. 
  • The main driver of the shift is the price drop we saw just over a week ago across many crypto assets, as fears over higher interest rates in the U.S. and China's economic woes wracked the markets.
  • The drop for bitcoin wiped away a lot of the gains it posted after the spot bitcoin ETF filings, pushing it down to around $26,000 after it hovered near $30,000 for much of the summer. 
  • The recent price movements pushed the percentage of bitcoin in profit to the lowest levels since January of this year, and for ETH since November 2022, back when FTX collapsed. 
  • Both BTC and ETH are still up over 35% year-to-date, allowing for a sizable portion to be in profit. But the most recent drop-off is one of the sharpest we have seen this year, causing the corresponding drop-off in profitable assets. 
  • Prices have largely stabilized, as with the percentage of supply still in profit. For bitcoin, the percentage of supply in profit has stayed between 61% and 62% since August 22nd, and for ether, it has stayed between 46.5% and 43.5%.
    

It all comes down

Source: CryptoCompare

• For the first time since April, the 30-day correlations of bitcoin to the S&P 500, the Nasdaq Composite, and gold were all above 0.65 this week. 
  • For much of the summer, gold and stocks were moving in opposite directions. Inflation fears and an AI-fueled tech stock rally helped the two diverge in performance at different points. 
  • The divergence was unusual behavior, as bitcoin's correlations to all three tend to follow a similar pattern, but it seems now we are back in the more traditional structure.  
  • For many of the reasons we've talked about earlier in this newsletter, and in other weeks' editions, both crypto and traditional markets are sliding, which has caused all these assets to be moving together for the first time in about 4 months. The main global drivers are fears of another round (or rounds) of rate hikes in the U.S. and China's economic struggles in a post-pandemic world. 
  • It's also interesting how narrow the gap between the three correlations has become. On August 22nd, the 30-day correlation of bitcoin to the Nasdaq Composite was 0.71, 0.68 to the S&P 500, and 0.69 to gold, showing that the three comparison assets are moving in high correlation to each other. 
  • The correlations are all likely to go up as the selloff continues and the Federal Reserve's September meeting still looms. One thing, at least on bitcoin's side, that could buck the trend, either way, is a decision either on a spot bitcoin ETF application or in Grayscale's lawsuit against the SEC (which is tied to their attempt to convert their GBTC trust into an ETF). A positive or negative ruling could send bitcoin surging or send it lower at a faster rate, but still allowing it to break out of the traditional market slump.