Data & Insights Recap - October 23, 2023

It's bitcoin's world and we're just living in it

Source: CoinGecko

• It seems fitting that the Bitcoin whitepaper was published on October 31st, 2008, given that in recent years, bitcoin always seems to have a strong month for its birthday, gaining the moniker Uptober. 
  • And Uptover 2023 seems like it might end on a high note, particularly for the world’s largest digital asset. 
  • Bitcoin’s dominance (the share of bitcoin’s market cap of the total crypto market cap) climbed to 49.85% on October 21st, the highest it has been since April 2021, over two years ago.
  • A week ago, on October 16th, bitcoin was sitting below $27,000 and has surged to almost $31,000 at the time of writing, up over 9% for the past 7 days. 
• And while we are in a bear market, there is still reason to believe that bitcoin would outperform its crypto competitors. 
  • For one, a spot bitcoin ETF seems like it will be approved any day now, and if the “dress rehearsal” for the approval last Monday was any indication of how the asset will react, it seems like we are in for some upward momentum. The digital assets financial services platform Matrixport sees bitcoin potentially reaching $56,000 when BlackRock’s ETF is approved and CryptoQuant sees an approval adding $1 trillion to crypto’s market cap.
  • In terms of when we will actually see the approval, all we know is that the Securities and Exchange Commission chair said the agency was “doing work” on multiple spot bitcoin ETF filings and, notably, the agency did not appeal the Grayscale ruling, making it seem like they are more on board with an ETF hitting the market. Both Grayscale’s chief legal officer and analysts at JPMorgan seem to agree that an approval is coming.
  • And on a broad scale, one of the major reasons for the current bear market (beyond the typical crypto bear market case citing the fallouts from 2022) is global uncertainty. Countries across the globe are struggling to tame inflation; China, in particular, is having a real estate crisis, the U.S. government seems to look more partisan and less functional each week, and geopolitical tensions in recent weeks have escalated. A lot of these risks have investors pulling out of certain assets, which did seem to impact the bitcoin market at the start, like at the end of August when bitcoin was showing a strong positive correlation to the S&P 500 as people exited their positions in both. But bitcoin’s 30-day correlation to the S&P 500 reached -0.68 last week, indicative of bitcoin’s recent growth and the stock index’s continued downfall. In an ideological sense, bitcoin does serve as a hedge to some of the uncertainty on the world stage as a currency not tied to any government or county, which could be helping it look like a more attractive investment in recent weeks.

Inter-fee-ace

Source: The Block

• Uniswap announced last week that it would begin to charge a 0.15% fee on certain token swaps done through its web interface and wallet. 
  • There are, of course, other ways to trade on Uniswap. You can use a DEX aggregator, other UIs, or direct smart contract interactions. But the Uniswap-provided interfaces do seem to be some of the most user-friendly ways to utilize the exchange.
  • The fee also only impacts swaps of ETH, USDC, WETH, USDT, DAI, WBTC, agEUR, GUSD, LUSD, EUROC and XSGD, though those are some of the most traded assets on Uniswap. The USDC/ETH pool on Uniswap v3 on Ethereum is the most dominant pool by 24 hour volume, with volumes more than 3 times as large as the second largest pool.
• This interface fee is a new change instituted on Tuesday, October 17th, but Uniswap has already seen pretty significant revenues from the new installment.
  • In just the 6 days, from October 17th to October 22nd, Uniswap has raked in $177,970 in interface fees on Ethereum, which shakes out to $10.8 million annually (very roughly based on the limited data we have so far).  
  • The interface fee comes in addition to a 0.3% liquidity pool fee that is split between liquidity providers. There is no current protocol fee, but a 0.05% could be tacked on in the future after a governance vote. 
  • Hayden Adams, the founder of Uniswap, boasted that their interface fee is “one of the lowest in the industry” on X when the fee was first introduced, but it did start a little drama amongst some DEXs and DEX aggregators over who offers the best-priced user experience. 
  • But it seems the fee isn’t deterring too many users from engaging with the interface, as we still see several thousand dollars of fees being generated each day.
• This hasn’t been the only controversy plaguing Uniswap in recent weeks after attention garnered around a hook proposed for Uniswap v4 that enabled Know-Your-Customer (KYC) checks. The hooks are one of the main new features coming to the exchange’s newest version, allowing third-party developers to add new features to liquidity pools. 
  • While it’s unclear which, if any, liquidity pools on Uniswap v4 will adopt the KYC hook, it didn’t stop people from having opinions about it online. It sparked a debate over the use of KYC in DeFi platforms, with many thinking it was antithetical to the permissionless ideals of the ecosystem.

More spot in your future

Source: The Block

• The 30-day moving average of the ratio between spot and futures has climbed to 0.16, the highest it's been since April. 
  • The ratio has been on an upward trend since hitting a low of 0.12 in August of this year. Leading into that low was a pretty strong downward trend that began at the start of 2021. 
  • Bitcoin has also seen a slight rise in its spot-to-futures ratio, picking up from 0.16 in April to over 0.2 now, but its decline only began in January of this year. 
  • Both rises indicate more activity piling into the spot market compared to futures. 
• There are a couple of features that futures offer differently than spot. For one, they can offer crypto exposure without needing to actually custody any assets. They also offer more leverage, allowing people to post limited collateral but gain much more exposure. 
  • Both spot and futures have been seeing an overall decline in volumes in the current market. But the slowdown seems a bit more prominent on the futures side, despite spot volumes in December dropping to the lowest they’ve been since October 2020. 
  • Futures might be looking less attractive as people look to take on less leverage in a more risk-averse environment, making spot look slightly more attractive. 
  • Ether, in particular, had some derivative action hype surrounding The Merge, which helped push the ratio lower. Up until recently, ether futures were one of the only ways to speculate on the price of ether, compared to bitcoin, which also had futures ETFs in the U.S. Now, with ether futures ETFs on the market, that could be pulling some traders out of the direct futures scene.

International Love

Source: The Block

• Some possibly great news for retail traders came this week with Coinbase launching their perpetual contracts to the broader audience of non-U.S. Coinbase Advanced traders.
  • Coinbase had been previously offering BTC, ETH, LTC, and XRP perpetuals on its Coinbase International exchange, but only to institutional investors who applied to trade.
  • The exchange was not putting up so much volume compared to the broader crypto futures market due to both its limited contract offerings and its exclusive client base. The exchange rarely exceeded $200 million in daily volume across all contracts, whereas popular contracts on Binance can sometimes put up $1 billion in daily volume alone. 
• The contracts offered to the Advanced users are the ones being offered on Coinbase International, but we have not seen any significant movement in volumes in these perpetuals.
  • The change is still fresh, with retail traders being allowed to jump into derivatives on October 18th, so it could take time for users to feel more comfortable entering into perpetual futures or possibly migrate from a different exchange to Coinbase.
  • Coinbase does bear one of the most positive reputations in the crypto market, being a publicly traded company in the U.S. and often regarded as one of the poster children for crypto compliance, so there’s a real chance they can tap into the retail trader interest with their leveraged futures despite only offering four contracts on a limited number of assets compared to other futures exchanges.
  • Volumes so far have been mild, staying below $160 million, but since almost half the days since launch were weekends (typically consisting of lower trading volumes), it's not really a fair assessment. The $159 million in volumes on October 20th was also relatively high, but the rise was not sustained.
  • Prior to adding the retail market, Coinbase International was showing steady, mild growth as it continued to onboard more institutional traders. The launch for all retail traders at once could allow for a quicker intake of new users, but the volumes are still yet to come. But as we talked about before, crypto futures interest does seem to be in a bit of a lull right now, which could also be hampering potential growth.

Rolling the DAI-ce

Source: The Block

• The 30-day moving average of DAI’s velocity on Ethereum shot up to 0.52 on October 21st, rising quickly from 0.32 on October 16th. It’s the highest the stablecoin’s velocity has been since December 2022.
  • As a reminder, a stablecoin’s velocity is defined as the daily on-chain volume of a stablecoin divided by its supply. 
  • For DAI, its velocity uptick seems driven by an increase in transfer volumes.
• On Ethereum, DAI put up $5.62 billion, $10.95 billion, and $8.39 billion in on-chain transfers on October 19th, 20th, and 21st, respectively. 
  • Daily on-chain volumes had not exceeded $5 billion since August 8th and October 20th marked the highest day in volume since March 11th, a day in which DAI’s volume spiked due to USDC’s depeg. (Many people tried to convert USDC into DAI as a means to get rid of the flailing stablecoin.) 
  • On October 20th and 21st, the average transfer amount was over $1.5 million, exceeding the average back in March, indicating that the spike in volumes now is driven by a few large transactions as opposed to many smaller ones.
  • While at first glance, this looks promising for DAI, a further look reveals that most of the volume is the product of highly complex MEV bot transactions. For instance, transaction 0xfb3 which technically generated over $500 million in DAI on-chain volume. The transaction relies on a flash loan, but within one transaction, 100 million DAI was minted, deposited on Aave, withdrawn from Aave, transferred from address to address, and then burned. It’s a similar story for transaction 0x350, too.
• So this uptick in transaction volume does not seem to be any organic growth for DAI, but rather an uptick in MEV bot activity.
  • However, DAI has been seeing organic growth in its supply lately due to the rise in the DAI savings rate, jumping to 8% in August. DAI depositors can earn 8% on funds parked at MakerDAO’s lending protocol, Spark (MakerDAO is also the issuer of DAI). 
  • DAI’s supply had been retreating due to the confidence hit in crypto-backed stablecoins in the wake of the collapse of UST, falling from 8.7 billion in May 2022 to 4.4 billion in August of this year. However, the attractive yield on DAI has caused more people to pile in, bringing the supply to 5.6 billion and helping revert some of the losses.