Data & Insights Recap - November 13, 2023

Exchange traded FUNds

Source: Yahoo Finance

• It seems as though exchange traded funds have been top of mind since BlackRock filed its spot bitcoin ETF application in June.
  • As a brief timeline of what has gone down in the ETF space from the middle of 2023 until now: many other firms like Fidelity and VanEck applied for a spot bitcoin ETF, Grayscale won its legal battle with the Securities and Exchange Commission over the conversion of its Grayscale Bitcoin Trust into a spot ETF and ether futures ETFs began trading in early October. 
  • The ether futures ETFs were not getting much hype after launch, with volumes across Bitwise’s AETH, Proshares’ EETH, and VanEck’s EFUT only surpassing $1 million in three days in its first month of trading. These volumes were comparatively low to Proshares’s BITO bitcoin futures ETF (which dominates the market), as the one ticker alone tends to put up $50 million a day regardless, with volumes spiking to over $500 million in the past month due to market movements. 
• But the ETF timeline reignited this week when BlackRock filed for a spot ether ETF last Thursday. They are not the first firm to do this, but much like in the case of bitcoin, the power that the asset management giant wields tends to make people more optimistic for approval than not. 
  • BlackRock has an ETF approval record of 575-1, and they have ample resources to fight any challenges on the road to reaching a listing.
  • And one thing a spot ether ETF has going for it now is the combination of the SEC’s approval of ether futures ETFs and the decision in the Grayscale lawsuit. At the crux of the ruling was that it made no sense to not allow spot ether ETFs over fears of manipulation and fraud in the market when futures track the price of spot. Even though most bitcoin futures in the U.S. trade on the CFTC-regulated CME and most bitcoin spot trades on Coinbase, which is currently being sued by SEC for being an unregistered securities exchange, it doesn’t change the fact that a change in bitcoin’s price on Coinbase will end up being reflected in the futures contract on CME. So it seems the SEC won’t be able to reject the ETF on the basis of an unregulated spot market like they tried to do in the past for bitcoin. 
  • However, there might be other reasons why the SEC is trying to reject the ETF. ETH’s status as a commodity or a security is highly contentious, which could potentially play into a denial. 
• But with BlackRock now contending for the ether spot ETF, optimism is at a high that the product could hit the market.
  • The news pushed ETH to over $2,000 and pushed ether futures ETFs to their highest day of volume ever on November 9th at $2.39 million, almost doubling the previous peak. Volumes were almost as high the next day, too, showing sustained interest not yet seen before for these products.

It's fun to trade

Source: The Block

• Many crypto assets started to feel a rebound in mid-October, which translated into many other metrics starting to bounce back from lows that were faced earlier in the year.
  • For ether in particular, due to the BlackRock ETF application, last week was a jump in the turnaround as its value jumped over 7% in one day. 
• The excitement surrounding ether, and in turn the Ethereum blockchain, saw the amount of ETH burned climb to over 5,000 on November 9th, the highest amount since May when the network experienced a bout of memecoin mania. 
  • As a reminder, ever since EIP-1559 was introduced in August 2021, which modified the fee market on the blockchain and added a burn mechanism that would destroy a bit of ETH in every transaction.
  • More ETH being burned is indicative of more activity on the network, and after the spike in May, the amount of ETH being burned was on the decline, as we talked about a few weeks ago. For 10 days in a row in October, less than 1,000 ETH was burned, marking yearly lows. 
  • The rise began in mid-October when the broader crypto rally but spiked on Thursday due to the ETF filing.
• Another metric that has also pushed to levels not seen since around 6 months ago is the number of DEX traders on the Ethereum network. 
  • There were over 70,000 DEX traders on November 10th, and the number has been increasing since hitting a low of around 43,000 in October. The recent rise, unsurprisingly, has been matched with the rise in the amount of ETH burned.
  • It is also unsurprising that we would see DEX traders rebound in current conditions. When prices are rising essentially across the board, trading is likely to pick up and no one wants to be sidelined from the rally. 
• So it looks like the recent sentiment reversal is helping bolster some on-chain activity on Ethereum, which was previously showing signs of a very bearish drought. 

Back to reality

Source: rwa.xyz

• One of the hottest trends in crypto as of late seems to be real-world assets or RWA. 
  • Obviously, not just real-world assets on their own, but rather tokenized on-chain as a means to help facilitate easier and faster transfers and settlement and also bring some of the more traditional assets into the decentralized world. 
  • DeFiLlama identifies RWA as the category with the sixth largest total value locked, behind staking, lending protocols, and DEXs, but already ahead of yield and derivatives platforms.
  • There are many assets that can be tokenized: real estate, art, commodities, but one of the major tokenized assets that has been growing in popularity is U.S. treasuries. 
• Treasuries had a crazy year, with yields on some longer-term U.S. debt reaching levels not seen for decades, driven up by investors thinking that the Federal Reserve would continue to raise interest rates as U.S. economic data continued to come in hot despite efforts to tamp down inflation. The yield on 10-year treasury notes hit 5% last month, the highest since 2007. 
  • But after a credit crisis that marred crypto in 2022, brought on partially by unsustainably high yields, the safer yield generated from holding treasuries (considered a safe-haven asset) was looking very attractive. 
  • To hedge against risk in crypto while keeping your assets on a chain, stablecoins were always an option, but with tokenized treasuries, you get the added bonus of a “risk-free” yield.
  • And since the start of the year, we’ve seen demand for these tokenized treasuries grow, with the market cap across products offering them more than sextupling, growing from $133.8 million to $770 million. Asset manager Franklin Templeton is the largest on-chain treasury holder, accounting for almost 42% of the market cap with their Franklin OnChain U.S. Government Money Fund.
• It will be interesting to see how the world of RWA evolves, with many traditional finance players also seeing the benefits. Larry Fink, CEO of BlackRock, said he believes “the next generation for markets and next generation for securities will be tokenization of securities.” 

Nothing out of the Ordinal

Source: CryptoSlam

• Bitcoin saw the 7-day moving average of transactions on the network drop to the lowest it had been since January in mid-October, very shortly after the average hit a new all time high in September. 
  • Both the rise and fall of the transaction count were linked to Ordinals or Bitcoin NFTs. The basis for the idea comes from looking at satoshis in the order they were minted to give a non-fungible aspect to an otherwise fungible currency. 
  • On September 15th, there were over 440,000 Ordinals inscriptions, which are basically NFT mints for Bitcoin, as they attach metadata to a specific satoshi. That spike in inscriptions corresponded with the peak in bitcoin transactions (the 7-day moving average actually peaked on the 20th, but the unaveraged data hit a high on the 15th, as well). 
  • But then the number of inscriptions fell below 50,000 for 20 consecutive days in October, which sent bitcoin transactions sinking. Inscriptions were hitting lows not seen since April before the protocol took off in May. 
  • It’s not exactly clear what caused such a stark decline, but inscriptions were able to bounce back in November, with the 4th marking the second-highest day of Ordinals inscriptions ever. 
• Beyond inscriptions, trading volumes of the Ordinals themselves also picked up recently. Weekly NFT volume on Bitcoin came in at $72.14 million the week of November 5th, which was only lower than the week of May 7th during the peak Ordinals hype. And so far, for the week of November 12th, Bitcoin has put up more NFT volume than any other chain.
  • Part of the resurgence seems to be driven by Binance listing ORDI, which is the first-ever BRC-20 token. BRC-20 tokens stem from the same concept of Ordinals and rely on satoshi ordering to allow for token issuance on the Bitcoin network. 
  • The listing seemed to rejuvenate a lot of the hype that came along with the new features of Bitcoin and helped ORDI’s price more than double last week. Other BRC-20 tokens seem to also be picking up in trading, with CryptoSlam reporting the likes of $SATS, $SHIB, $RATS, and $BTCS, all doing over $1 million in daily volume at least once last week. 

Escaping perpetuity 

Source: The Block, Coinglass

• Last week, we talked about how futures open interest performance is lagging behind that of options. But recently, there has been a dramatic shift in the futures landscape. 
  • Open interest for bitcoin futures on the CFTC-regulated Chicago Mercantile Exchange overtook open interest on Binance, the world’s largest crypto exchange. 
  • It’s a signal of more institutional interest in crypto and also an indicator that crypto interest in the U.S., where it faces some of its toughest regulatory battles, is still prevalent. 
  • One thing that differs on CME compared to other crypto futures exchanges is that it does not offer perpetual contracts, which dominate the market on most exchanges. The fact that futures ETF managers have to rotate out contracts due to expiration is part of the criticism against them, as it contributes to part of the divergence in price tracking.
• According to the Commitment of Traders Report published by the CFTC, there were 127 “large open interest holders” of bitcoin futures contracts on CME the week of October 31st, a new high. A large open interest holder is defined as a trader holding at least 25 bitcoin contracts open (a value worth 125 BTC since each contract is 5 bitcoin). 
  • Traders in the COT are defined by 4 categories: hedge fund, asset manager, non-reported, and other. Each group of traders has seen their long open interest grow in recent weeks, with asset managers, in particular, taking on long position levels not seen since March 2022. 
  • Hedge funds are by far the most short on bitcoin, with short OI at $2.05 billion, more than 8 times as large as the next largest category of “other” with only $235 million. Asset managers, which had their largest short position since January 2022 at the start of September, have dropped short exposure to $0, according to the filing. Hedge funds are also the only one of the groups to be net short on bitcoin, and asset managers have the largest net positive position. 
  • Across all the groups, open interest seems to be just slightly net long on CME, as hedge funds are $1.22 billion net short compared to asset managers being $1.59 billion net long.
• To be fair, Binance is still way ahead of CME in terms of trading volumes of the contracts. In October, bitcoin futures traded $383.24 billion on Binance compared to just $57.17 billion on CME. But this does make sense, given that with perpetual contracts, there is no expiration date that will automatically close out your position for you. Holders essentially have to trade perpetuals to close out of their position, which helps drive volumes up.