Data & Insights Recap - December 4, 2023

Major COINage

Source: Yahoo Finance

• We have talked a lot over the past few weeks about how 2023 is turning into what will probably go down as a pretty strong year for crypto assets (barring anything that happens in the next month).
  • But we have talked less about how investments that people treat as proxies to direct crypto exposure have been doing recently. 
  • When discussing why a spot bitcoin ETF is an exciting new product for the space compared to the futures ETFs that are available now, the underperformance of BITO (ProShares’ Bitcoin Strategy ETF) compared to BTC comes up. Year-to-date BTC is up almost 134%, whereas BITO is only up around 84%, mostly because of how managers of futures ETFs need to rotate the contracts they are holding as opposed to just handling the assets in perpetuity. So if you were an investor comfortable with holding bitcoin yourself, you should’ve just bought it instead of taking the ETF route. 
• But what about crypto stocks? While stocks of crypto companies or corporations that have crypto on their balance sheet are not meant to track the price of any particular asset, they do serve as a means for investors to gain exposure to the crypto industry without any of the potential hiccups associated with actually holding crypto.
  • MicroStrategy (MSTR) is up 155% over the past year, above bitcoin’s 129% return. MicroStrategy, while technically a business intelligence company, is more well known for being the largest corporate holder of BTC, with almost 175,000 bitcoin on its balance sheet. 
  • Coinbase (COIN) has also been on a tear recently. While 2023 did see the exchange slammed by a lawsuit from the SEC, the recent crypto rally (and broader risk-on macro environment) has bolstered the stock. In addition, the recent Binance settlement has been viewed as a positive for Coinbase as it both serves as a scar on one of its largest competitors and a call for Binance to be more compliant, which would force it to lose any advantages it was able to gain by skirting the rules. COIN has outperformed both MSTR and BTC for the past year, up almost 181%. COIN is currently priced around $130, the highest it's been since April 2022. 
  • Other crypto stocks are not doing as hot as BTC for the 1-year period, with Galaxy Digital up around 109%, just under bitcoin and Block Inc. (formerly Square) actually slightly down.
  • For public bitcoin mining companies it's a similar story, with the stocks for both BIT Digital and Riot Blockchain proving to be better bets than BTC, but all others underperforming comparatively. 
• This all goes to show that even the most devout crypto purists can possibly find better returns by diversifying into the crypto-adjacent investments market.

Arbitrum's edge comes back

Source: The Block

• 2023 has been a big year for Ethereum scaling solutions. At the start of the year, the world was essentially dominated by optimistic rollups, particularly Optimism and Arbitrum. While there was some hype for ZK rollups, their lack of EVM compatibility brought them limited adoption. 
  • And at the start of the year, Arbitrum didn’t even have its native token launched, so Optimism was pulling ranks. On January 1st of this year, Optimism was the most popular optimistic rollup, putting up the most transactions and paying the most gas to publish data on Ethereum that month, accounting for over 60% of fees paid.  
  • But a shift occurred when Arbitrum launched ARB, which helped propel it to be a more fierce competitor with Optimism and in fact, pushed it to become the more dominant protocol. From the end of January all the way through July, Aribtrum dominated on the transactions front and began to start paying more on-chain fees than Optimism. ARB officially launched in March of this year, but the hype around it and people hoping to get it on the airdrop helped drive Arbitrum’s activity before that. 
• March did not just mark the launch of ARB, it also marked the launch of zkSync Era, the first zkEVM to go public. While zkSync Era ushered in a new wave of other zkEVM solutions, it seemed to grab a certain first-mover advantage and became a very prominent layer 2 in 2023. Partially, this was due to airdrop speculations. While there is no zkSync Era token yet, the team behind the protocol suggested a token would be necessary to decentralize the sequencer at some point down the line. 
  • But since zkSync Era was EMV-compatible, it was also able to generate a vast ecosystem quite quickly. 
  • By June, zkSync Era was the layer 2 that was paying the most to publish data on the mainnet, a position it held until October. 
• Another protocol that emerged to cut into Arbitrum’s dominance was Base, the Coinbase-backed optimistic rollup that was unveiled this summer. 
  • But as we’ve talked about before, the Base hype seems to have died out a bit, as it is now the optimistic rollup putting up the least amount of transactions among the three major players after it reigned supreme for about a month from September to October. 
• With the initial Base excitement slipping and some of the zkSync Era airdrop speculation subsiding, Aribtrum reclaimed the title of the layer 2 solution paying the most data fees on Ethereum, ever so slightly bypassing zkSync, claiming 31.3% of what was paid. 
  • It’s the first time this has happened since May, but it makes sense given that Arbitrum now seems to be the OR of choice, beating out Optimism and Base in terms of transactions since the end of October.

Filling up on filings

Source: SEC EDGAR Database

• November marked the month with the highest number of filings with the Securities and Exchange Commission mentioning the term “bitcoin” ever, coming in at around 1,070 filings referencing the world’s largest cryptocurrency.
  • The count has never exceeded 1,000 before, previously peaking at 810 in May. 
• There are many reasons for the recent uptick. For one, November marks Q3 earnings reports, so many of the publicly traded companies that deal with crypto that we talked about earlier filed their 10-Qs and 8-Ks that likely mentioned the term.
  • But we also saw many filings pile in related to the recent bitcoin spot ETF hype. For instance, the Grayscale Bitcoin Trust filed 39 of the documents, many of them being FWPs or free writing prospectuses. What can be filed as an FWP is pretty broad, with the dissemination of a MarketWatch story that includes quotes from the Grayscale C.E.O. being filed, and the raw text of the piece was also filed in a separate FWP. The transcript of Grayscale’s VP of Investor Relations appearance at the Benzinga Digital Asset Conference was also in there. According to the Legal Information Institute, the FWP refers to any “written communication regarding securities being publicly offered disseminated by the issuer during the waiting period of an initial public offering (IPO)  that discloses information that would not be included in the registration statement.” While there is no “IPO” in this sense, the FWPs seem to be encompassing anything executives at Grayscale say relating to a possible GBTC spot ETF conversion ahead of it actually getting approved. 
  • There were also over 50 filings from Morgan Stanley mentioning “bitcoin”, mostly in the form of NPORTs, which registered investment firms must file each quarter to disclose portfolio holdings. A lot of the filings seem to be coming from the same handful of funds, which have some exposure to the Grayscale Bitcoin Trust. 
• Regardless of the specifics of each specific filing, this surge seems to show that more companies and entities that need to file with the SEC have bitcoin coming up in disclosures or are more interested in engaging with the asset. 
  • Across all blockchain-related terms, though, the total number of mentions did not climb to a new high and only came in at around 3,310, the highest number of mentions since May. 
  • This seems to suggest that the emphasis is on bitcoin for many of these larger companies. 

NEAR and dear

Source: NearBlocks

• Over the past few months, we have discussed the newfound prominence of Ordinals on the Bitcoin network. 
  • As a reminder, the idea stems from inscribing specific satoshis with metadata, with each satoshi differentiated by the order in which it was minted. For Bitcoin, this was a huge deal and introduced NFTs and token issuance to the blockchain by adding a non-fungible element to the typically fungible satoshis. 
  • For most other major layer 1 blockchains, NFTs and new tokens are baked in by design, with the ability to deploy tokens using different sets of standards (like ERC-20 and ERC-271 for Ethereum).
  • But that hasn’t stopped the Ordinals craze from spreading. For instance, we talked about the spike in transactions on other EVM blockchains last week, some of which were tied to Ordinals-like minting on other chains. On Polygon, PRC-20 tokens are generated through transaction calldata to make artifacts embedded in network transactions. Minting of these new tokens has caused transactions and fees to surge on the network.
• But it’s not just alternate EVMs that are getting in on the action. NEAR has seen a crazy surge in the 7-day moving average of daily network transactions recently, climbing to 7.39 million on December 2nd. 
  • Before November 28th, the average had peaked at 1.68 million in September. The un-averaged transaction data peaked at 13.9 million daily transactions on the network. 
  • The major contributor to the explosive growth seems to be NEAT, the first token to be launched from the Ordinals-inspired NRC-20 token standard. 
  • Minting began for NEAT on November 28th, and the total set supply of 4.2 QUADRILLION was minted by December 2nd, showing the insane demand for these Ordinals-like tokens.
  • And to be fair, there is a first-mover advantage to some of these new token issuance standards. ORDI, the first BRC-20 token, was listed on Binance last month and has seen its value rise 9-fold since the start of October. The success of ORDI could explain why so many people are eager to jump in on these new tokens on other chains. 
  • It is possible now that NEAT minting is over that NEAR transactions come back down to normal levels, as they stayed quite elevated while issuance was on-going. But of course, there’s also the possibility for a new NRC-20 token to make its debut that could also see transactions continuing at these heightened levels. But the un-averaged data shows transactions dropping to just 1.16 million on December 3rd, the first day after NEAT’s minting completion. 

Fee-ling down

Source: DefiLlama

• While November was a bumper month for most facets of crypto, one group that was not basking in the recent growth was NFT marketplaces.
  • Across the major marketplaces OpenSea, Blur, LooksRare, and X2Y2, fees paid on them (both transaction fees and royalties) came in at $8.77 million last month, the lowest since May 2021. 
• It is worth mentioning that NFT marketplace volumes on Ethereum actually showed some decent recovery in November after they grew only slightly in October. 
  • Across all marketplaces, volumes almost doubled month-over-month. 
  • The reason that fees took a tumble is because Blur was the main driver of the volume resurgence. 
  • Blur had a strong November, at the start of last month, its token pumped on the news of layoffs at OpenSea. The founder of Blur (known as Pacman) also launched a layer 2 called Blast, which, while not directly related to Blur and still in its infancy, was created with the aim of helping some of Blur’s bidding pool assets earn yield. And the marketplace closed out the month by completing its Season 2 airdrop and getting its token listed on Binance. 
  • Blur notably has an incentive structure that rewards traders with the BLUR token, which has been performing well lately, which is a feature OpenSea lacks, so it’s not too surprising we’d see Blur be the driver of the volume turnaround. 
• And of course, Blur also saw a rise in fees, but in November, their marketplace racked in only $2.32 million, roughly a quarter of the total fees paid despite accounting for almost 70% of volume. 
  • And that has to do with the fee structure on Blur. Blur charges no trading fees and enforces a 0.5% minimum royalty fee (that can be higher for certain collections), whereas OpenSea has a 2.5% trading fee. OpenSea was also pushed to disable their royalty enforcement tool in a bid to make them more competitive with Blur and other royalty-optional platforms. 
  • So, while Blur dominates in volumes, it lags behind in fee generation, which is not necessarily a problem; it's just a different business model. 
• As a testament to how strong these rewards systems are for boosting NFT activity, LooksRare recently dropped their trading rewards system and sunset its listing rewards earlier in the year. 
  • While LooksRare really peaked early in their successes in 2022, right after launching a vampire attack on OpenSea, the recent shift has pushed their volumes to essentially zero. LooksRare was previously a hotbed for wash trading as people tried to farm LOOKS tokens, but even that volume has now fallen off.