Data & Insights Recap - January 8, 2023

Queued up

Source: Ethereum Validator Queue

• There has recently been an uptick in validators on Ethereum looking to unstake their ETH and exit the network. 
  • As a reminder, a validator for the Ethereum network must stake 32 ETH, but validators earn staking rewards for securing the network. Before April of 2023, there was no mechanism for unlocking the ETH had been staked, but the launch of the Shapella upgrade allowed validators to remove their ether from staking, whether it be just the rewards earned or the complete wind-down of an operating validator. 
  • At first, some onlookers were fearful of a mass exit, putting Ethereum’s security in jeopardy, but the popularity of liquid staking and the desire to earn yield kept deposits high. For the most part, since Shapella took hold, the amount of ETH being staked, and thus the amount of validators the network has, has been on the rise.
  • The fact that the amount of validators has been growing so significantly throughout the year means that the exit queue jumping to over 16,000 on January 5th does not call for much concern despite it being the longest the queue has gotten since May. 
• The data becomes even less concerning when looking at the entities who are trying to unwind their staked positions.
  • About 32% of the ETH waiting to be withdrawn (over 206,000 ETH) belongs to Celsius, the bankrupt crypto lender according to data from Nansen. The firm has been transparent in the fact that they were going to be unwinding their staked ETH positions to return funds to creditors. 
  • And Figment, a staking provider, has the claim on over 50% of the ETH in the queue, but according to Tom Wan, an analyst at 21 Shares, some of Figment’s ETH could actually belong to Celsius, especially considering that back in June the company redeemed some stETH from Lido and then proceeded to restake it with Figment. Of course, it likely is not all tied to Celsius and others are probably also trying to unstake. 
  • But the broader story is that this large uptick in withdrawals does not signal some larger issue at play. A good chunk of the withdrawal queue can be explained by Celsius’ need to return funds. On a similar note, we have not seen any major drawback in deposits, either, indicating that once this queue is processed, the number of validators will continue to grow again.

Trade the news

Source: The Block

• It seems as though bitcoin will be the star of the show for the month of January.
  • To be fair, it was the star of the show for a lot of 2023, as well, after BlackRock filed for a spot bitcoin ETF, which kicked off a strong wave of optimism that we would see an approval for the financial instrument. 
  • From June through December of 2023, that hope continued to grow stronger as firms amended and improved their filings, and the SEC took a loss in a lawsuit stemming from their attempt to block the conversion of the Grayscale Bitcoin Trust into an ETF. 
  • But this month is the month that many analysts are expecting that approval to actually come through. 
• While for most of Q3, we saw spot volumes for many crypto assets begin to climb as a rally extended beyond just bitcoin with bullish sentiment pouring into the market due to talks of rate cuts this year, bitcoin again has shifted back into investor focus. 
  • The 7-day moving average of daily bitcoin spot volumes has climbed from $8.03 billion on December 28th to $14.13 billion on January 7th, climbing 76% into the new year. 
  • For ether, though, volumes have stayed mostly flat over the same period, actually falling slightly from $4.63 billion on the 28th to $4.22 billion on the 4th.
  • Some of this is due to differences in how bitcoin and ether have been performing in terms of price. Ether has been lagging behind a bit in price appreciation as of late, which is contributing to its slow growth in spot volumes. Bitcoin is up 4.5% over the past week, whereas ether is actually down 1.4%.
  • But bitcoin did face some sell pressure at the start of the year, dropping from over $45,000 on January 3rd to $42,250 the same day, although it has since recovered.
  • But overall, bitcoin has been the preferred trading asset so far this year as people load up on the asset ahead of the ETF approval or sell the BTC they’ve accumulated a profit on in the recent months.

DEX-terity

Source: The Block, The Graph, CoinGecko

• To some, 2023 was supposed to mark the year of the DEXs. The sting from the collapse of FTX had users less trusting of their centralized exchanges and brought into light the value of transparency and self custody, all of which bolstered the narrative around the decentralized counterparts.
• And to be fair, CEXs did have quite some time to shine this year. For people holding USDC on-chain, DEXs proved to be some of the most efficient tools for helping convert the depegging stablecoin into a different asset in March. Some centralized exchanges were overwhelmed with the USDC pressures on their platform and had to halt certain operations relating to the stablecoin, again putting a feather in the decentralized exchange cap. 
  • Another victory for DEXs happened in May, when memecoin mania stoked investors. DEXs’ ability to quickly add the new tokens that captured the public’s attention made them the main trading venue for these memecoins. Centralized exchanges were quite late in listing some of the major breakout memecoin stars and missed a lot of the hype. 
• But despite all that, DEXs seem to be missing out on the more recent surge in trading. As we talked about last week, CEX spot volumes hit a yearly high in December, but the same could not be said on the DEX side.
  • While DEX volumes did show a month-over-month increase in December, they still paled in comparison to March. The rise from November to December was also very slight, climbing from $80.39 billion to $84.36 billion, under 5%.
  • The DEX to CEX spot volume ratio has also been broadly on the decline after hitting an all-time-high in May due to the dominance of DEX memecoin trading. 
  • It is maybe not too surprising that we’d see DEXs not thrive in this recent rally, especially considering how prominent an asset bitcoin is becoming in driving bullish narratives. Bitcoin is not an asset strongly represented on these DEXs, which primarily exist on smart contract-based layer 1s (although time will tell if we start to see some native BRC-20 exchanges emerge). While you can trade wrapped bitcoin assets, many investors are looking to buy into the real thing right now. 

Turbulence ahead

Source: The Block

• While I have previously loosely been referring to a potential spot bitcoin ETF approval at some point this month, many analysts are expecting that we actually receive news on it this week. 
  • There are a lot of factors contributing to the predictions. For starters, the Securities and Exchange Commission has a January 10th final deadline to make a decision on the application of 21Shares and Ark Investment. While BlackRock really kicked off the fervor around an ETF hitting the market in June, 21Shares and Ark began their third attempt to get an ETF across the line back in April, making theirs the first hard deadline to hit. Analysts expect that if one gets approved, the approval for the others will follow around the same time, making the January 10th hard deadline look like a possible approval date for many of the funds. 
  • Another reason many are optimistic about the greenlight in the short term is all of the meetings that have been reported between the SEC and the potential ETF issuers and exchange venues, as well as the filings of 8-As (which allow issuers to trade on an exchange once the product has been approved) and amended 19b-4s. And this morning, applicants filed amended S-1s, which are typically seen as a final step ahead of ETF listings. All of these are signals that the teams working to get these ETFs to market have been talking to regulators and have been making changes based on their discussions. 
• This has all led to high anticipation for market movement in the coming days. This, in turn, has pushed the at-the-money implied volatility of bitcoin options expiring in 7-days quite high. It climbed to over 80% yesterday, the highest its been since November 2022 in the wake of the FTX fallout. 
  • As a reminder, implied volatility is the market’s expectation of volatility. We have talked before about how the options market has become so heated, given how people view the spot ETF saga as a major catalyst for bitcoin’s price. 
  • And it is definitely likely that this week will move bitcoin’s price regardless. In the case of a rejection, which analysts at Matrixport have predicted, that would likely cause bitcoin’s price to drop. There is also some ambiguity about how bitcoin would move in the event of an acceptance, as some are expecting it to be a sell-the-news event as some traders try to cash in on profits, while some anticipate more inflows to pour in on the heels of the new investment vehicle. Quarterly bitcoin futures contracts are currently commanding a large premium on Binance, and a lot of options activity is centering around the $50,000 strike price for the end of January, both of which indicate some traders are betting on price appreciation through the month. 
  • Regardless of how it all shakes it out, it seems like this week is going to be a big one.

Heart & SOL

Source: HelloMoon

• It seems as though Solana is unstoppable. Essentially every week since mid-October, when the blockchain’s native token SOL began to first start showing some positive price action, the network and the protocols on it have continued to show staggering growth across metrics.
  • Whether it be transactions, or active addresses, or DEX volumes, Solana is showing plenty of signs that it's bouncing back from the lulls of 2023 stronger than ever. It also is somewhat symbolic, given how Solana faced a lot of doubts going into last year due to its ties to FTX, but much like the industry as a whole, it seems the network has moved on from that. 
• The 7-day moving average of the value moved on-chain for the blockchain, which totals the value of SOL, USDC, SRM, RAY, ETH, and USDT that has been transferred on Solana, had climbed to over $40 billion at the start of 2024.
  • From November 2022 through October 2023, the average never passed $3 billion and often fell below the 10-digit mark. 
  • From December 1st to now, the average has climbed over 650%, indicating a lot more economic activity. 
  • And while, of course, the rise in the value of SOL is helping boost the transaction volume in USD terms, a lot of the volume is actually being done in USDC. So far in January, there has been about $113 billion of both SOL and USDC volume. 
  • Solana has been seeing a lot of increased traction in the memecoin realm and is also quite popular due to its cheap transaction fees. While fees reaching unsustainably high levels contributed to the downfall of May’s memecoin mania on Ethereum, that seems like it will be less of a factor for Solana. 
  • Beyond just memecoins, though, many DeFi sectors, like liquid staking and lending, seem to be attracting more popularity on Solana.