Data & Insights Recap - January 22, 2023

Everything is spot what it seems

Source: The Block

• “It was the best of times, it was the worst of times,” Charles Dickens once said, but also probably quite a lot of crypto traders over these past few weeks.
  • While the approval of spot bitcoin ETFs, 11 of them at that, ushered in a wave of euphoria and hope that more adoption was on the horizon, it also marked the end to bitcoin’s meteoric rise through the later part of 2023, pushing the asset back below $41,000. So, while the industry took a big ideological win, it took some losses in the short term in raw value terms.
  • It was maybe not a surprise that we’ve seen such a strong selloff in the wake of the approvals. For one, many were betting that this would be a sell-the-news event. Many traders had piled in ahead of the approval itself, betting that bitcoin would rise on the anticipation and then taking their profits once the deal was actually sealed. And the approval of GBTC, in particular, from a trust to an exchange traded fund finally granted shareholders a means of redemption, which means they could cash out if they so pleased. 
• Besides just looking at the bitcoin price chart, another graph that displays the seesaw trend is the 7-day moving average of daily spot volume. 
  • The average climbed up above $50 billion right after the spot ETF launch for the first time since November 2022. But volumes very quickly began to fall and now sit just below $30 billion.
  • It's quite a steep drop and is a reflection of how many crypto assets have begun to shrug off some of their Q4 2023 gains in the wake of the ETFs. While in the long run, the consensus seems to be that the approval was bullish for crypto as a whole, there do seem to be some short-term drawdowns. Naturally, as asset prices fall, volumes in terms of USD will also drop down with them if there is no pick-up in trading activity. 
• It’s hard to tell how long this pullback will last. Bullish narratives on the horizon, like the upcoming Bitcoin halving and rate cuts easing monetary policy this year, have the potential to turn things around, in addition to the fact that the sell-off does seem to be more reactionary to the news and is likely to just fade over time.
  • It is unlikely that we see spot volumes drop back down to their 2023 lows.

Go with the flow

Source: The Block

• Despite the spot bitcoin ETFs launching just over 10 days ago, they still have not had a full trading week since last Monday was Martin Luther King Day and the U.S. markets were closed. 
  • However, between the Thursday and Friday trading of launch week, and the four days of trading last week, we have seen six days of activity for the 11 freshly launched ETFs, giving us plenty to dissect about their performance so far. 
• As we talked about last week, Grayscale’s GBTC has a huge lead in terms of assets under management (AUM) since it already had its coffers built up from when it was a trust prior to the ETF conversion. So far, no other ETF even comes close to touching, with it having upwards of $20 billion AUM. Its nearest competitor, BlackRock, boasts just $1.17 billion. Fidelity has also crossed the $1 billion AUM threshold. 
• But if we look at flows, we see a different picture. While GBTC does command quite the lead on a notional level, it is the only one of the ETFs that has been seeing more outflows than inflows. For every day of ETF trading so far, Grayscale has seen assets come out of its fund, whereas each of its 10 competitors has seen more assets pour in. Some days, the net outflow from GBTC exceeds the inflow into other products, causing the AUM across all these funds to decline.
  • There have been several days where Grayscale’s AUM has dropped by over half a billion dollars. Since launch, their AUM has fallen from $28.62 billion to $22.94 billion, although some of the drop has been caused by the falling value of bitcoin.
• The outflows are indicative of GBTC shareholders cashing out on their shares. Since all the ETFs approved were only greenlit for cash creation and redemptions (as opposed to in-kind), that means when a shareholder redeems a share, Grayscale sells the bitcoin a share represents and gives them back the cash value (similarly to make shares you give an issuer the cash value of the bitcoin in a share and they buy it). 
  • The outflows from Grayscale, though, are being counteracted by inflows into many of the other ETFs (which also offer lower fees, so someone exiting Grayscale could just throw their money into an alternative option), so it’s hard to point to Grayscale’s mass exodus as the main driver of the recent downtrend, although it is likely playing some part.
• While there is still quite the gap between Grayscale and its competitors, it seems like, for now, a flippening in AUM could be on the horizon as the new ETFs continue to grow while GBTC continues to shrink. 

Onto the DEX one

Source: The Block

• The number of DEX traders on Ethereum climbed to 88,420 on January 17th, the highest since May 2023, when DEX activity surged in the wake of memecoin mania. 
  • The recent run-up was pretty quick, with DEX traders coming in at 55,310 just three days earlier. Since the memecoin hype died out, traders have tended to stay between the 50,000 and 75,000 range. 
  • From October into mid-December, we did begin to see a gradual run-up in the number of DEX users, but the number began shrinking again coming into the new year. 
  • Unsurprisingly, a majority of these users came from Uniswap, with both v2 and v3 seeing pretty significant growth. However, daily volumes did show much movement. 
• It’s hard to tell what caused such a sharp rise in users, but it didn’t rock volumes that significantly. 
  • On Uniswap v2 some of the highest volume pairs for the past week consisted of very inexpensive memecoins, which could explain why volumes are so low since you can purchase many of these tokens for only a few dollars. TROLL and SMILEY are two of the most popular, and both have seen major price capitulation over the last week, albeit they are both still trading a small fraction of a cent. TROLL is up over 11,682% over the last 14 days and SMILEY is up around 4,208% over the same period. 
  • It’s not clear whether this is the start of a new memecoin era or if it is already over. The surge in traders corresponds with when these memecoins really began to start taking off in terms of price. But both tokens seem to have already passed their peak and are now paring gains and the number of traders has also already begun declining after the high on the 17th, falling back down to around 75,000. That being said, both TROLL and SMILEY are still much higher in value than they were two weeks ago. 
  • But there are some other relatively unknown tokens that are doing numbers on Uniswap v2 (v3 continues to be dominated by its major ETH/USDC/USDT pairs), so maybe there is still some momentum to be had.

Transaction trance

Source: The Block

• The 7-day moving average of transactions on the Ethereum network climbed to the highest it's been since November 2021, reaching 1.32 million on January 16th. 
  • This is because of the un-averaged number of transactions hitting a new all-time high on January 14th of 1.96 million. 
  • While this was an exciting milestone, the main reason for this drive was inscriptions. 
• For a while, Ethereum was safe from the inscriptions craze despite other chains facing intense congestion and fee spikes or even outages. In December, zkSync Era outperformed Ethereum in transaction numbers because the rollup had such an uptick in activity at the hands of inscriptions.
  • There were over 1 million inscriptions on Ethereum on January 14th, according to data from hildobby, a significant increase relative to the inscriptions activity we had seen on the chain before, which tended to only be a couple of thousand inscriptions a day. 
  • And due to the network fees on Ethereum being so high, over $2.5 million was spent on inscribing that day.
  • However, this did not seem to be the start of some long sustained inscriptions trend, the number of inscriptions and the amount paid for them has since slumped back down. Part of the reason that inscriptions might be so rare on Ethereum is because the network is so expensive compared to other chains. For instance, 4.6 million inscriptions happened on Fantom on November 23rd, but users only paid $176,000 for them. 
  • It is another example, though, of how inscriptions have become so popularized, even on chains that support NFT and token issuance by design. 

Two sides of the same COIN

Source: Yahoo Finance

• It has, on paper, been a remarkably successful start to 2024 for Coinbase.
  • They are the custodian for 8 out of the 11 freshly launched spot bitcoin ETFs, allowing the exchange to earn custody fees from the ETFs it supports. That being said, the extremely heated fee war made the overall fees for many of these funds incredibly low, making the custody fees even lower. Analysts at Mizuho have estimated that the custody fees only bring in $25 million to $30 million in revenue.
  • But the ETF victory of Coinbase is beyond just any monetary upside; it is quite a symbolic win. Coinbase has come out looking like the main trusted source for many of the big-name issuers, and it also has now become a backbone to these new, SEC-approved investment products, further complicating the implications of the SEC’s ongoing legal battle with the exchange. 
  • And on the topic of the SEC and Coinbase’s legal drama, there was a hearing over the case, essentially meant to decide whether it should go forward, as Coinbase has argued that it should not and filed a Motion for Judgment. It has widely been perceived as a victory for Coinbase, although no decision has been reached yet. New York District Judge Katherine Polk Failla really seemed to dig in on the SEC’s lawyers in a similar fashion to how the judges seemed to poke holes in the arguments made by the SEC in Grayscale’s hearing back in March of 2023. It has left many optimistic about the fate of Coinbase’s fight with the regulator.
• Yet despite all that, COIN has not been a strong performer so far this year.
  • The stock price hit a relative high of $186.36 right before the new year and has now shrunk down to $124.75. 
  • Some of this downfall could be a result of broader macro sentiment. With more recent inflation and labor data readings coming in hotter than expected and many Federal Reserve and European Central  Bank officials saying that traders are too eager for rate cuts, a lot of the euphoric energy from the end of 2023 has cooled off. 
  • It could also be tied to the sell-the-news trend happening with bitcoin right now, as traders could have also made quasi-bitcoin investments with Coinbase, thinking the stock would rise into the approval, which, for the most part, it did. 
  • While the ETF approval could be plausibly “priced in” for COIN, it seems less predictable that Coinbase would thrive so much in their recent court hearing. But nothing is for sure until a decision is made, which could be why we haven’t seen any positive action yet.