Data & Insights Recap: UNI's surge and a spike in volume from unexpected ETFs

A rewarding proposal

Source: CoinGecko

• The end of last week saw positive news for UNI token holders, with the Uniswap Foundation submitting a proposal that would seek changes in the decentralized exchange’s community governance, with the most notable shift including granting rewards to users who staked or delegated UNI tokens on the platform. 
  • Right now, Uniswap has a 0.3% fee on all swaps that go towards incentivizing liquidity providers on v2, and on v3, swaps have varying tiers of fees depending on the pool, ranging from 0.01% to 1%. 
  • Both the docs for v2 and v3 hint at the potential for a protocol fee that could be enacted by Uniswap decentralized governance process, with the v2 version concretely stating that the protocol would be 0.5% and would reduce the swap fee to 0.25%, whereas the protocol fee for v3 is more flexible. 
  • The idea behind the protocol fee is to reward active governance, and the fee was only supposed to be initiated as a path forward to help make the Uniswap DAO fully decentralized and autonomous, and also make it sustainable through the future.
  • The proposal for the fee changeup references the fact that less than 10% of circulating UNI is used to vote on proposals typically and that a lot of the current delegation is “stale” as justification for why rewards need to be in place to motivate more governance activity. 
  • Regardless of the specifics, though, this news boded well for UNI, which shot up by about 50% on the news and has held onto most of its gains despite the fact that the proposal might not even go through (although it’s likely it will since it’s favorable to UNI holders, who will ultimately be voting on it). Uniswap’s market cap jumped from $5.5 billion to about $8.5 billion, further solidifying it as one of the most dominant DeFi tokens.
• However, a lot of speculation is swirling online about why the approval came now. Historically, tokens that reward holders can sometimes get flagged as securities by the SEC, which could be part of the reason Uniswap began without a strong incentive for governance. Some posters on X have theorized that the fee switch proposal could be a sign of something positive coming on the regulatory front in the U.S., possibly tied to the Coinbase lawsuit. 
  • Whether or not the SEC’s lawsuit against the exchange will be dismissed is still not known, but the hearing over the dismissal was regarded as a positive for Coinbase. 
  • Many DeFi tokens, and in particular DEX tokens, rallied in the wake of the proposal, as well.

Fees go lower, volumes go higher

Source: Yahoo Finance

• Friday marked the 30th day of trading for the newly launched spot bitcoin ETFs. While the beginning of the month saw some signs of slowing interest in these investment products, the recent bitcoin rally, which helped push the asset above $50,000 for the first time in over two years, seems to have reignited some of the hype.  
  • From the first day of ETF trading, January 11th, to February 5th, the volume across the eleven funds fell from a peak of $4.54 billion down to just $643.75 million, dropping 85%. This drawdown was in line with a similar trend in the value of BTC, which faced pressure after ETF approval due to some traders taking short-term profits and selling the news and the initial outflows from GBTC. Bitcoin dropped below $40,000 briefly towards the end of January. 
  • But eventually those pressures lifted, and outflows from Grayscale have slowed down. Flows both in and out of these ETFs, as well as volumes, seemed to drop off at the start of this month as the fresh launch excitement began to wear off. 
  • That began to change once bitcoin started to rebound. Volumes across the ETFs have exceeded $1 billion since February 7th, and February 20th saw the fourth-highest day of trading volume ever, coming in at $2.59 billion. The cumulative trading volume across ETFs also passed $50 billion last week. 
• Perhaps what was more surprising about the volumes on February 20th was the tickers that caused the surge. 
  • VanEck’s HODL brought in over $400 million of volume, more than 15 times the ticker’s previous volume peak on launch day. WidsomTree’s BTCW also climbed to $223 million compared to a high of $33 million before. BITB also had its highest day of volume on the 20th at $179.42 million, but the margin of growth was not as large compared to the other two. 
  • Typically, the top 5 ETFs by volume are Grayscale (GBTC), BlackRock (IBIT), Fidelity (FBTC), 21Shares/Ark Invest (ARKB), and Bitwise (BITB), with Grayscale having some prominence due to its already existing shareholder base from its days as a trust, BlackRock and Fidelity gaining popularity since they are big-name asset managers, and 21Shares/Ark and Bitwise boasting the lowest fees to gain attention. HODL was actually the third largest ETF by volume on the 20th and BTCW the fifth, disrupting the usual standings. 
  • It’s not easy to identify what caused the surge, and as Bloomberg ETF analyst Eric Blachunas pointed out, volumes for the tickers calmed down the next day, which means it's possible the frenetic trading was due to testing an algorithm or an arbitrage opportunity. 
  • In VanEck’s case, though, the surge came the day before it implemented a fee reduction, down from 0.25% to 0.20%, which now makes it in the same realm as BITB and ARKB and offering one of the lowest rates. 

Global presence

Source: The Block

• Last week, we talked about Coinbase’s strong Q4 earnings performance due to a surge in trading volume at the end of last year. 
  • But another facet of Coinbase’s business has been thriving recently, one that was not mentioned that much in the talk after the earnings report. 
  • Coinbase International Exchange, the derivatives platform launched in Q2 of 2023, has recently seen a surge in popularity. 
  • The exchange, which now offers 23 perpetual contracts after launching with just bitcoin and ether, never saw its volume exceed $500 million from launch until February 8th of this year. 
  • To be fair, part of the reason it was such a slow start was the fact that there were so few options to trade and also the fact that the exchange was originally exclusive to institutional traders, and they had to apply to get access to the platform. Only in October 2023 did eligible retail traders using Coinbase Advanced get exposure to the exchange. 
  • But even in October, the exchange did not really begin to take off, even though LTC and XRP contracts had been added by then. That being said, even now, bitcoin and ether contracts continue to dominate volumes by a wide margin despite the newer additions. 
• However, more recently, the exchange really seems to have found its footing. It had its first day of $1 billion in trading volume across contracts on February 20th, following about 10 days of rising trading volumes, excluding weekends. 
  • Coinbase International has surpassed $500 million in trading volume every weekday except one since February 9th, a stark turnaround compared to the months earlier. 
  • It does seem like the run up in Coinbase International volumes is coinciding with the recent rally in crypto prices, although it did not show much growth in the rally during Q4 of last year. 
  • It’s hard to tell why the recent price movement really seemed to trigger the exchange’s success. The exchange does offer 10x leverage on most contracts, and Coinbase is considered one of the most trusted names in crypto. Even though you can get more leverage on other exchanges, the 10x still offers the option for traders to make more risky bets, but with the assurance that you are using Coinbase. Institutional traders across the globe could be more interested in making those types of bets now that the U.S. has approved spot bitcoin ETFs, which helped validate both bitcoin and the crypto asset class as a whole. 
  • The exchange also still pales in comparison to its bigger competitors, with the BTCUSDT contract on Binance doing over $14 billion in trading volume within the last 24 hours alone. 

Short end of the stick

Source: CFTC COT

• It seems that hedge funds are not that optimistic about the future of bitcoin. The latest Commitment of Traders report out from the Commodities Futures Trading Commission shows that hedge funds have $3.83 billion of open interest in short bitcoin contracts on the Chicago Mercantile Exchange or CME. This marks a new high for the amount of short OI hedge funds have amassed, surpassing the $3.46 billion the week of January 9th and the $3.49 billion the week prior. 
  • Hedge funds only reported long bitcoin open interest worth $1.15 billion the week of February 20th, bringing the net positions of hedge funds to -$2.58 billion, also marking their most net negative week, exceeding the -$2.64 billion net position the week of January 9th. 
  • It shows that hedge funds are fairly confident taking on the bet that bitcoin will reverse some of its recent price gains in the future, despite the upcoming halving, which often serves as a bullish catalyst. That being said, the expiration of the contracts is not disclosed, so we do not know the time horizon for which they expect bitcoin to decline. The large short position from the start of January might have paid off depending on when the hedge funds sold their contracts or when they came to expiration, especially since bitcoin did decline a bit in the wake of ETF approval. 
  • In contrast to the hedge funds, asset managers have been loading up on long bitcoin contracts, holding $3.58 billion in long open interest and only $8.88 million of reported short OI, and similar to the hedge funds are back in a position similar to where they were the week of ETF approval. 
• One of the reasons for the run up in the value of OI of both long and short positions can be tied to the fact that the value of bitcoin has increased, which will cause the dollar value of OI to rise without needing to actually buy more contracts, but the magnitude of the shift from the week prior does seem to indicate some action from these traders. 
  • And the asset managers and hedge funds both seem to be in similar positions to where they were ahead of the ETF launch despite no major market stimulant in the short term, as the halving is not slated to come until April. 
  • It does seem like the interest in bitcoin contracts, whether long or short, has remained elevated after ETF approval, which could be due to the fact that the ETF approval has helped institutionalize the asset somewhat. 

Convergence of crypto assets

Source: The Block

• Despite the recent uptick in bitcoin’s valuation, the 7-day moving average of spot volumes for the asset across centralized exchanges has been dropping since February 15th. 
  • Since hitting a relative peak of $14.17 billion on the 15th, bitcoin spot volumes have slowed to $9.97 billion.
  • February 15th did somewhat mark the stop of bitcoin’s ascent, as it climbed rapidly from around $43,000 on the 7th to over $52,000 in the 8-day period. But bitcoin has not faced any significant decline since that peak and currently sits at around $51,000 today. 
  • However, over the same period, we saw ether spot volumes rise from $5.5 billion to $6.97 billion, continuing an upward trend that started earlier in the month. 
• Ether is top of mind now for some, as Ethereum prepares for its next major upgrade, Dencun, and investors speculate over the potential approval for a spot ether ETF. 
  • We have talked a bit before about both of these upcoming catalysts for the second-largest crypto asset, which have helped it jump into the limelight after lagging in performance towards the end of 2023.
  • The recent ether hype has pushed it above $3,000 for the first time since 2022. Ether is up just over 30% year-to-date, compared to 16% for bitcoin. For comparison, bitcoin rose by 155% in 2023, whereas ether only grew by 91%. 
  • The gap between the spot volumes of bitcoin and ether remains quite wide still, especially due to how spread they became around spot bitcoin ETF approval, with bitcoin becoming such a popular asset to trade, but it is likely to close more in the future as ether continues to become the more exciting asset to trade. The roughly $3 billion divergence right now is the closest the volumes between the two assets have been since October 2023.