Data & Insights Recap - Base's revenue soars, a pessimistic view for a spot ETH ETF

Going back to Base-ics

Source: The Block

• Are we now entering the golden age of Coinbase’s Layer 2 Base?
  • The optimistic rollup was met with much fanfare when it launched over the summer but sawits hype die down soon after. 
  • When Base first launched, it was putting over 1 million more transactions a day than its biggest competitors, Arbitrum and Optimism. The 7-day moving average of transactions on base peaked at 1.49 million back in September, while Arbitrum was at 490,000 and Optimism was even lower with 346,000. But as excitement around Base faded, Arbitrum took the top spot, which it held from October 2023 until earlier this month. From November through January, Base had the lowest level of activity amongst the big three optimistic rollups but typically always had numbers comparable to Optimism.
• Base seems to be so back right now, though, with the 7-day moving average of transactions on the network jumping to 1.44 million last week, briefly claiming the top spot once again. All three top optimistic rollups have been seeing growth in transactions recently in the wake of the Dencun upgrade, which has helped reduce fees on the scaling networks. But Arbitrum and Optimism have not seen the explosion that Base has. Although Arbitrum was already hosting so much activity, its smaller scale surge still puts it in line with Base activity now. 
  • Why Base? There are a couple of reasons. For starters, while all layer 2s that have started using blobs to post data on Ethereum have seen transaction fees drop, Base is boasting some of the cheapest fees overall. Or at least it was before demand started driving up fees more recently. Coinbase took to X shortly after Dencun went into effect to boast about how fees dropped below 1 cent on their scaling network. 
  • Since it had become so cost-efficient to interact with Base, there was also some hope that a new memecoin era could emerge on the rollup. A lot of the recent memecoin hype has been centered around Solana memecoins, partially due to low trading costs on the network. With Base’s fees now in a comparable range to Solana, maybe it made sense to bring the memecoin party there. 
  • Uniswap on Base did see its highest day of trading volume on March 20th at over $280 million. Over the past 24 hours, some of the top volume tokens have been BSHIB (Based Shiba Inu) and DEGEN (self-explanatory), indicating memecoins have contributed to this growth. Aerodrome, another DEX on Base, has also seen volumes consistently top levels from prior to March. 
• And with more activity comes more revenue. While Arbitrum and Optimism have actually seen revenue slump in the wake of the Dencun upgrade, since transaction fees are so much lower, Base had its highest day of revenue on March 20th, bringing in $1.6 million. 
  • While fees on Base have gotten a bit higher due to this surge in activity, they are still low compared to where fees were before Dencun. 

ETF dreams dashed

Source: Grayscale

• The will-they-won’t-they dynamic goes beyond your favorite romcom. It has spilled over into whether the Securities and Exchange Commission will approve a spot ETH ETF in May.
  • Many were very optimistic about the prospects of this new investment tool at the start of the year, with ether futures ETFs being approved last year and BlackRock being one of the firms to put their hat in the ring to be one of the ETF issuers. The existence of bitcoin futures ETFs proved critical for getting spot bitcoin ETFs over the line, as the Grayscale said the SEC could not block the spot ETFs over spot market manipulation fears when futures contracts track the price of spot. And BlackRock is the world’s largest asset manager, with a 99.8% rate of ETF approvals, so their backing is seen as a good sign. 
  • So earlier this year, with all of this positive momentum, several analysts thought we would see the green light in May for these funds, coinciding with the final deadline for VanEck and 21Shares & Ark Invest’s applications. But there was still some skepticism since ether as an asset is in much more of a gray area when it comes to being a security or a commodity, whereas bitcoin is an agreed upon commodity. Some applicants have also added staking provisions, which historically, the SEC has been skeptical of. 
• The tide seems to have turned more negative, though, despite not much really changing. Bloomberg ETF analysts now expect the likelihood of approval in May to 30%, down from 60-70% earlier in the year. And the prediction platform Polymarket has seen odds for the SEC’s blessing drop to 21% compared to a high of 82% right after the spot bitcoin ETFs got approved. 
  • When bitcoin ETF approvals were on the horizon, we were hearing a lot about meetings between issuers/exchanges and the SEC and we were also seeing many update filings come in as applicants addressed comments from the regulator. While in March we did see a meeting with Coinbase, Grayscale, and the SEC discussing the ether ETF, not much more seems to have come of it. 
  • Another sign of waning sentiment is the widening gap between the value of a share of the Grayscale Ethereum Trust and the value of the ether it represents. The discount jumped to 20% this week, closing in from 56% in June to 8% earlier this month. The disparity indicates that traders do not see a redemption mechanism coming soon. 
  • Not everyone is so pessimistic, though. Coinbase’s Chief Legal Officer took to X to explain that the SEC had “no good reason” to deny the funds. 
  • But even if a rejection comes in May, it won’t be all over. Issuers would likely sue the SEC, which we have seen play out in the issuers’ favor. And spot bitcoin ETFs were rejected several times before they actually got over the finish line.

What do you meme?

Source: The Block

• 2024 has so far proved to be a strong year for crypto, but more than anything, it has proved to be a strong year for memecoins. 
  • We have talked a couple of times over the past few weeks about the successes of memecoins, which seemed to be buoyed by the recent crypto turnaround bolstered by spot ETF inflows, as well as their fun, high-risk, high-reward nature. 
  • Memecoins and RWA tokens were some of the strongest performers in the recent rebound that started after the Federal Reserve signaled they were still penciling in three rate cuts this year after the broader crypto market showed a bit of a slump in the early half of last week. 
  • The recently launched GMCI Meme index is up just under 230% since the start of the year, vastly ahead of BTC and ETH, and also posting more gains than the flagship GMCI 30, capturing the top 30 cryptocurrencies and their L1 and L2 indices. While the L2 index is the worst performer, it is still up over 28% since January 1st. 
• This memecoin boom has lasted for quite some time, with the GMCI Meme index first showing explosive growth at the start of March.
  • In previous memecoin eras, a lot of the attention has been focused on Ethereum, and fees would quickly get out of hand and dwindle momentum. However, the emphasis on lower cost chains this time around has helped the memecoins persist. 
  • Last week we talked about how centralized exchange volumes for March had already topped February, but the same is true for DEXs. Both Orca and Raydium, both Solana-native exchanges, have seen their highest month of volume ever this month. DEXs tend to bear the weight of the majority of memecoin trading since they are quicker to add new tokens and can sometimes offer lower fees compared to their central counterparts (depending on how high fees on the chain are). 
  • For now, memecoins continue to be fun and, at least in some cases, generate plentiful returns for early investors. At some point, the hype will probably die down, along with the surging valuations, but for now, traders seem to be enjoying entering a newfound bull market. 

1 percenter

Source: Company Filings

• It seems like everyone is accumulating bitcoin these days.
  • Obviously, now we have the spot bitcoin ETFs, which, other than Grayscale, have continued to see inflows, amassing large amounts of assets under management. The largest of the new funds, BlackRock’s IBIT, has an AUM of over $15 billion, holding over 240,000 BTC. This puts BlackRock in the 1% club, meaning the asset manager holds at least 1% of the total supply of Bitcoin, which is capped at 21 million. 
  • While currently, BlackRock has a sizable lead over its other competitors, second place in terms of AUM goes to Fidelity’s FBTC, which only boasts about $6.43 billion in AUM (less than half of IBIT). It seems the massive success has put pressure on another known bitcoin collector, MicroStrategy. 
• Well, it might not actually be because of BlackRock, but MicroStrategy has been on an aggressive bitcoin buying spree so far this year.
  • MicroStrategy brought their total BTC holdings up to 193,000 in late February, but that proved to be not enough.
  • In early March, following a surge in the business intelligence firm’s stock price in line with a rally in bitcoin, MicroStrategy announced a plan to offer $600 million worth of convertible notes, with the net proceeds going towards “acquir[ing] additional bitcoin and for general corporate purposes.”
  • Then, on March 11th, the company disclosed they had bought another 12,000 bitcoin, which at the time put their holdings over BlackRock, as their AUM was just under 198,000 BTC. 
  • But that did not quench the thirst for bitcoin over at MicroStrategy, which then opted to sell $500 million worth of debt, and the announced another bitcoin purchase last week, bringing their total holdings to 214,246 BTC. This also makes the firm a 1% bitcoin holder. 
  • While MicroStrategy still lags behind BlackRock in holdings, for now, they are still sitting on a lot of profits when it comes to what they have. Across all purchases, MicroStrategy's average price paid for a bitcoin is only $35,160, over $30,000 cheaper than what bitcoin is priced at now. However, these last two purchases have driven up the average cost, since they were done while bitcoin has been on the upswing. 

Out with the flow and in with the new

Source: The Block

• For the past couple of weeks, I have been talking about the overwhelming inflows pouring into the new spot bitcoin ETFs. But when the ETFs first launched, we discussed how Grayscale, the trust converted into an exchange traded fund, was seeing a sizable amount of redemptions as shareholders were finally given the option to cash in on the underlying bitcoin. 
  • But the outflows slowed down. What started as Grayscale often facing upwards of $500 million of assets coming out a day during the first few weeks of trading mellowed into days with less than $200 million worth of outflows. 
  • And while outflows did pick up in late February as bitcoin began its ascent, the inflows into the other funds were compensating for what was exiting Grayscale. For the most part, more money was flowing into the spot bitcoin ETF ecosystem. On March 12th, the net inflow actually exceeded $1 billion.
  • But for the first time since launch, a whole week was marked with net outflows. From March 18th through March 22nd, Grayscale’s outflows outweighed the investment pouring into the new ETFs. GBTC even saw its largest day of outflows last Monday, with $642 million worth of assets retreating from the ETF.
• At first this did seem to weigh on bitcoin’s value. The asset slumped down to $61,500 on March 20th after sitting over $73,000 just six days earlier. But bitcoin was boosted on Wednesday after the Federal Reserve signaled that three rate cuts were still on the table for this year. Bitcoin climbed to over $67,000 on the news.
  • However, bitcoin began to slump again in the later half of the week, but did show a solid rebound over the weekend and currently trades around $69,000 again.
  • Of course, outflows from an ETF mean price pressure for BTC. In order to meet the share redemptions, these issuers have to sell bitcoin since they all use a cash redemption model. But naturally, there are other factors that weigh on bitcoin, as we saw with the Fed ruling. 
  • It might also not be such a worrying sign for the ETF ecosystem, as ETF analysts at Bloomberg attributed the strong outflows to Genesis selling their shares (which they were approved to do by bankruptcy court). However, flows into some of the largest new funds did also drop off, with both BlackRock and Fidelity seeing their lowest days of inflows last week.