Data & Insights Recap - ETFs see outflows, ETH emissions climbing

Flow motion

Source: The Block

• April has proved to be a tough month for the spot bitcoin ETFs. Or at least the toughest month they’ve faced so far; on the whole, the new ETFs still remain largely successful.
  • For starters, we started to see outflows from the new funds. While previously, Grayscale, the trust-converted fund, was the driver of the capital flight from the ETFs, we started to see funds come out of the freshly launched ETFs, as well. 
  • On April 2nd, we saw $87.5 million pulled from Ark Invest and 21Shares’ ARKB, which is the third largest of the new ETFs by AUM. The ETF saw outflows on the 16th, 17th, and 25th, as well. 
  • Bitwise’s BITB also had two days of outflows this month, but they only totaled $13.3 million, so overall, very mild relative to the inflows it has had. 
  • The most jarring, perhaps, was Fidelity’s FBTC seeing $22.6 million of outflows on the 25th. Again, while this is largely insignificant in the grand scheme of things for the ETF, it does seem to mark a changing tide of sentiment.
  • And BlackRock’s IBIT, the most successful of the new ETFs, has still not seen daily outflows yet but did clock in $0 worth of flows on April 24th, bringing its 71-day inflow streak to an end. Its 70 days of consecutive inflows brought the ETF into the top 10 of funds, with the longest streaks of money pouring in. 
• Is it all over for the ETFs now? No, of course not. 
  • IBIT still tops the charts across ETFs in terms of AUM after 72 days, at $17.6 billion, despite the cut-off in inflows. FBTC is second on the list, and ARKB and BITB are both in the top 10. So even though all four of these funds have seen inflows slow down and, in some cases, have seen outflows, they have still largely managed to amass historically sizable levels of capital in their first few months on the market. 
  • The two popular ETF analysts at Bloomberg, James Seyffart and Eric Blachunas, have both been vocal online about the fact that this trend is normal. Seyffart wrote a thread about the commonality of ETFs tracking no flows, and when many expressed panic when ARKB first showed outflows, they clarified that outflows are also typical in mature ETFs, but the crazy success of the ETFs in the early days made it look abnormal. 
  • Part of what could be causing the slowdown in flows is the more tepid bitcoin market in general. Bitcoin’s 30-day annualized volatility has fallen below 50% this month, which is still quite high but lower than the 81% reached in late March after bitcoin climbed to new highs. The flows and volumes of the new ETFs surged along with the price of bitcoin. There is less fervor in the bitcoin market itself, which has translated over into ETF activity. 

Read the Runes

• Runes have been taking over the bitcoin network. This new token standard that launched with the latest Bitcoin halving has been mentioned before in this newsletter, in the context of pushing the average transaction fee on Bitcoin upwards even before their debut as hype stirred and helping miners combat a lower block subsidy reward as transaction fee revenue reached new highs. 
  • And both of those trends largely still hold. The 7-day moving average of the average transaction fee on Bitcoin reached over $40 last week, ten times as high as the $4.10 average on Ethereum. 
  • And the total fees paid on Bitcoin have also outstripped Ethereum, with the 7-day moving average of total fees paid on the network climbing to $25.77 million (un-averaged, the number got as high as $80 million). Regardless of with a moving average or not, the metric hit a new all-time high. 
• One metric that has also flipped recently is the market capitalization to transaction fee ratio of Bitcoin and Ethereum. This metric looks at the market cap of the native asset for the blockchain divided by the annualized amount of total fees paid on the network. 
  • It is sort of like looking at the price-to-earnings ratio of a traditional company, which can be calculated by dividing a company’s market cap by its net income. Net income for a blockchain network is basically the total amount of fees it collects since that is the cost that users are paying to interact with it. Looking at one P/E ratio doesn’t really mean much; it is more helpful to make comparisons among peers. A higher P/E ratio can sometimes mean a company is overvalued since its market cap is a higher multiple of what it is earning, and similarly, a lower P/E can indicate the opposite. 
  • For the first time since July 2019, the 7-day moving average of Bitcoin’s market cap to transaction fee ratio fell below that of Ethereum. Earlier this month, the moving average of Bitcoin’s ratio was 2,400 compared to just 118.33 for Ethereum, but on April 25th Bitcoin’s ratio had fallen down to 220.77, lower than Ethereum’s 227.12. 
  • This doesn’t mean Bitcoin is now undervalued and Ethereum is overvalued. Based on the calculations, it is natural for Bitcoin’s ratio to drop when its fees increase. It just so happens that even in periods of high fees before, Bitcoin’s larger market cap kept its ratio higher than that of the second-largest cryptocurrency. The ratios did get close to inverting back in December 2023 when Bitcoin saw a surge in block demand due to Ordinals excitement. However, it is still an interesting metric to look at, and it demonstrates the magnitude of demand that has hit the network in the wake of the Runes protocol. 
  • The ratio inversion was also short-lived, as fees on Bitcoin have begun to slow more recently. 

First degree burns

Source: Coin Metrics, Beaconcha.in, BeaconScan

• On a similar note to how Bitcoin has managed to dominate Ethereum in terms of transaction fees, partly because of the explosive success of Runes, part of the reason is because Ethereum fees have been dropping as the blockchain seems to be facing a period of relative inactivity.
  • We talked about last week how the number of traders on decentralized exchanges on Ethereum has dropped off a bit since reaching highs during the memecoin hype, but it seems like all areas of the Ethereum DeFi space have been cooling.
  • Less than 1,000 ETH were burned on five out of the eight days since April 20th, and the amount getting burned still remains relatively low. As a reminder, since the launch of EIP-1559 back in 2021, a portion of transaction fees on Ethereum get burned. An uptick in the amount of ETH burned typically indicates higher demand, both because more transactions mean more Ethereum burns, and also because greater block demand increases the base fee that gets burned. Thus, when less ether is burnt, it tends to indicate less activity. 
  • One major reason Ethereum could be feeling this drag right now is because of how other networks have made a name for themselves for DeFi activity. We have talked before about the vibrant memecoin communities that have become popular on Solana and Base. And most other popular layer 1s like Avalanche and BNB Chain, offer cheaper transaction fees compared to Ethereum. Bitcoin, of course, is now the outlier, but still boasts the attraction of Runes. 
• Net ether emissions have been positive since March 15th, meaning that for over a month more ETH has been issued via staking rewards than has been burned on the network, so ether’s supply has been growing.
  • Net ETH emissions on the 27th came in at 4,100 ETH, which is the largest day of ETH emissions since The Merge happened and ETH issuance was slashed in the conversion from Proof-of-Work to Proof-of-Stake. 
  • This level of issuance is still quite low compared to pre-Merge levels but does challenge the narrative that ETH would become deflationary after both EIP-1559 and The Merge. 

Memecoin round 2?

Source: DefiLlama

• Pump.fun brought in $521,150 in revenue on April 24th, its second-highest day of revenue ever. 
  • What is pump.fun? The protocol allows for anyone to quickly deploy a memecoin by providing a name, ticker, and JPG image and a less than $2 fee. The user does not have to provide any seed liquidity. 
  • The platform first launched on Solana but has expanded to some Ethereum Layer 2’s like Blast and Base. While anyone, in theory, can deploy tokens on any of these networks, there are typically some technical skills associated with doing so, whereas pump.fun makes the process very easy for anyone. 
  • Pump.fun also attempts to prevent rug pulls since every token launched on the protocol does not have a pre-sale or an allocation for any team members. Instead, tokens instantly become traded on a bonding curve, where users can buy and sell. After the tokens reach a certain market cap, a certain amount of liquidity is deposited onto a native DEX and burned. In the case of Solana, once a token reaches a $69,000 market cap, $12,000 of liquidity is deposited into Raydium. 
• The whole concept of pump.fun plays into the era of memecoins that we seem to be living in. The platform reached over $5 million in revenue in under 2 months. Its daily revenues peaked back in early April when memecoins were still at their peak of popularity, but revenues slowed throughout the month.
  • Memecoins did seem to also see a drop off in popularity through April. The GMCI MEME index reached a high of 385 at the end of March but fell down to 237 in mid-April, indicating that memecoins were dropping in value. To be fair, though, the index still remained well above levels seen earlier in the year, with the index starting in 2024 below 100. So, memecoins were still holding onto a lot of their gains, but their growth had stalled.
  • Pump.fun also continued to make $120,000 a day during the slowdown, so things were not all that bad. 
  • But things may be turning around in the memecoins space again. For one, more revenue for pump.fun indicates more people launching memecoins on the platform. And the GMCI MEME index climbed back above 300 again last week, showing a slight rebound. 
  • So while earlier in the month it seemed like the memecoin sector’s flourish was diminishing, it looks to be getting a second life this past week.

Lend me a hand

Source: The Block

• We are just about done with April, and over $136 million has been liquidated on Ethereum lending markets, making it the highest volume of on-chain liquidations since June 2022.
  • The two major lending markets on Ethereum are Aave and Compound, which are also the two largest DeFi lending protocols in DeFi.
  • When someone gets liquidated on one of these lending protocols, it typically means the value of their collateral has become insufficient to support their loan. When you take out a loan you need to post some funds to maintain your position, which typically just serves as a means to make sure the trader will honor the contract and repay it. The protocol is able to claim some of the funds depending on the ratio between the value of the loan and the backing.
  • The amount liquidated on the lending side pales in comparison to the amount liquidated in the futures market. Over $281 million was liquidated in bitcoin long positions alone on April 13th. 
  • While the mechanics behind futures liquidations are slightly different, liquidations are again caused by an exchange seizing collateral when the margin cannot cover a position's losses.
• For both long liquidations and lending market liquidations, they tend to be brought about by a downturn in asset prices.  
  • This is in line with what we saw in the digital asset market, as a lot of the momentum that carried into March faded away. Pressures from inflation and geopolitical tensions weighed on the digital asset industry, as well as more traditional markets. 
  • So it is not shocking that we would see a spike in liquidations this month, but it has been quite a long time since we’ve seen liquidations in the lending market of this magnitude.