Data & Insights Recap - ETH's growing spot dominance, Phantom's app popularity

Switching sides

Source: The Block

• In truly one of the most unexpected moves in recent crypto memory, the Securities and Exchange Commission approved spot Ethereum ETFs last week.
  • While it was widely known that the final deadline for approval for VanEck’s ETF application was May 23rd, many people were expecting a denial. 
  • But last Monday, three days before the deadline, the now-famed Bloomberg ETF analysts James Seyffart and Eric Balchunas upped their predicted odds of approval from only 25% to 75%. According to things they were hearing, the SEC was going to flip on the issue, as crypto has quickly become a hot-button political issue after Donald Trump hosted his NFT holders at Mar-a-Lago earlier this month and seemed to align himself as the “pro-crypto” presidential candidate, and later moving to accept crypto donations for his campaign. While nothing is confirmed, there is speculation that the sentiment shift may be an attempt by the Biden administration to be less ostracizing towards crypto. 
  • The White House also did not veto the Financial Innovation and Technology for the 21st Century Act (or FIT21), although it did express opposition last week. In their reply to the bill, the White House said they were “eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets.”. 
• To be fair, this approval isn’t exactly like the approval for spot bitcoin ETFs. Most notably, the spot Ethereum ETFs aren’t expected to begin trading for months. There are two important forms for new ETFs: the 19b-4 and the S-1. 
  • For the spot bitcoin ETFs, since there was so much engagement going on between the SEC and the issuers and exchanges, the S-1 forms were ready to go right after the 19b-4s were approved, allowing trading to commence right after the 19b-4 forms got the green light. 
  • The unanticipated shift in expectations has left the S-1 forms for the spot Ethereum ETFs with quite a bit of work to still go, although the 19b-4s were approved last week. 
  • It does seem like staking provisions for the ETFs, which would have allowed for issuers to stake the ether they were holding to earn rewards, have been taken off the table, which is not all that surprising given the agency’s hostile stance to staking in the past. 
• The sharp move in expectations obviously also moved the market. We saw the discount of ETHE shares relative to the NAV narrow and a spike in volumes for the Ethereum futures ETFs. 
  • Naturally, the at-the-money implied volatility for ether, or the market's forecast of a likely movement in ETH’s price, shot up for options across all expirations. The IV shot up the most for options expiring within the week, reaching over 90% on May 22nd, the highest it's been since November 2022. 
  • Ether’s price seemed to move more on the updated predictions from the Bloomberg analysts as opposed to the actual approval, though. And the IV across all expirations has now dropped back to where it was ahead of last week.

Playing catch up

Source: The Block

• Ethereum getting its approvals for a spot ETF has allowed the asset itself to have a bit of relief. Attention on ether faded away after hope for an ETF initially dwindled earlier in the year and after the Dencun upgrade went live. The asset was lagging behind both bitcoin, which was flourishing, for the most part, in the wake of its spot ETF launch, and also many other crypto assets that had strong rallies in the first few months of the year. 
  • For instance, BTC/ETH, a chart widely looked at to measure the performance between the two assets, that prices bitcoin in terms of ether, climbed from 16.6 ETH in mid-January to 22.2 ETH on May 17th, indicating that one bitcoin was worth 5 more ether a few weeks ago compared to at the start of the year. However, the ratio dropped back below 18 ether shortly after the value of ether spiked in the expectation for ETF approval, bringing the pricing between the two back in line with levels seen earlier in the year. 
  • We’ve similarly seen some pretty sharp wicks in the SOL/ETH chart, with 1 SOL able to buy about 4 times as much ether as it was a year ago, even with Ethereum’s recent climb.
• As part of this general ether slowdown, we saw spot trading of the asset fall behind its main cryptocurrency peer. In March, during the peak of the recent crypto rally, the 7-day moving average of bitcoin spot volume reached as high as $29 billion, the highest level since May 2021. For ETH, though, volumes peaked at $12.75 billion, not managing to exceed a peak reached in May 2022 during the spike in trading in the sell-off caused by the collapse of Terra. 
  • But on May 26th, the gap between the two had narrowed, with bitcoin’s moving average dropping to $12.89 billion in trading volume compared to ether’s $11.26 billion.
  • In notional terms, the $1.6 billion disparity is the closest the two have been since January 2020, back before the first major bull market, when volumes for both assets were relatively low, so the $1.6 billion was a larger disparity between the two.
  • But the 87% of bitcoin’s daily volume that ether put up is actually its largest relative shares ever. The previous peak was 85% back in June 2021, when trading of both assets was amplified in the height of the bull market. 
  • It’s not surprising that we’d see ether volume spike relative to bitcoin, given that this is ether-centric news that helped push the asset’s value upwards. But the fact that this catalyst has pushed ether’s spot trading market share to levels only seen back in 2021 is significant. 

That was so BRC-2023

Source: Dune Analytics

• We have talked a bit in this newsletter about Runes. As a recap, the Runes token standard launched at the most recent Bitcoin halving in April and it was initially very popular, accounting for over 80% of transactions on the network at its peak, and helping push daily bitcoin transactions and daily transactions fees paid on the network to new peaks. 
  • Runes are still captivating the public’s attention, commanding roughly 50% of bitcoin transactions still. Although the need to pay such high fees has subsided as that initial demand to get in early died down. 
• But where does that leave Ordinals and BRC-20, Runes’ predecessors? BRC-20, like Runes, is also a token standard for Bitcoin, but it's based on the principles that spawned Ordinals, attaching metadata to specific satoshis, differentiated by the order in which they were minted. Runes, on the other hand, uses unspent transaction outputs as an attempt to be a cleaner approach to new tokens since BRC-20 caused a lot of junk UTXOs. 
  • Well, essentially, Runes have usurped BRC-20. While there were numerous days before the halving, when BRC-20 tokens were highly sought after, where there were over 200,000 BRC-20 transactions a day, it is now more common for there to be less than 10,000 transactions involving the old token standard in the wake of Runes. 
  • Since Runes launched, though, there have always been at least 150,000 Runes-related transactions on the Bitcoin network. But there’s room for that number to go down as we move further from their hyped-up launch. 
  • Non-BRC-20 Ordinals transactions were already not as common before Runes, rarely exceeding 100,000 transactions per day. But in a post-Runes world, Ordinals transactions are lucky to reach 5,000.
• It is not so shocking that Runes would help push BRC-20 to the fringe, given its improvement on the existing standard, but this does signal trouble for some of the biggest BRC-20 tokens, which have faced price crunches both in March as the memecoin rally faded and the again in April as the halving approached, and are seeing a continuing decline. 
  • Ordinals, which has more of an emphasis on non-fungible token issuance on Bitcoin, despite being the core idea behind BRC-20, probably had a better chance of dodging the Runes impact. However, it does seem like many people have moved on, as trading concentrates in Runes. 

Phantom Tax

Source: SensorTower

• Despite the Ethereum ETF approvals, Coinbase has been staying mostly flat in the U.S. App Store since the March rally has calmed down. The popular exchange’s mobile offering breached the top 50 free apps at the start of March, as bitcoin was on the precipice of reaching new heights, and then sank down as the market euphoria faded out and inflation fears calmed the markets. Since April, the Coinbase app has tended to rank somewhere between positions 300 and 200 and has been showing some slow growth since dropping to rank 396 on May 12th. 
• But there is a new, albeit surprising, top crypto app in town. The app is the crypto wallet Phantom, which established its name by becoming one of the most prominent Solana wallets, but has now expanded its offerings to include Ethereum, Polygon, and Bitcoin.
  • It is unusual for a wallet to become as popular, and in this case, more popular, than a major crypto exchange. For instance, we still have not seen Metamask, one of the most well-known crypto wallets, breach the top 500 free apps at all over the past three months. 
  • But Phantom naturally got a boost for its Solana compatibility. The mobile version of the wallet first breached the top 500 in early March, when the crypto rally was most frothy and when the Solana memecoin ecosystem was catching a lot of attention. For many of the more niche Solana memecoins, it wasn’t possible to trade them on an exchange like Coinbase since it didn’t list them; you had to do it on a native DEX, which Phantom helped people access. 
  • Phantom dropped out of the top 500 free apps in mid-April, in a similar fashion to how Coinbase’s ranking fell, as well. 
  • But then, all of a sudden, this past week, the app gained an unprecedented level of popularity, jumping into the top 100 on May 18th and holding there, even breaking the top 50 some days last week. It’s also been dominating in the Utilities category, where it is sorted for Apple (as opposed to Finance, like Coinbase). And in the U.S. Google Play Store, it jumped to number 2 in the Finance category, surpassing PayPal. 
• It’s not clear whether this explosive growth is sustainable or even really organic. While hype around the Ethereum ETF has reignited some spark in the market, the Solana ecosystem is still not seeing the same levels of excitement that it was in March. 
  • But an App Store rank is not all about new downloads; it's also about user retention, reviews and ratings, and a slew of other factors. It doesn’t seem like an easy system to game since simply buying app downloads wouldn’t move the needle that much, but things like app update frequency and language localization developers can have more control over relative to the actual app consumers. 
  • It’s also possible that retention from first time downloaders in the memecoin mania has helped Phantom to break into the mainstream and warrant this app ranking. The platform boasted about its 7 million monthly active users across both their browser extension and mobile app, which is not too far off the 8 million monthly transacting users that Coinbase reported in their Q1 earnings. 

Beauty's in the eye of the meme holder

Source: The Block

• It has been an eventful week for the memecoin subsector. While that has become somewhat typical in recent months, some of the recent events have stood out more than most.
  • For starters, Kabosu, the Shiba Inu who is the face of dogecoin, passed away on Friday. There was actually a New York Times push notification about this, so this news was making its way outside of the markets, since the doge meme itself helped define 2010s culture. 
  • Naturally, known dogecoin proponent Elon Musk decided to weigh in on the situation by taking to X to post an image of Kabosu with Harambe, the gorilla who was killed at Cincinnati Zoo after a child climbed into their enclosure, who is also an animal with a storied meme legacy. 
  • DOGE had slipped earlier in the week, and faced some pops and drawdowns both in the immediate wake of the news of the passing and the Musk post, but overall the attention seems to have boosted the memecoin, which is now trading at $0.1683, compared to just below $0.15 a week ago. 
• And in the broader memecoin space, Ethereum-based memecoins got a boost earlier in the week with news of the pending ETF approval. The overall market was bolstered by the news, but PEPE in particular managed to jump 16% on the change in expectations communicated by the Bloomberg analysts.
• All these positive developments have juiced up the memecoin sector once again. The GMCI memecoin index is now up 295% year-to-date, back at 373.98 compared to just 256.42 at the start of the month.
  • While the Top 30, Layer 1, and DeFi indices all also surged in the past week, only the Meme index is back within range of its previous high reached in March. The Layer 2 and DePIN indices have remained mostly flat. 
  • The MEME index continues to dramatically outperform its peers after its stellar rally in early March. While memecoin hype did slow a bit over the past month, the index was able to hold on to a lot of its gains. It was trading below 100 at the start of the year. 
  • It’s also worth noting that ETH is now outperforming BTC year-to-date after ETH’s pump on the ETF speculation helped it catch up with bitcoin’s gains earlier in the year.