Market Update 05/05/23

Bitcoin’s dominance - the measure of its share of the broader crypto market - has continued to see significant growth in the wake of the recent instability across the U.S banking sector. Since March of this year, BTC dominance has risen from 42% to 49%, indicating the popularity of the leading crypto asset as a anti-dollar liquid asset for investors. This follows a series of events and bank collapses in which three prominent U.S. banks failed (Silvergate Bank, Signature Bank, and Silicon Valley Bank), triggering wider market concerns. Earlier this week, First Republic Bank was the latest (and largest) bank to fail, resulting in its seizure by the FDIC, putting digital assets into the spotlight once more. Meanwhile on the network level, Bitcoin broke its record for daily transaction volume, due in part, to the continued interest in the Ordinals protocol. Surpassing a total of 682,300 transactions, approximately 55% was attributed towards Bitcoin based NFT activity which has since crossed over the 3m threshold. Adoption of Bitcoin-based smart contracts has seen sustained growth, with the Stacks ($STX) protocol seeing double digit growth earlier this week ahead of the wider market’s seeming flat reaction to the Fed’s latest interest rate hike. Indeed, investors are hoping that the latest (10th) consecutive hike will be the last of the aggressive contractionary policy that has seen BTC and ETH decouple from traditional assets. With the network’s next halving event due to take place in 2024, many are hopeful for another significant breakout ahead of next year’s block reward adjustment, which are historically paired with the crypto asset reaching new all-time highs. 

Ethereum on-chain data suggests that investors have been moving staked assets away from centralised exchanges towards decentralised protocols. According to data provided by Dune, Binance and Coinbase have seen cumulative outflows of $700m in staked ETH since the successful Shapella fork, whilst decentralised liquid protocols have seen sharp increases in staked assets. Notwithstanding the 6m ETH deposited into Lido Finance’s liquid staking platform, both Frax Finance and Rocket Pool have recorded a combined net inflow of circa $125m. Staking withdrawals were first enabled earlier last month, after Ethereum developers introduced the network’s long awaited Shapella upgrade. A recent announcement by the Foundation suggests that core developers are already in the final stages of planning for the next network upgrade - Dencun. Expected to significantly reduce the costs associated with transactions on Ethereum-based Layer-2 solutions, Dencun’s EIP-4844 (Proto-Danksharding) will enable rollups to add cheaper data to blocks, and help scale Ethereum to >100,000 tps. This follows recent surges in L2 volume which surpassed Ethereum mainnet transaction activity back in February, averaging almost 2m transactions per day. Meanwhile, L2 scaling solution Optimism ($OP) has outlined its plans to use the Ethereum Attestation Service (EAS) for on-chain attestation, establishing a base layer for on-chain verification, with use cases including identity platforms, supply chain management, and government activity tracking.

Cardano’s highly anticipated Hydra scaling protocol has gone live on the network's mainnet, representing a significant milestone for the platform. Structured as a suite of Layer-2 protocols, Hydra will lay the foundations for an increase in the network’s scalability and adaptability to use cases that require fast and inexpensive transactions. Designed to facilitate up to 1m transactions per second, Hydra will introduce cheaper transactions by moving some of the computational load away from Cardano’s main via isomorphic state channels. Although only a first release, the development demonstrates Cardano’s long-term vision of creating a sustainable and scalable smart contracts platform. On the performance front, Cardano has seen several notable advancements in terms of transaction volume and wallet count towards the latter half of April. With a transaction count increasing some 2.5% to 65.6m, wallets increased to 4.07m, whilst TVL was up close to 10% in a 24h period, reaching a total of $154m. Meanwhile, whale activity has also significantly increased, with large daily transactions (>$100k) rising 34% to $10.81bn last week alone.

Polkadot’s Kusama network, often referred to as its pre-production “canary network” has been connected to its more conservative counterpart via a new mechanism called Centauri. Created by cross-chain proponents, Composable Finance, Centauri draws on the Inter-Blockchain Communication (IBC) standard of the Cosmos ($ATOM) ecosystem. Via the decentralised cross-network bridge, users can seamlessly move funds between the two independent blockchains, unlocking a host of new DeFi and yield opportunities. This announcement follows data set forth by analytics firm Santiment, ranking Polkadot and Kusama as the most actively (30D) developed projects in the space. This news comes after Polkadot announced that it has onboarded accounting giant Deloitte (Switzerland) into the Polkadot ecosystem. Focusing on reusable digital credentials, Deloitte will utilise the KILT parachain to support its KYC and KYB practices, giving end users complete control over their data, streamlining the process and reducing the risks associated with error and fraud. 

Uniswap announced its new Agora governance interface, enabling community members to connect with delegates who share their values. Whilst delegate data was previously scattered, the new holistic interface is focused on delegation-allowing delegates creating detailed profiles on their visions for the protocol’s future. By highlighting their opinions and perspectives, community members will be able to more easily identify those who best represent their interests. The latest development in the network’s governance structure comes as Uniswap posted initial results from the launch of their iOS mobile app two weeks back. With more than 20,000 downloads and $10m in trading volume, the significant metrics mirror the protocol’s wider success, having reached over $4bn in TVL, and $1.5tn in trading volume throughout April. This week, Uniswap was caught up in the $PEPE memecoin storm, with PEPE/WETH liquidity pools being the most active on both v2 and v3 of the DEX. Totalling more than 150,000 transactions across both pools, more than $900,000 of accrued fees were raised following the memecoin’s surge in popularity. 

For Solana, Avalanche, Cosmos, Enjin, and BNB, no noteworthy updates this week.

Macro & Markets 🏦💱

The Week Behind: 🗓️⬅️

01/05: FDIC seizes First Republic Banks and sells assets to JPMorgan for $10.6bn

02/05: U.S stocks fall and treasury yields rally ahead of Fed’s interest rate decision 

03/05: Fed raises interest rates (25 bps) to 16 year high in its 10th consecutive hike

03/05: U.S Treasury launches a buyback scheme for old bonds to boost short-term liquidity

04/05: European stocks slide ahead of ECB interest rate decision

04/05: ECB follows U.S. counterparts, raising rate by a further 25 bps

The Week Ahead: 🗓️➡️

08/05: UK Bank Holiday (Coronation of King Charles III)

10/05: GER CPI (MoM) (Apr)

10/05: U.S. CPI (MoM & YoY) (Apr)

11/05: BoE Interest Rate Decision (May)

11/05: U.S. PPI (MoM) (Apr)

12/05: UK GDP (QoQ & YoY) (Apr)

12/05: UK Manufacturing Production (MoM) (Mar)

Fear & Greed Index 😨🤑

The multifactorial index looks at investor sentiment across Bitcoin and other large cap crypto markets, covering volatility, volume, momentum, dominance, and social trends. A score closer to 0 represents ‘Extreme Fear’ whilst a score closer to 100 is linked to ‘Extreme Greed’. Moving back into the ‘greed’ bracket, this week’s score of 61 reflects sustained positive investor sentiment across the wider crypto asset space. Down slightly from last week, BTC continues to trade in the $29k range, with the global crypto market cap hovering around the psychological $1.2tn threshold. Meanwhile, the number of addresses holding 1+ BTC reached a new ATH of 995,781.

CBOE VIX Index 📉🦘

The CBOE VIX Index measures the implied volatility of S&P 500 Index options, traditionally following an inverse relationship. The VIX was up 12% over the last 5D as investors took the Fed’s assurances of a halt to further rate hikes at face value. Coupled with Friday’s posting of optimistic economic data, the positive labour market reflects a strongpoint in the cooling economy, with many having previously warned about the possibility of a recession. At time of writing, the VIX was standing at 18.52 (pre-market).

BTC/DXY Correlation 💵📈

The DXY provides an indication of the value of USD relative to a basket of U.S trade partner currencies. Riding on the back of unimpressive market data, the DXY is set to finish another week in red territory after the Fed’s latest consecutive interest rate hike did little to offset the dollar's recent decline. Although Treasury yields rose somewhat in the aftermath, the Fed’s pledge to halt its longstanding aggressive monetary tightening policy equally means an end to higher USD returns. Coupled with uncertainties in the U.S banking sector, the DXY was down to 101.5 (at time of writing), with its 1Y correlation to BTC at 0.1. 

Market Dominance 📊👑

Bitcoin dominance: 47.1% 45.8 (+1.3%)
Ethereum dominance: 19.2% (-0.3%) 

Bitcoin EU Crypto ETP dominance: 53.9% (+0.4%)
Ethereum EU Crypto ETP dominance: 27.4% (-0.7%) 

Risers & Fallers 📈🚀

⬆️ Pepe ($PEPE) was up over 1000% (7D), leading the ranks in terms of price and volume. The Ethereum-based deflationary memecoin is based on the Pepe the Frog internet meme, capitalising on the popularity of other meme-based crypto assets, such as $SHIB. Featuring a no-tax policy and redistributive reward system for long-term holders, the memecoin has taken crypto twitter by storm, topping Uniswap’s v2 and v3 liquidity pool activity for the week.

⬇️ Sui ($SUI) fell more than 70% over the last week after the L1 smart contracts platform launched its mainnet earlier this week. The Proof-of-Stake token featured on several large exchanges, where select users were allocated a spot in participating in the token’s initial offering, priced between $0.03 and $0.1. Currently trading at $1.31, $SUI aims to create an innovative decentralised L1 blockchain that redefines asset ownership.

Upcoming Conferences

26/05/23 - 28/05/23: ETHGlobal Hackathon, Istanbul
02/06/23 - 04/06/23: ETHSeoul, Seoul
04/06/23 - 05/06/23: UTXO, Prague

That’s all for this week! 

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