Coin Metrics' State of the Network: Issue 124

Wednesday, October 13th, 2021

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Are BTC and ETH Spot Markets Maturing? Assessing the Health of Crypto Market Structure Using Order Book Data

By Kyle Waters and Nate Maddrey

In just a little over two weeks, October 31st will mark the 13th anniversary of the release of the Bitcoin white paper in 2008. Although the crypto market is still in its relative youth, crypto market structure is rapidly evolving and developing each day. As new institutional participants evaluate and enter the space it’s becoming increasingly important to measure the maturity of the emerging asset class. There are multiple ways to do this but one approach is analyzing crypto market microstructure (i.e., how crypto assets are traded).

One desirable feature of both crypto and traditional financial assets is deep market liquidity. In the context of centralized exchanges, market depth is the total amount of buy and sell orders in the order book. Deep markets with abundant quantity at prices close to the best bid or ask in the order book are preferable to thin markets because they can absorb large market orders with minimal price impact (slippage). In other words, high market depth implies better liquidity and ease of trading into or out of an asset. 

Using Coin Metrics’ recently expanded order book snapshot coverage we analyzed how market depth for BTC and ETH spot markets on Coinbase, Kraken, and Gemini has changed over time. The CM Market Data Feed provides the top 100 bids and asks in the order book at 10-second intervals - we collected this data for each day since January 1st, 2020 (note CM coverage starts in April 2019). For each day we then calculated the average total quantity bid and offered across the top 100 positions in the order book and how far (in % terms) the price was from the best bid and offer. 

BTC-USD Spot Market Depth on Coinbase, Kraken, and Gemini

The chart below shows the average daily market depth and distance from the best bid/offer for BTC-USD spot markets for the three selected exchanges. On the y-axis, positive values indicate the total value of buy orders (in $) while negative values show the total value of sell orders. The color scale measures if the quantities offered or bid are at prices very close to the midmarket (dark green, closer to 0%) or far away (dark red, capped at 1%) from it.

Source: Coin Metrics Market Data Feed

BTC market depth has generally been improving over time for Coinbase, Kraken, and Gemini. It is tough to disentangle the effects of price volatility when measuring in dollar terms, but the market depth has mostly remained constant or increased, especially since the May crash earlier this year. 

Looking across the three exchanges, the quality of market depth has also improved over time. In recent months, the top 100 bids and asks on Coinbase have all been within 0.2% of the best bid/ask. There is now typically $1.5M worth of depth on each side of the market within that range. While this is not a direct simulation of expected slippage or price impact, this suggests a market order of $1.5M worth of BTC would generally incur slippage costs of less than 0.2% on Coinbase today.

Similarly, there is about $6M worth of depth within 0.5% on Kraken and roughly a similar amount on Gemini within 1% of the best bid/ask. Note that different exchanges have different incentives and fee structures to attract market makers, complicating direct comparisons of market depth. Also, a comprehensive comparison would include the full market order book, not just the quantity in the top 100 bids and asks (CM has started collecting full order book snapshots for all markets at hourly intervals).

For the three selected exchanges, BTC-USD market depth also maps well to overall spot trading volume. Coinbase has the highest spot market share of the three and also has the deepest order book (within 0.2% of the best bid/ask).

ETH-USD Spot Market Depth on Coinbase, Kraken, and Gemini

Like BTC, ETH has had a transformative 2021 thus far and order book data points to a maturing ETH market. Like the BTC-USD analysis above, we calculated the average daily market depth for ETH-USD spot markets on Coinbase, Kraken, and Gemini. 

Similar to BTC-USD, the total quantity (in USD terms) within the top 100 bids and asks has been increasing. This is largely due to the rapid price rise of ETH in USD terms but a more profound improvement is the quality of the market depth with prices closer to the best bid and ask. On Coinbase and Kraken there is now typically enough ETH on each side of the market available to absorb a $1M market order with less than 0.2% slippage. 

Source: Coin Metrics Market Data Feed

The improving market depth for ETH across these three centralized exchanges is striking, especially considering that trading volume on DEXs, mainly Uniswap V3, now rivals centralized peers. 

The strong market depth is also significant given the decrease in liquid ETH available for trading. At ~112M, ETH free float supply (CM’s measure of supply available to the market) is about the same level as it was in May of this year. Part of this is likely due to ETH being sent to the ETH 2.0 staking contract; there is over 7.9M ETH now in the staking contract

Source: Coin Metrics Network Data Charts

Like BTC, ETH spot trading volume across these exchanges also correlates to exchanges with deeper market liquidity. Total ETH trading volume has skyrocketed in 2021, with total ETH-USD volume on Coinbase in Q2 and Q3 notably surpassing BTC-USD volume (Q2: $89B vs. $87B, Q3: $53B vs. $49B).

Conclusion

Spot order book data for BTC and ETH shows that the two assets are continuing to mature. This is especially important to large institutions with sophisticated execution strategies trying to minimize slippage costs. Furthermore, significant liquidity across many exchanges means that one particular market order will have less of an impact on the prevailing market price, improving price discovery and making potential manipulative tactics more expensive and unlikely. Deeper markets are also necessary for investment vehicles/funds that regularly liquidate holdings to meet redemption needs. As regulators continue to weigh exchange-traded funds and other crypto investment products, order book depth on crypto asset exchanges is essential data to pay attention to.

To explore the data used in this piece and our other market data and on-chain metrics check out our free charting tool, formula builder, correlation tool, and mobile apps.

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

BTC led the way this past week as price climbed back over $57K and market cap once again passed $1T. ETH was not too far behind with a 9.9% week-over-week market cap growth, compared to 18.5% for BTC. Transaction fees on both chains also surged as activity picked up. BTC fees grew over 75% on the week for a daily average of $894.6K. ETH fees grew by over 48% for a daily average of $35.9M. ETH active addresses averaged over 500K per day compared to 834.6K for BTC. 

Network Highlights

As the Ethereum 2.0 merge draws nearer the amount of ETH held by Ethereum miners has climbed to new all-time highs. The following chart shows the total amount of ETH held in addresses that are one-hop away from an initial block reward payout. A majority of block rewards are paid out to mining pools who then distribute ETH to pool members, so addresses one-hop from mining pools typically represent individual miners. 

Source: Coin Metrics Network Data Charts

Ethereum hash rate has also climbed to new all-time highs in October. Hash rate temporarily dipped over the summer following the May crypto crash and Chinese miner exodus, but has rebounded over the last three months. The hash rate spike corresponds with a growth in miner revenue throughout August and September largely due to an increase in transaction fees from NFT activity. Although miner revenue has not reached pre-EIP-1559 heights, the $40M to $50M dollars of revenue generated daily has been enough to attract a steady stream of miners. 

Source: Coin Metrics Network Data Charts

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Check out our market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

  • The Coin Metrics mobile app provides real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests please let us know here.

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you'd like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

© 2021 Coin Metrics Inc. All rights reserved. Redistribution is not permitted without consent. This newsletter does not constitute investment advice and is for informational purposes only and you should not make an investment decision on the basis of this information. The newsletter is provided “as is’ and Coin Metrics will not be liable for any loss or damage resulting from information obtained from the newsletter.

Coin Metrics' State of the Network: Issue 123

Tuesday, October 5th, 2021

Get the best data-driven crypto insights and analysis every week:

Also check out our new supplementary report: Q3 ‘21 By The Numbers

The State of the Network Q3 2021 Wrap-Up 

By Nate Maddrey and Kyle Waters 

In this special edition of State of the Network we take a data-driven look at crypto’s biggest storylines of Q3, 2021.  

Third-Quarter Rebound

After a market wide crash to end Q2, the crypto market turned back around in Q3. BTC and ETH both finished the quarter in the green with BTC up by 32.55% and ETH returning 43.82%.

Source: Coin Metrics Reference Rates

Although BTC and ETH both had positive quarters the big winners in Q3 were newer protocols, with smart contract platforms having a particularly strong quarter. Solana (SOL), Avalanche (AVAX), and Terra (LUNA) all finished up at least 300%. Polkadot (DOT), Cosmos (ATOM), Algorand (ALGO), and Tezos (XTZ) all also had strong quarters, all up at least 90%. 

Ethereum had a burst of new user adoption in Q3 largely thanks to the rapid rise of NFTs. But it also suffered from record high transaction fees throughout 2021 including a total of $1.96B worth of fees in Q3 alone. Competitive smart contract platforms like Solana and Avalanche appear to have benefited from this, as users searched for lower-fee alternatives to Ethereum. For example, SOL price surged to close to $200 in early September as ETH mean transaction fee topped $55.

Source: Coin Metrics Formula Builder

But the Ethereum community has also been hard at work addressing scalability issues. Q3 2021 saw the launch of several layer-two (L2) scalability solutions for Ethereum, including Arbitrum’s mainnet launch at the end of the quarter. 

Bitcoin also saw L2 growth during Q3. The Lightning Network experienced huge growth, with the amount of BTC in open Lightning channels almost doubling from 1.67K BTC to close to 3K BTC.  With continued growth in El Salvador and the recent introduction of BTC tips on Twitter, the Lightning Network is likely poised for continued growth moving forward. 

Following the start of a cryptocurrency crackdown by the Chinese government in May, BTC dropped as low as $29.8K in July. After the crackdown, Chinese miners began to migrate out of the country to relocate their operations in friendlier jurisdictions. Due to the (previously) high concentration of hash power in China, the miner migration caused Bitcoin’s hash rate to temporarily drop to its lowest levels since late 2019. But hash rate started to climb back up starting on July 1st, and is now back to about the same level as the start of the year. 

Source: Coin Metrics Network Data Charts

But after a rebound during the summer, the market briefly came crashing down again in September. As bullish sentiment began to take back over, ETH futures open interest climbed back towards an all-time high. On Tuesday, September 7th an unexpected price drop triggered over $2B worth of liquidations, sending the market spiraling downwards. But after the crash the market has mostly re-stabilized going into Q4, with BTC pushing back towards $50K. 

Source: Coin Metrics Network Data Charts

JPEG Summer

Non-fungible tokens (NFTs) had a massive quarter and were undoubtedly one of the biggest storylines in Q3 in crypto. NFT activity far outpaced levels from earlier this year and has surprised even the most deep-seated individuals in the Ethereum ecosystem. There were a total of 9.88M transfers of ERC-721 tokens on Ethereum in Q3, a 305% increase over the 2.44M in Q2. 

Source: Coin Metrics Formula Builder 

The economic center of this meteoric rise was the NFT marketplace OpenSea. After registering 194K NFT purchases in Q1 and 357K purchases in Q2, there were a total of 3.8M NFT purchases on OpenSea in Q3, a staggering 965% increase quarter over quarter. The number of unique daily buyers on OpenSea averaged 17.4K in Q3, an 815% increase over the 1.9K unique daily buyers in Q2.

Signs of institutional NFT interest emerged in the markets for blue chip projects such as Art Blocks and CryptoPunks during Q3. On July 30th, a pseudonymous buyer purchased 104 of the lowest priced CryptoPunks (the “floor”) in a single Ethereum block for $7M. Then on August 23rd payments giant Visa purchased a CryptoPunk sending the average price for CryptoPunks from ~$200K to $480K (trailing 500 sales average) within a week. 

Corroborating the on-chain data, Google search interest for “NFT” in Q3 also topped levels from late March/early April. However, there are some signs that the NFT market might be cooling off just a bit, perhaps as a result of heightened fees on Ethereum. The success of NFTs was a boon for ETH adoption in Q3 but likely was a key contributor to high network fees (as mentioned earlier).  But with Twitter previewing NFT profile verification for its 206M daily active users, NFTs could see yet another surge in Q4.

EIP-1559

Amidst the backdrop of JPEG summer, Ethereum implemented long anticipated changes to its fee mechanism. Launched on August 5th, EIP-1559 split ETH fees into two components, a base fee which is burnt (removed from circulating supply) and a priority fee (miner tips). With over 406K ETH burnt during Q3 ($1.35B), the introduction of the burnt base fee has had a large impact on ETH’s macroeconomic policy. 

Source: Coin Metrics Formula Builder 

Daily net ETH issuance has come down and there have been 3 days so far with negative (deflationary) issuance.

Source: Coin Metrics Formula Builder

ETH’s issuance averaged 13.5K daily in the months just before EIP-1559 went live which translated to an annual inflation rate of about 4%. Since the launch of EIP-1559, daily issuance has averaged 6.4K implying an annual inflation rate of about 2% at today’s supply.

Looming Regulations

Going into Q4, regulators from all corners of the world are turning their attention towards crypto. 

China continued its crypto crackdown to close out Q3. On Friday September 24th, China’s central bank declared all cryptocurrency activity illegal including offering trading, order matching, and token issuance services. China-based exchanges Huobi and OKEx were hit particularly hard as investors rushed to exit before the impending crackdown. On Sunday September 26th Huobi announced that it will cease all activity for users from mainland China by the end of the year. Huobi had a net outflow of $1.34B worth of ETH (440K ETH) on September 26th, by far its largest ETH outflow to date. 

Not to be outdone, the United States government has also started to ramp up regulatory efforts. SEC chair Gary Gensler has compared crypto to the Wildcat banking era of the 19th century and has also narrowed in on DeFi and stablecoins. Stablecoins had a big quarter amongst the volatility of Q3, with USDC supply increasing by over 4 billion and Tether supply increasing by about 7 billion. But the supply of HUSD (Huobi’s stablecoin) dropped by about 250 million due to the regulatory uncertainty surrounding Huobi. With a Federal Reserve report on central bank digital currencies (CBDCs) reportedly coming soon, stablecoins will likely continue to come under scrutiny in Q4 as more regulators and policymakers focus on crypto. 

Q3 ‘21 By The Numbers

While market cap and hash rate rebounded during Q3 some of the other major on-chain metrics declined from Q2. Over the course of Q3 BTC averaged 849K daily active addresses, down about 15.15% quarter-over-quarter. ETH averaged 558K daily active addresses, down 21.4%. BTC had a total of $888B of adjusted transfer value during Q3 while ETH totaled $729B, both down from Q2.

But adoption metrics increased over the quarter. BTC closed the quarter with 24.7M addresses holding at least $10, and ETH closed Q3 with 27.9M addresses holding at least $10. Large addresses also increased, with 88.4K BTC addresses holding at least $1M compared to 16.1K ETH addresses holding at least $1M. Stablecoin adoption increased as well - at quarter close over 5.8M addresses held at least $10 worth of Tether and 570.8K addresses held at least $10 worth of USDC, up 37.8% and 34.9% respectively. 

For a more in-depth look at Q3’s data trends check out our new supplementary report: Coin Metrics Q3 ‘21 By The Numbers.

Source: Coin Metrics Network Data Pro

Coin Metrics Updates

Q3 was a busy quarter for Coin Metrics. Highlights included:

As always, if you have any feedback or requests please let us know here.

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

Check out the Coin Metrics Blog for more in depth research and analysis.

© 2021 Coin Metrics Inc. All rights reserved. Redistribution is not permitted without consent. This newsletter does not constitute investment advice and is for informational purposes only and you should not make an investment decision on the basis of this information. The newsletter is provided “as is’ and Coin Metrics will not be liable for any loss or damage resulting from information obtained from the newsletter.

Coin Metrics' State of the Network: Issue 122

Tuesday, September 28th, 2021

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Digging into Uniswap DEX Data 

By Kyle Waters and Nate Maddrey

Decentralized exchanges (DEXes) have quickly emerged as essential systems to trade crypto assets in the rapidly innovating sector of decentralized finance (DeFi). Powered by the proliferation of new tokens, composable DeFi protocols, and an ever-increasing user base, DEXes are gaining a formidable share of total crypto asset trading volume.

Over the last year, Ethereum has been the center of DeFi’s evolution and the largest DEX on Ethereum today is Uniswap. First launched in November 2018, Uniswap is now in its third iteration, with V3 of the protocol releasing this past May

In contrast to its centralized counterparts, the Uniswap protocol uses an automated market maker (AMM) design to automatically determine prices. There are no intermediaries that match buyers and sellers with a central limit order book. Trading is completed entirely on-chain with the use of smart contracts, meaning each trade is simply an interaction between a user and code living on Ethereum. 

Unlike the permissioned process of new token listings on centralized exchanges, users generate new markets on Uniswap. Any Ethereum user can start a new market for a pair of tokens if it does not yet exist, creating an organic network of tradable assets.

Uniswap as a Network of Tradable Asset Pairs

Uniswap can be thought of as a peer-to-peer network of tradable assets. While centralized crypto exchanges tend to support trading against just a few base fiat currencies and stablecoins, a token on Uniswap might trade against many assets. 

The number of tradable assets on Uniswap is also growing every day and there are ~47K distinct assets that are tradable on Uniswap V2 alone (a large number but only a portion of the ~373K ERC-20 compliant contracts on Ethereum). This creates an intricate system of markets to analyze. 

Network graphs are a helpful visual tool to synthesize these user-generated markets on Uniswap (and DEXes in general). The network graph below shows all 3,085 tradable tokens on Uniswap V3 and how they are traded against each other. Each dot in the graph represents a token and a line between two dots means a market (Uniswap V3 pool) exists between the two. 

The majority of tokens on Uniswap V3 (2,198) trade only against (wrapped) ETH and no other asset (in pink). On the other hand, some tokens trade only against Tether (220, in teal) or USDC (131, in blue). In the center (in red) are larger market cap tokens like UNI, WBTC, COMP, and MKR which trade against each other and all of the major base assets. The network graph is a powerful way to view DEXes and might also be used to analyze volume between pairs (by weighting the edges/lines between tokens) or understand how new markets are being created (coloring by age). 

Uniswap Growth & Adoption

There have been a total of 67.5M swaps (trades) across all versions of Uniswap since V1 of the protocol released in 2018. Uniswap adoption ramped up during last year’s “DeFi Summer” with trades rising from ~10K per day in May 2020 to ~150K per day by September 2020, when Uniswap’s UNI governance token launched. Daily trades peaked during the crypto market volatility in May 2021 at 271K across all versions of the protocol. Daily trades have fallen since to around 100K trades per day, with V2’s share at ~65% and V3’s share at ~35% (V1 is largely unused now).

The daily number of unique addresses using Uniswap also peaked in May 2021 at just over 100K. Recently, there have been ~30K unique addresses transacting daily and to date Uniswap has been one of the most popular dapps on Ethereum. 

The growth of Uniswap corresponds with growth in macro-level statistics across the entire Ethereum ecosystem. In summer 2020, daily ERC-20 transfers and wrapped ETH supply (the ERC-20 compliant version of ETH used to make ETH-based trades on Uniswap) both increased sharply. 

Source: Coin Metrics Network Data Pro

Contextualizing Uniswap Volume

​​The Uniswap protocol handles significant trading volume each day. While there are thousands of tradable tokens as mentioned above, only a few asset pairs account for the majority of volume. To contextualize Uniswap volume and compare against centralized exchanges we looked at volume across Uniswap V2 & V3 for ETH-USD stablecoin pairs (USDC/Tether/DAI).

So far in 2021, daily ETH-USD volume on Uniswap peaked on May 19th at just over $3B. In recent months, ETH-USD daily volume has frequently been above $1B with Uniswap V3 handling the bulk of dollar volume traded, possibly due to the benefits of concentrated liquidity introduced in V3.

For context, we compared daily volume on Coinbase for ETH-USD spot markets (fiat markets + USD stablecoin markets) to ETH-USD volume on Uniswap V2/V3. The chart below shows that while daily ETH-USD volume on Coinbase was consistently higher for the first half of 2021, volume has been comparable in the second half of 2021 so far with multiple days where Uniswap volume has been higher. 

This confirms that DEXes are becoming increasingly popular trading venues but there are other factors that should be considered when comparing CEXes to DEXes such as quality of trade execution (price impact, fees, etc.).

DEX Metrics Moving Forward 

As DEXes continue to capture a larger share of economic activity across DeFi we will be exploring metrics that contextualize their growth. By living on-chain, DEXes naturally produce an unprecedented amount of data to examine. This is an exciting deviation from the data silos of traditional finance, but challenges remain in proposing and computing robust DeFi metrics such as total value locked (TVL).

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

BTC and ETH were down this week following yet another cryptocurrency ban from the Chinese government. BTC and ETH market cap dropped 9.8% and 13.7% week-over-week, respectively. Usage was also down following the latest ban, with BTC active addresses dropping by 7.7% and ETH active addresses dropping by 5.8%. Following suit, stablecoin usage was down on the week amidst renewed talk of stablecoin regulation from the SEC.

Network Highlights

On Friday the 24th, China’s central bank declared all cryptocurrency activity illegal including offering trading, order matching, and token issuance services. China-based exchanges Huobi and OKEx were hit particularly hard as investors rushed to exit before the impending crackdown. On Sunday September 26th Huobi announced that it will cease all activity for users from mainland China by the end of the year. Huobi had a net outflow of $1.34B worth of ETH (440K ETH) on September 26th, by far its largest ETH outflow to date. 

Source: Coin Metrics Network Data Charts

There is still 791K ETH ($2.4B) and 107K BTC ($4.6B) held on Huobi, although both have been declining since March 2020. 

Source: Coin Metrics Network Data Charts

Following the news, Huobi Token (HT) free float market capitalization dropped by close to $1B. HT free float market cap is now about $1.2B, down from $6.8B on May 12th. 

Source: Coin Metrics Network Data Charts

On Sunday, China-based mining pool Sparkpool also announced that it would be discontinuing its operations. Ethereum hash rate has climbed to new all-time highs this September, buoyed by high transaction fees from the NFT boom. Although Sparkpool’s closure may cause a short-term decrease in hash rate, there is currently more than enough hash power to keep the network secure. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Last week we released a special research report exploring the data behind the rise of NFTs, access the full report here.

  • Check out our market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

  • The Coin Metrics mobile app provides real-time crypto asset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests please let us know here.

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you'd like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

© 2021 Coin Metrics Inc. All rights reserved. Redistribution is not permitted without consent. This newsletter does not constitute investment advice and is for informational purposes only and you should not make an investment decision on the basis of this information. The newsletter is provided “as is’ and Coin Metrics will not be liable for any loss or damage resulting from information obtained from the newsletter.

Coin Metrics' State of the Network: Issue 121

Tuesday, September 21st, 2021

Get the best data-driven crypto insights and analysis every week:

The Rise of NFTs: A Data-Driven Overview of Non-Fungible Tokens

By Nate Maddrey and Kyle Waters

The following is adapted from an in-depth, data-driven research report covering the rise of NFTs. Access the full report here. 

NFTs have become one of the most vibrant sectors of the burgeoning cryptoeconomy. With thousands of different NFT projects and more launching every day, NFTs now represent a material percentage of all activity on Ethereum. The daily number of ERC-721 transfers has increased by more than 10X from the beginning of 2021 to today, despite a recent pullback in activity.

Source: Coin Metrics Network Data Pro

To give a better sense of how this activity is broken down we selected a universe of NFT projects on Ethereum to study. The universe includes all relevant contract addresses for NFT marketplaces, projects in cryptoart, avatar picture projects (sometimes called PFPs or profile pictures), and other digital collectibles. Looking at the daily number of transactions by project it is apparent that most of the increased activity can be attributed to the rise of OpenSea as the top marketplace to buy, sell, and mint NFTs.

OpenSea has been the economic hub of NFT activity this year on Ethereum. The marketplace has grown at a staggering pace in 2021 attracting new users while facilitating the creation and exchange of NFTs. In August 2021, OpenSea registered over $3B in total volume, topping all historical sales volume combined in a single month. The number of unique buyers on OpenSea far eclipsed March 2021 highs in summer 2021, pointing to new widespread adoption. 

While the number of unique buyers has fallen somewhat from an August 2021 high of ~35K unique addresses, there are still around ~20K unique addresses buying NFTs every day on OpenSea, about 6X more than the peak in March 2021. The number of daily sales on OpenSea also reached a high of ~80K in late August, more than 8X the high achieved in March.

While NFTs have attracted new users and generated new economic activity on Ethereum, they have also contributed to periods of network congestion and high fees.

Rising NFT activity has been highly correlated with increased median gas fees on Ethereum over the last few months. But simply observing these patterns does not confirm causal relationships. The impact of NFTs on gas fees is best understood at more granular levels after isolating idiosyncratic events. For example, on August 2nd, a new collection titled “Flowers” launched on the generative art platform Art Blocks Factory at 4pm UTC. The chart below shows that the mean gas price per block on August 2nd spiked immediately at 4pm as many clamored to mint the new NFTs.

There have been a few notable events this year indicating that institutional capital is starting to be deployed to NFTs and well-established firms are ready to explore the emerging space.

2021 has brought on the emergence of everything from NFT funds to an S&P 500 component purchasing an NFT for over $100K. Although NFT-focused funds have mostly been contained to existing crypto “native” investors, there has been some intriguing activity including Three Arrows Capital deploying thousands of ETH to buy up Art Blocks and launch of a $100M NFT fund called Starry Night Capital

As NFTs’ share of economic activity in the crypto ecosystem grows, it is becoming increasingly important to track key metrics on the users and projects behind the proliferation of these digital goods. The charts below show the unique number of owners for each project over time. 

Total unique owners is an important metric because NFT projects, like crypto networks in general, can benefit from network effects. A larger network of owners can command more cultural influence by having a broader set of supporters that are incentivized to promote the project or platform. 

Notably, as CryptoPunks’ average price and volume has skyrocketed, the owner base has grown to around 3,000 unique owners today from only 1,000 at the beginning of the year.

Additionally, measuring active supply for NFT projects can be used to give a sense if owners view the assets as long-term holds or short-term trades. One of the best ways to visualize active supply is by grouping coins into time bands indicating when they last moved (e.g. % of supply that moved in last week). These bands are often referred to as “HODL Waves”. For more on HODL waves, check out Coin Metrics’ primer covering On-Chain Indicators.

Below are the HODL waves for the CryptoPunks collection. Each colored band indicates the percentage of the CryptoPunks supply that moved (transferred, not necessarily sold) in that time period. The supply of CryptoPunks has been the most active it has ever been in 2021. At the end of May, about 50% of the 10K CryptoPunks had moved within the last 3 months (yellow+red+dark red bands) - corroborating the growth in unique Punk owners above. However, the 6-12 month band has been growing which could be a sign that buyers from earlier this year view CryptoPunks as assets to hold.

Although it has decreased in 2021, ~15% of the supply still has never moved from the wallets that first claimed the Punks. An even higher number of Punks have been transferred before but never sold. This has important implications for creating sound analytics, especially market capitalizations.

As the price tags for individual NFTs have become more eye-catching, there is a growing desire to measure the aggregate value of collections and compare market capitalizations for NFT projects. This is not a straightforward task however, even when compared to the challenges of finding market capitalizations of cryptocurrencies. The challenge for NFTs is in the name itself: each token is non-fungible or generally unique in some way with its own theoretical market price. On top of this, a singular item in a collection may sell infrequently or may have never been sold at all.

One way to estimate the market value of an NFT collection is by applying the “realized cap” methodology, first introduced and implemented to cryptocurrencies by Coin Metrics in 2018. A realized cap for NFTs would simply aggregate the last sale price for each NFT in the collection at each point in time it is calculated.

The table above illustrates how we calculate CryptoPunks' realized cap for a few given points in time. To find the realized cap on January 1, 2019, for example, we aggregate the last sale price (if any) for each CryptoPunk before that date. From the perspective of January 1st, 2019, Punk #1000 had most recently sold for $565 on December 26, 2017. Punk #4156 had last sold for $645 on September 17, 2018, Punk #4956 for $60, and so on for each of the 10K Punks in the collection. The last sale price for each punk is then added together to get the total realized cap at that point in time.

As of September 20, 2021, the realized cap of CryptoPunks is ~$780M.

Continue reading the full report…

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

BTC active addresses rose by 4% week-over-week while the number of ETH active addresses fell slightly. ETH fees have fallen after being at their highest levels since May in early September.

BTC and ETH hash rate continued to climb, with ETH hash rate at an all-time high. After 4 straight negative adjustments to BTC mining difficulty from May-July (which was the longest such streak since 2011), there have been 4 straight increases as hash rate recovers from the spring/summer crackdown on Chinese miners. BTC mining difficulty programmatically adjusts roughly every 2 weeks (2,016 blocks) to target a 10-minute average time between blocks.

Network Highlights

The market value to realized value (MVRV) ratio has historically been one of the most accurate on-chain indicators for gauging BTC market cycles. Throughout the 2013, 2017, and 2021 runs an MVRV of 3.0 or above has indicated a local price top. At the other end of the spectrum, an MVRV of 1.0 or below has signalled the best times to accumulate. 

In addition to levels of 1 and 3, an MVRV of 2.0 is shaping up to be a potentially valuable indicator. Historically, an MVRV of 2.0 or above has aligned with the major bull runs. An MVRV below 2 has signalled bear territory. For example BTC MVRV crossed 2.0 on Dec 16th 2020 this year just as BTC price topped $20K for the first time. It dropped back below 2.0 on May 12th as news of China’s miner crackdown started to break. 

BTC MVRV almost broke back above 2.0 on September 6th - it reached 1.94 as BTC spiked above $52K. But it has since dropped back down to about 1.73.

Source: Coin Metrics Formula Builder

ETH free float MVRV crossed above 2.0 on January 6th just after ETH climbed past $1,000. It dipped back below on February 22nd, then above again on April 28th as ETH pushed towards $4K. It fell below 2.0 on May 15th after the crash, and rebounded as high as 1.98 on September 5th. 

Source: Coin Metrics Formula Builder

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Check out our market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

  • The Coin Metrics mobile app provides real-time cryptoasset pricing and relevant on-chain data in a single app!  Download for free here: https://coinmetrics.io/mobile-app/

As always, if you have any feedback or requests please let us know here.

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you'd like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

© 2021 Coin Metrics Inc. All rights reserved. Redistribution is not permitted without consent. This newsletter does not constitute investment advice and is for informational purposes only and you should not make an investment decision on the basis of this information. The newsletter is provided “as is’ and Coin Metrics will not be liable for any loss or damage resulting from information obtained from the newsletter.

Coin Metrics' State of the Network: Issue 120

Tuesday, September 14th, 2021

Get the best data-driven crypto insights and analysis every week:

Measuring Crypto Usage and Adoption

By Nate Maddrey and Kyle Waters

Crypto usage can be tricky to measure. Although all transaction data is public, it can be difficult to tell how many unique users are behind the transacting addresses. A single Bitcoin or Ethereum address may be owned by many individuals, such as an exchange address or multisig wallet. But an individual may also own many addresses for security, privacy, or other purposes.

‘Monthly active users’ is commonly used to track the amount of 30-day unique users of apps and social media networks. Most apps require an email login (or equivalent) so are able to get a relatively accurate measurement of the unique number of users. Although due to its pseudonymous nature crypto doesn’t have an exact equivalent, our recently introduced monthly active addresses metric serves as an interesting proxy. Monthly active addresses measures the amount of unique addresses that either sent or received a transaction over the previous 30 days. 

Unique monthly active users of large-cap cryptos and the major stablecoins reached a peak in mid-May before the market wide crash. But it's started to rebound since mid-July as the market recovers. 

Source: Coin Metrics Network Data Charts

BTC’s monthly (30-day) unique active addresses peaked at a little over 22.1M on January 15th of this year. Weekly (7-day) unique active addresses, shown on the right-hand axis, peaked on January 7th but also spiked on May 8th, topping 6.7M on both occasions.

Monthly unique active addresses dropped as low as 14.3M in mid-July following the Chinese government crackdown on Bitcoin mining and investing, which led to a miner migration out of China. But it has been rebounding since and climbed back above 16.5M. 

Source: Coin Metrics Network Data Charts

ETH monthly active addresses topped a little over 13M on May 18th following the first NFT boom and ETH price surging past $4K. It has since dropped to a low of 6.8M, although it has had some weekly spikes likely related to NFT drops. But the downward trend appears to have started to reverse in early September, and has climbed back above 7M as of September 11th. 

Source: Coin Metrics Network Data Charts

Stablecoin weekly active addresses peaked in mid-May as the crypto markets crashed. They decreased until mid-July but, similar to BTC addresses, have started to recover with the market. Tether is still by far the largest stablecoin in terms of weekly active addresses. Tether issued on Tron, in particular, has accounted for a majority of stablecoin weekly active addresses over the past six months. 

Source: Coin Metrics Network Data Charts

Another way to measure user adoption is to look at the unique number of addresses holding crypto. The following chart shows the number of addresses holding at least one ten-billionth (> .00000001%) of total supply of various cryptoassets in order to filter out empty addresses.

The sample of large-caps and stablecoins shown in the chart below topped 50M unique addresses in early September, topping May’s high. 

Source: Coin Metrics Network Data Charts

Since the start of 2021 BTC and ETH have both had an increase in the number of addresses holding at least one ten-billionth of total supply. Most of BTC’s growth came in the beginning of the year, adding over 1.5M addresses by mid-April. But ETH has surged since the summer, adding over 2.5M addresses since May 1st. Despite the decline in monthly active addresses, ETH holders have increased at a relatively fast pace since May.

Source: Coin Metrics Network Data Charts

After dropping following the crash, stablecoin adoption is also now back above pre-crash levels. As of September 11th, there are 7.5M addresses holding at least $1 worth of stablecoins, a new all-time high. 

Source: Coin Metrics Network Data Charts

To follow the data used in this piece and explore our other on-chain metrics check out our free charting tool, formula builder, correlation tool, and mobile apps.

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

Network usage dipped a little over the past week following last week’s flash crash. Although BTC active addresses dropped to a 7-day average of 745.6K, adjusted transfer value increased by 21.6% for a daily average over $10.1B. ETH active addresses increased by 5.6% on the week as transaction fees began to dip. With L2 solutions like Arbitrum gaining traction, and NFT season dying down, ETH fees may continue to decline back towards pre-August levels. Stablecoins have also seen a usage increase after the crash, with USDC active addresses growing by 20% week-over-week. 

Network Highlights

Over one third of ETH miner revenue was generated from fees on September 6th, the highest daily level since May of this year. The percent of ETH miner revenue from fees fell somewhat after the introduction of EIP-1559’s new burnt base fee, but has risen a little since. Priority fees (miner tips) have likely increased as a result of higher market volatility and continued NFT mania. 

Source: Coin Metrics Network Data Charts

Daily Bitcoin miner revenue has recovered as BTC’s price appreciated from July lows. Total Bitcoin miner revenue has averaged ~$47M per day over the last month, ~88% higher than the average daily revenue in June. However, the percentage of daily mining revenue from fees has averaged ~1.5% over the last 30 days, a relatively low percentage compared to the rest of 2021 so far. 

Source: Coin Metrics Network Data Charts

After a few months of flat to low growth, stablecoin supply growth has started to pick up again. Total supply is nearing 120B with over 4B added since September 1st alone, much of which can be attributed to Tether. 

Source: Coin Metrics Network Data Charts

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • Check out our market-data focused newsletter State of the Market, featuring weekly updates on market conditions.

As always, if you have any feedback or requests please let us know here.

Subscribe and Past Issues

Coin Metrics’ State of the Network, is an unbiased, weekly view of the crypto market informed by our own network (on-chain) and market data.

If you'd like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

© 2021 Coin Metrics Inc. All rights reserved. Redistribution is not permitted without consent. This newsletter does not constitute investment advice and is for informational purposes only and you should not make an investment decision on the basis of this information. The newsletter is provided “as is’ and Coin Metrics will not be liable for any loss or damage resulting from information obtained from the newsletter.

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