Coin Metrics' State of the Network: Issue 106

Tuesday, June 8th, 2021

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Weekly Research Focus

Trading Volume Trends

By Nate Maddrey and the Coin Metrics Team

Over the last month, ether (ETH) trading volume has caught up with bitcoin (BTC) volume on Binance, the largest exchange in the world. While BTC led by a fairly large margin in the beginning of the year ETH volume took a big leap forward in May. 

The past month was an outlier in many ways with meme coins like DOGE dominating headlines and a large crash that took down the market. Although it’s still too early to tell whether these trends will last or if they were just a flash in the pan, trading volume data provides some insights into what happened in the crypto markets over the last few months. 

Note: All of the charts and data in this piece include only USD and stablecoin trading pairs, and do not include other crypto-to-crypto or crypto-to-fiat pairs. 

Source: Coin Metrics Market Data

Smaller-cap cryptoassets have surged across the board in 2021. Altcoin trading volume (“altcoin” in this context meaning any non-BTC or non-ETH cryptoasset) on Binance began to climb in January and peaked on May 10th, right before the crash. Binance has hundreds of altcoin pairs, so it's not surprising to see Binance altcoin volume overtake BTC and ETH. But the ratio of altcoin volume to BTC has taken a noticeable leap upwards considering it was almost even to start the year. 

Source: Coin Metrics Market Data

A big part of the Binance altcoin surge was due to Dogecoin (DOGE). DOGE trading volume on Binance briefly surpassed BTC and ETH volume in May, although it has since declined.

Source: Coin Metrics Market Data

But there has been an increase in other altcoins as well, including Binance Coin (BNB), Ripple (XRP), Cardano (ADA), and Polygon (MATIC). Overall, ETH trading volume on Binance surpassed BTC volume in May, although it was relatively close: about $191B for ETH compared to $188B for BTC. DOGE came in third at about $116B.

Source: Coin Metrics Market Data

Other exchanges showed similar trends over the last month. ETH trading volume shot up on Coinbase in May (counting only USD and stablecoin pairs), with a large spike on May 19th.

Source: Coin Metrics Market Data

ETH volume surpassed BTC volume on Coinbase by a wider margin than on Binance. Coinbase did not offer Dogecoin trading in May (although they introduced it in early June), so it did not have a DOGE rush similar to Binance. But it did have a relatively high amount of volume for some other altcoins, led by MATIC, ADA, and Ethereum Classic (ETC).  

Source: Coin Metrics Market Data

Continuing the trend, ETH volume edged out BTC on FTX, although not by much. But comparatively, the top altcoins made up a lower percentage of total volume on FTX than on Binance and Coinbase. 

Source: Coin Metrics Market Data

ETH volume also topped BTC volume on Huobi. Similar to Binance, DOGE volume surged on Huobi, taking the spot as the third most traded currency by volume. 

Source: Coin Metrics Market Data

While ETH has surpassed BTC volume on most of the major exchanges, BTC still leads on the Chicago Mercantile Exchange (CME), a preferred destination for institutional investors. CME only introduced ETH futures in February but they have been gaining momentum since then. Although it appears retail investors trading on exchanges like Binance and Coinbase have favored ETH over the last month, it appears that institutional investors are still favoring BTC.

Source: Coin Metrics Market Data

To explore more Coin Metrics data check out our free charting tool, formula builder, correlation tool, and mobile apps.

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

The markets continued to move mostly sideways over the last week. Bitcoin and Ethereum usage both stayed relatively flat, with daily active addresses dropping 2.5% and growing by 3.3% respectively. Ethereum daily transaction fees dropped by over 35% week-over-week as gas prices continued to fall. And Bitcoin transaction fees followed a similar pattern, dropping by 40.5%. 

Network Highlights

Bitcoin’s difficulty was adjusted downward by about 16% at the end of May. Bitcoin difficulty adjusts every two weeks to keep a target block time of ten minutes on average. A higher difficulty requires a higher aggregate hash rate to keep block time at ten minutes, while a decrease in difficulty signals hash rate has dropped. Bitcoin hash rate fell in mid-May following the price crash and reports that some Chinese mining operations were knocked offline. Although a 16% decrease is a relatively large difficulty adjustment, it followed a 22% increase earlier in May. Difficulty is still above levels of early May which signals that the hash rate drop was likely less severe than initially feared. 

Source: Coin Metrics Network Data Charts

Tezos daily active addresses (30-day average) have surged since March after Tezos-based NFT marketplace Hic et Nunc started gaining traction. Tezos’ relatively low transaction fees makes it economical to sell NFTs at low prices compared to Ethereum, which has  led to a surge of both artists and collectors.  

Source: Coin Metrics Network Data Charts

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

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

  • We’re excited to announce the new Coin Metrics mobile app. View 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.

Coin Metrics' State of the Network: Issue 105

Tuesday, June 1st, 2021

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

Coin Metrics is hiring! See open positions in Engineering, Research, and more here.

Weekly Research Focus

Stability After The Crash

By Nate Maddrey and the Coin Metrics Team

The crypto market has been tested over the last few weeks following a cascade of negative news. The resulting price crash has also been a big test for stablecoins, which are increasingly becoming a critical part of the ecosystem.

On May 19th a flash crash caused by a liquidation cascade brought bitcoin’s price from $39K to close to $30K over the course of a few hours. Sudden unexpected price drops can throw stablecoins off of their price peg. As price drops, investors often rush to trade their cryptoassets into Tether (USDT), USDC, DAI, and other stablecoins. At the same time, liquidation events triggered by falling prices can cause stablecoins being used as collateral to be sold. This sudden shift in supply and demand can potentially knock stablecoin prices from their $1 peg, and threaten their stability. 

Overall, stablecoins weathered the storm relatively well. Stablecoin prices temporarily spiked following the flash crash. But most stablecoins remained under $1.01, and dropped back below $1.005 within six hours.

Source: Coin Metrics Reference Rates

By comparison, during the March 2020 crash stablecoin prices surged to $1.05 and above, with prices remaining elevated for days afterwards. While DAI was knocked well above its $1 price target during March 2020, it stayed much closer to the peg this time around thanks to several improvements from MakerDAO. 

Source: Coin Metrics Reference Rates

May 19th was also a record day for stablecoin trading volume. Tether (USDT) alone had over $70B worth of trusted trading volume, more than both bitcoin (BTC) and ether (ETH). USDT is often used to trade against BTC, ETH, and other cryptoassets, which likely accounts for a bulk of the volume. 

Source: Coin Metrics Network Data Charts

Unsurprisingly, the number of stablecoin transactions also peaked on May 19th at over 1.5 million. A majority of those transactions were due to the Tron version of Tether (USDT_TRX). 

Tron has minimal transaction fees compared to Ethereum and Bitcoin, which makes it a good candidate for sending relatively small transactions, or for use cases such as transferring funds between exchanges. 

Source: Coin Metrics Network Data Charts

Tether is issued on multiple platforms, including Omni (which is built on Bitcoin), Ethereum, and Tron. Over the last year Tether supply has shifted towards Tron, which now accounts for 53% of total Tether supply (across those three platforms). 

Source: Coin Metrics Network Data Charts

But despite USDT_TRX’s lead in terms of transaction count and supply, the Ethereum version of Tether (USDT_ETH) has still had more transfer value over the last few weeks, which suggests different use cases for the Ethereum and Tron versions of Tether.

Source: Coin Metrics Network Data Charts

Overall, Tether is still the leader in terms of total stablecoin supply. But others are growing fast. USDC supply has increased by over 6 billion since May 12th, up to a total of over 20 billion.

Source: Coin Metrics Network Data Charts

USDC supply has been growing at a faster rate than Tether since the beginning of 2021, and its growth rate has increased significantly over the last month. And with a recent announcement of $440M fundraise for Circle, the company behind USDC, USDC’s momentum should only increase from here. Tether still reigns supreme, but if current trends hold, USDC may soon catch up.

Source: Coin Metrics Network Data Charts

To explore the data used in this piece and 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

The crypto market mostly moved sideways this past week following the mid-month crash. BTC and ETH fees both had a significant dip, dropping 35.2% and 68.3% respectively. Fees on both networks previously surged with a flurry of trading and liquidations surrounding the market crash, so the drop does not come as a surprise. Amidst the market volatility USDC continued to rise, with total supply growing by 17.8% week-over-week to a total of over 21B. 

Network Highlights

Wrapped BTC (WBTC) on-chain transfer value surged to $2.9B on May 19th, and has averaged over $1B a day since then. The following chart shows WBTC transfer value smoothed using a 7-day rolling average. 

Source: Coin Metrics Network Data Charts

WBTC supply has grown to over 181K after dropping to about 108K at the start of the year. Used extensively in DeFi, this likely signals that WBTC is becoming an increasingly important part of the DeFi ecosystem.

Source: Coin Metrics Network Data Charts

Ethereum’s average gas price climbed to over 324 GWEI on May 19th. But since then it has dropped back down to much lower levels. Average gas price on May 27th was 38 GWEI, the lowest it's been since December 2020. For more on Ethereum gas price dynamics check out The Ethereum Gas Report

Source: Coin Metrics Network Data Charts

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

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

  • We’re excited to announce the new Coin Metrics mobile app. View 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.

Coin Metrics' State of the Network: Issue 104

Tuesday, May 25th, 2021

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

Coin Metrics is hiring! See open positions in Engineering, Research, and more here.

Bitcoin’s Big Shift: A Data-Driven Analysis of the May 2021 Crypto Crash

By Nate Maddrey and the Coin Metrics Team

Over the last two weeks crypto was hit by a double tsunami of negative news. First, Elon Musk kicked things off by announcing Tesla would no longer be accepting bitcoin (BTC) payments and adding critical Tweets about Bitcoin’s energy usage. Then an even bigger tidal wave hit: news that China is cracking down on Bitcoin miners and traders. 

The resulting sell-off has been painful in the short-term. But over the long-term, a stronger foundation is being built. A big shift is occurring, and some of the biggest criticisms of Bitcoin are potentially being torn down. 

Source: Coin Metrics Reference Rates

Miner Panic

Over the last few days reports have started to surface that China's State Council, the country's central government body, has declared a crackdown on Bitcoin mining and trading. While China has had a long history of crypto regulation, this is the first known instance that Bitcoin mining was specifically brought up at a State Council committee meeting.

Although it's still unclear exactly what types of enforcement will take place, the comments have reportedly caused some Chinese miners to sell their mining equipment and BTC. Others have started the process of migrating out of China to restart their operations in other countries.

On-chain data lends support to these reports. The amount of BTC transferred out by miners has spiked to its highest levels since March 2020, which implies some miners are likely moving their BTC to sell. Although there was not a big spike in flows from miner wallets directly to exchanges the net outflow supports reports that miners have been selling on OTC desks.  

For an in-depth analysis of how we derive our miner metrics and further breakdown of the implications of a potential Chinese miner migration, see our latest research report

Source: Coin Metrics Network Data Charts

If these reports are true, it helps explain at least part of the sell-off. But it also has large implications for Bitcoin’s future

For years, some investors have had concerns about the relatively high concentration of BTC miners in China. Specifically, there are often questions about China’s ability to potentially influence Bitcoin, as well as the relatively high carbon footprint of some of its coal powered mining operations. 

If the Chinese government truly cracks down on mining, much of the hashpower currently concentrated in China will end up getting redistributed abroad. A shift in hashpower distribution would not only make the Bitcoin network more decentralized, but it would also address one of the last remaining big criticisms holding BTC back. 

Estimated hash rate (7-day average) has also dropped by about 21% over the last ten days. This could potentially add more evidence to support reports that Chinese miners are being forced offline. If these miners are in fact forced to migrate we may see a big hash rate correction in the near future, as mining operations start to come back online. 

However, there’s a misconception that daily hash rate figures can provide an authoritative view on miners pulling the plug. In reality it is impossible to get a precise daily change figure by solely looking at on-chain data.

In a special report, Coin Metrics Network Data Lead Lucas Nuzzi breaks down how hash rate is measured, including the potential pitfalls. Additionally, he goes into detail about how our miner metrics are derived, and dives deeper into the implications of China’s regulatory action. 

Read the full report here: Bitcoin Miners Are Escaping China

Binance Boom 

On May 12th, following Musk’s Tweets, BTC net inflow to exchanges (14-day average) began to spike, meaning a relatively high amount of BTC was being deposited to exchanges compared to the amount being withdrawn. By the 19th, exchange net inflows reached its highest level in years. 

Source: Coin Metrics Network Data Charts

The sudden inflow suggests that some investors were transferring BTC onto exchanges to sell. But there are several other factors contributing to the large net inflows.

Breaking down the net flows by exchange, Binance has easily accounted for the largest portion. This is not surprising considering Binance is the largest exchange in the world. Binance also has a large futures market, so some of the inflow may have been incoming collateral to cover leveraged positions.

But looking at net flows for other exchanges shows an interesting contrast. Net flows on Huobi have plummeted, meaning there has been a relatively large net outflow. This once again lines up with reports that Chinese based exchanges like Huobi may be under threat of investigation. Binance appears to be under less of a threat as it is not officially headquartered in mainland China. A crackdown on Chinese exchanges and trading could be a further factor in Bitcoin’s shift, if that supply eventually makes its way out of China and into other hands.

Source: Coin Metrics Network Data Charts

Short-Term Capitulation 

While selling pressure from China has been a large contributor to the price drop over the last few days, the sell-off was already in motion well beforehand. Elon Musk’s Tweets on May 12th about his concerns about Bitcoin’s environmental impact sent an initial shockwave through the markets. Musk later clarified his comments by saying that Tesla had not sold any BTC. But by that point the selling had already begun. 

After Tesla publicly announced a $1.5B purchase of BTC in early February, an incoming flood of retail investors helped push price to a new all-time high of over $63K. But now a lot of those new entrants appear to have exited following Tesla’s about-face. Much of the supply that was bought up over the last few months on a wave of Tesla hype is shifting into stronger hands. 

The following chart shows the amount of BTC supply revived (i.e. sent as part of a transaction) after being held for a certain period of time. Following May 12th, the amount of BTC revived after being held for 90-180 days began to spike. By May 19th, supply revived after being held for 30-90 days had also peaked. This implies that a lot of the supply flowing to exchanges was likely bought between December 2020 and May, with a large amount bought after February. 

Source: Coin Metrics Network Data Charts

Many of these sellers appear to have capitulated and sold at a loss. BTC spent output profit ratio (SOPR) dropped to .977 on May 19th, its lowest level since April 2020.

BTC SOPR is a ratio of bitcoin’s price at the time UTXOs are spent to its price at the time they were created. In other words, it’s a proxy for price sold divided by price paid. A SOPR below 1 signals that investors are selling at a loss. This suggests that some investors who bought recently, while BTC price was near all-time highs, have capitulated and are selling their holdings. Historically, a SOPR of below 1 has corresponded with local cycle bottoms. 

However, it’s important to note that SOPR is an approximation and not an exact measure of profitable transactions. Not every bitcoin transaction is a trade, which means that not every transaction represents selling in or out of profit. Read more about SOPR and other on-chain indicators in the Coin Metrics On-chain Indicators Primer

Source: Coin Metrics Network Data Pro

Liquidation Cascade 

For months prior to the crash, the crypto markets were propped up by record high levels of leveraged futures. But as BTC price dropped a lot of that leverage quickly began to unwind. 

On May 19th Bitcoin hit a liquidation cascade when price unexpectedly dropped below $40K. When BTC hit $39K a burst of longs were liquidated, kicking off a temporary price spiral. 

Leverage is when a trader effectively borrows money to increase their exposure to an asset. Leverage increases potential rewards, but also amplifies risk. If price suddenly drops traders may be left with an insufficient amount of collateral in their account to cover their leveraged position, which can lead to getting liquidated by the exchange and losing their funds. This can create a sudden surge of forced sellers, which can lead to spiraling liquidations - if enough positions are forced to be sold, price drops, which leads to more liquidations. For more about leverage and the crypto futures market see the Coin Metrics Crypto Futures Data Primer

The following chart shows the value of liquidated BTC perpetual future contracts for May 19th. The green “buys” represent short sellers that were forced to buy to cover their positions. The red “sells” represent longs that were forced to sell to cover. 

As BTC dropped below $40K a large amount of long contracts were liquidated in the $39,100-$40,300 range. This led to a cascade of liquidations all the way down to $30K, with close to $100M liquidated below $33,500 and over $80M liquidated below $31,000. The large amount of long-liquidations compared to short-liquidations shows that a disproportionate amount of contracts were going long, a sign of the market’s bullishness at the time. Liquidations finally started to dry up below $30,700, as BTC price approached $30K before bouncing back up.

Source: Coin Metrics Market Data

The cascade of liquidations dropped BTC perpetual futures open interest by over $3B, bringing it to its lowest level since February. Open interest is a measurement of the total number of active futures contracts. Increasing open interest indicates that more contracts are being opened and additional money is coming into the market.

Open interest can also serve as a proxy for measuring leverage. If there’s a relatively high amount of open interest there’s a good chance there’s a high amount of leverage in the futures market, as contracts are often opened using leverage. The sharp increase in open interest starting in February indicates that BTC’s record run was partially fueled by high levels of leverage.

Source: Coin Metrics Market Data

BTC perpetual futures open interest has now reset to January levels. This type of rapid de-leveraging leads to devastating short-term price drops. But ultimately, clearing out leverage helps create a more solid foundation for future growth, since it wipes out a huge amount of potential forced sellers. 

Strengthening Foundation

Over the last two weeks the crypto markets suddenly started to undergo several seismic shifts. A crackdown by the Chinese government appears to have kicked off a migration of hashpower and BTC from China to other regions of the world. Tesla’s change of heart about accepting BTC payments spooked some retail investors, causing many to capitulate. And a massive futures liquidation event caused a temporary price spiral, but also cleared out a lot of outstanding leverage that was propping up the market.

The situation in China is still unfolding, and it remains to be seen what happens over the upcoming weeks. If there are more severe crackdowns the crypto markets could continue to sputter. But if things are not as bad as initially thought, the worst may be behind us. 

Regardless, once the carnage is over, strong hands are waiting on the sideline to take advantage of relatively discounted prices. Institutional investors appear mostly unphased by the selloff. Those who have been waiting for an opportunity to enter the market may finally see this as the right time to do so, and investing titans like Ray Dalio continue to change their minds about BTC

Bitcoin’s fundamentals haven’t changed. And if a big shift towards more decentralization is truly occurring, they are only growing stronger. 

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

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • This has been a special edition of State of the Network. The regular format will return next week. 

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

Coin Metrics' State of the Network: Issue 103

Tuesday, May 18th, 2021

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

Coin Metrics is hiring! See open positions in Engineering, Research, and more here

Weekly Research Focus

In Retrospect, It Was Inevitable 

By Nate Maddrey and the Coin Metrics Team

After helping push bitcoin (BTC) price to close to $60K just three months ago, Elon Musk sent the markets in the opposite direction this past week with a series of Tweets about crypto. 

To kick things off, Musk Tweeted that Tesla had suspended vehicle purchases using BTC due to environmental concerns. From there, he moved on to Dogecoin (DOGE) and suggested that he was working with DOGE devs to make transactions more efficient. He went on to say “Ideally, Doge speeds up block time 10X, increases block size 10X & drops fee 100X.” 

Bitcoin energy consumption is a nuanced and complex topic. Although it’s true that Bitcoin mining uses a lot of energy, the energy expenditure is critical for securing the network and keeping BTC safe. While there is still a lot of work to be done to make Bitcoin mining greener, there is a real case that Bitcoin will be a key driver in the future of renewable energy

Musk and others also often use a transaction-based model for estimating Bitcoin energy usage. In reality this is misguided - miner revenue, which incentives miners to join the network and expend energy, is mostly derived from new BTC issuance and is predominantly a function of price.

Furthermore, blockchain scalability is a notoriously difficult problem. Short-term solutions like increasing transaction throughput also increases the size of the blockchain, which means running a node would require more powerful hardware to keep up with the larger amount of data. This can threaten the network’s decentralization since small, independent node operators end up getting priced out. Increased centralization was one of the main concerns during the Bitcoin block size wars, and has already been endlessly debated within the community. Bitcoin chose to prioritize decentralization and security at the expense of scalability (although scalability should eventually improve thanks to Layer 2 solutions), while other networks have prioritized scalability at the expense of decentralization. 

But despite the knee-jerk reaction to Musk’s Tweets, BTC’s recent downturn appears to be part of a larger trend. Crypto markets tend to be cyclical and move from periods of BTC domination to periods where smaller-cap assets reign supreme. Based on the past few months of data, we appear to be in an altcoin cycle where smaller-cap coins outperform. This differs from the start of the year, where BTC led the way amongst most cryptoassets. 

Source: Coin Metrics Network Data Charts

A big part of the cycle has been due to ether’s (ETH’s) surge. ETH has outpaced BTC over the last few months as institutional investors appear to have begun to invest in ETH. But as ETH has grown so have “Ethereum competitors,” some of which, like Ethereum Classic (ETC), have effectively come back from the dead. As a result, BTC’s market cap dominance has dropped to about 43%, its lowest level in years.

This is also reflected in trading volumes. Trading volume for smaller-cap assets has surged to new all-time highs over the last few months. Notably DOGE trusted trading volume has rivaled BTC, and ETC briefly rivaled ETH.

Source: Coin Metrics Network Data Charts

Despite this shift in trading volume, long-term BTC holders appear relatively undeterred. The following chart shows the amount of BTC supply that’s been revived (i.e. sent as part of a transaction) after remaining inactive for at least 1 year. There was a small spike (17.56K BTC) on May 12th, but overall there was relatively little 1 year revived supply compared to earlier in 2021. 

Source: Coin Metrics Network Data Charts

Transfer value days destroyed paints a similar picture. Transfer value days destroyed is calculated by multiplying transfer value by the amount of days that the coins being transferred last moved on-chain. This gives older coins a much higher weight. For example, a coin that had not been transacted in 100 days is weighted 100x more than a coin that had been transacted 1 day ago.

BTC days destroyed reached 20.86M on May 12th, but was still well below highs from earlier in the year. For context, it reached 19.34M on May 6th, 25.4M on April 27th, and 38.44M on April 6th. 

Source: Coin Metrics Network Data Charts

BTC spent output profit ratio (SOPR) dropped below 1 on May 15th to its lowest level since February 27th. BTC SOPR is a ratio of bitcoin’s price at the time UTXOs are spent to its price at the time they were created. In other words, it’s a proxy for price sold divided by price paid.

A SOPR below 1 signals that investors are selling at a loss. This suggests that some investors who bought recently, while BTC price was near all-time highs, have capitulated and are selling their holdings. Historically, a SOPR of below 1 has corresponded with local cycle bottoms. However, it’s important to note that SOPR is an approximation and not an exact measure of profitable transactions. Not every bitcoin transaction is a trade, which means that not every transaction represents selling in or out of profit.

Source: Coin Metrics Network Data Charts

Lastly, BTC perpetual futures average funding rates have come in closer to zero, at times even dipping negative. Negative funding rates (or close to them) are another signal that bullish sentiment has reset and that the local market cycle is nearing a bottom. Of course, this isn’t always guaranteed to hold true, but it has been a relatively reliable indicator so far throughout 2021.

Source: Coin Metrics Market Data

It remains to be seen exactly where BTC and the rest of the crypto market goes from here. The crypto ecosystem continues to evolve at a rapid pace, and macro uncertainty still abounds. But with Bitcoin due for some major upgrades later this year, it's no surprise that BTC veterans appear to be weathering the storm and continuing to hold for the long-term.

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

Ethreum (ETH) continued its hot streak last week, briefly topping $4,300 before cooling off over the weekend. As a result of all-time high prices, a relatively high number of transactions, and a surge of imitation DOGE coins (more on this below in the Network Highlights section) ETH transactions fees rose over 137% week-over-week. Ethereum mining revenue grew by 57.1% thanks to the big surge in fees. 

Tether also continued its strong growth, with active addresses growing 33.5% week-over-week. Tether supply increased by close to 6% on the week to a total of over 59B.

Network Highlights

Ethereum gas prices temporarily dropped to their lowest levels all year after the gas limit was raised on April 22nd. But over the last week average gas price climbed back to close to 300 GWEI as an explosion of new DOGE imitator coins clogged up the network. 

Source: Coin Metrics Network Data Charts

High gas prices combined with a new all-time high ETH price and a record number of transactions caused the total amount of ETH fees to soar. On May 11th total ETH fees surged to a new high of $117M.

Source: Coin Metrics Network Data Charts

Then, Vitalik stepped in. Ethereum founder Vitalik Buterin was initially sent billions of dollars worth of Shiba Inu (SHIB) tokens as well as several other meme tokens under the assumption that he would be unlikely to sell or transfer the coins. But on May 12th Buterin began offloading the tokens and donating them to the India COVID-Crypto Relief Fund and other charities.

After Buterin began to offload the tokens at around 17:30 UTC, SHIB price started to drop. This caused some SHIB holders to panic and rush to sell off their tokens on Uniswap and other decentralized exchanges. This led to temporarily escalating gas prices as people rushed to be the first to cash out before prices fell. 

Each dot on the below chart represents the average gas price of an individual Ethereum block. For more on how Ethereum gas mechanics work and how things will change with the upcoming EIP-1559 upgrade, check out our in-depth research report: The Ethereum Gas Report.

Source: Coin Metrics Network Data Pro

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • We’re excited to announce the new Coin Metrics mobile app. View 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.

Coin Metrics' State of the Network: Issue 102

Tuesday, May 11th, 2021

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

Coin Metrics is hiring! See open positions in Engineering, Research, and more

Weekly Research Focus

The State of Bitcoin: Q2 Reset 

By Nate Maddrey and the Coin Metrics Team

After a big Q1 bitcoin (BTC) has been relatively quiet so far in Q2, even as ether (ETH), Dogecoin (DOGE) and other cryptoassets have exploded. 

In 2020 and early 2021 changing macroeconomic conditions helped fuel BTC’s rise and bring in a new wave of institutional investors. Now macroeconomic conditions could be shifting in BTC’s favor once again. 

After strengthening during March, the U.S. dollar (DXY) weakened during April, and dipped again last week. Many investors are now expecting monetary easing to continue for longer than previously thought, as signs start to mount that the economy is still recovering. BTC has historically risen during times that the dollar has weakened, so this could be good news for BTC, at least in the short-term.  

Source: Coin Metrics Network Data Charts

Furthermore, data suggests that the BTC market is in a healthier position than it was a few months ago. BTC perpetual futures open interest has reset to its lowest levels in months, which indicates that leverage has been flushed out of the system. This gives the BTC market a healthier foundation for the next leg up.

Source: Coin Metrics Market Data

Bitcoin’s hash rate surged in early May to reach new all-time highs following a plummet in April after regional blackouts in China forced some mining operations offline. The drop spooked some investors into selling amidst fears of a potentially larger drop. But less than a month later hash rate has fully recovered and is back to higher levels than before the drop. 

A proxy for network security, growing hash rate is a healthy sign for Bitcoin’s continued growth. Additionally, the rebound shows that the network is resilient and able to quickly recover after unexpected outages. 

Source: Coin Metrics Network Data Charts

Although retail investors have been pouring into DOGE and other small-cap cryptoassets, BTC adoption has still been growing. The number of addresses holding relatively small amounts, between 0.01 and 1 BTC,  has grown by 710K since the start of the year with a big surge in April. For context, in 2020 the number of addresses holding between 0.01 and 1 BTC increased by a total of 610K. 

Source: Coin Metrics Network Data Charts

In another sign of growing adoption, on-chain transfer value surged in April to its highest levels ever. There was a total of $447B adjusted transfer value in April, compared to $366B in March and $319B in February. 

Source: Coin Metrics Network Data Charts

Despite the relatively muted price action, the Bitcoin ecosystem has continued to expand in the background. On May 5th NYDIG announced that BTC will be coming to hundreds of US banks later this year. Bank customers are expected to be able to buy, sell, and hold BTC through their existing accounts, potentially bringing in many new investors. In another sign of growth, Square recently shared that BTC accounted for 15% of Cash App’s gross profit in Q1, up from 8% a year ago. 

And Bitcoin technology is also in line for a major upgrade. Activation for Taproot has officially begun, as miners have begun to signal their support. Expected to go live later this year, Taproot will bring a lot of major improvements to how Bitcoin transactions work under the hood, including reduced fees and increased privacy. It will also lay the foundation for enhanced smart contract functionality and Lightning Network improvements

With so much happening in crypto it can be easy to forget that Bitcoin is still growing at a rapid rate. Given the positive momentum on most fronts Bitcoin could be in for another surge during the second half of the year. To explore the data used in this piece and 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

Ethereum (ETH) continued to break through all-time highs this past week and on-chain metrics were up across the board as a result. Adjusted transfer value increased a huge 149% week-over-week for an average of $31.9B a day, over double BTC’s daily average of $14B. Fees are also back on the rise growing to $29.1M per day. And daily active addresses increased to over 803K, a 6.3% growth on the week. 

Network Highlights

As part of our continued effort to make blockchain data easy to access for everyone we're happy to announce that we just released over 100 new network data metrics and indicators to our free community offering – more than doubling its breadth. 

New community metrics include:

  • Greater granularity in our supply and address data, enabling the creation of wealth and HODL bands using our formula builder.

  • More market cap metrics, including Free Float and 1-year active market cap. 

  • Indicators using Free Float supply  including MVRV Free Float and Free Float NVT (90 day).

  • Many miner, fee and network usage metrics.

  • Aggregate exchange flow metrics. 

  • Our supply distribution metrics (NDF and SER).

  • And many more….

Below we dive into some of the new metrics. And as always you can explore and download our community data using our free charting tool and formula builder

BTC age distribution bands, also known as “HODL waves,” show BTC’s supply grouped by the time since it was last moved on-chain. HODL waves give a macro view of how BTC’s supply has shifted over the years. 

Reading from the bottom of the chart up, the red colored bands show the percent of supply that has been active relatively recently, ranging from less than a day to 90-180 days. The “1-7 Days” band is the percent of total supply that’s been held for at least 1 day but less than 7 days, “7-30 Days” is the percent of supply that’s been held for at least 7 days but less than 30 days, etc.

Source: Coin Metrics Network Data Charts

We also added several new versions of market capitalization in addition to traditional market cap. Realized capitalization was introduced in 2018 and gives a more long-term, slow moving measure of bitcoin’s total valuation. Realized capitalization is calculated by valuing each unit of bitcoin individually at the price that it was last transacted on-chain. Free float market cap calculates market cap using a more accurate measurement of the supply that’s liquid and freely available to the market.

Source: Coin Metrics Network Data Charts

The ratio of market cap to realized cap (MVRV) has historically been a relatively accurate indicator of local market cycles. We’ve now added free float MVRV to our community metrics, which adjusts MVRV to account for illiquid supply.

Source: Coin Metrics Network Data Charts

Lastly, we’ve added a suite of supply distribution metrics. The following chart shows the percent of total BTC supply held by different ranges of addresses. Reading from the bottom of the chart up, the first band shows the percent of total supply controlled by addresses holding between 0 and 1 BTC, the next band shows the supply controlled by addresses holding between 1 and 10 BTC, and so on.

Source: Coin Metrics Network Data Charts

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

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

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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.

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

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