Coin Metrics' State of the Network: Issue 121

Tuesday, September 21st, 2021

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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.

Coin Metrics' State of the Network: Issue 119

Wednesday, September 8th, 2021

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

Analyzing Tuesday’s Flash Crash

By Nate Maddrey and Kyle Waters

As summer came to a close the crypto markets came roaring back to life. BTC surged from $39.3K on August 1st to over $52K on September 6th. Over the same period, ETH climbed from about $2.6K to over $3.9K, close to breaking new all-time highs. Solana (SOL), Cardano (ADA), and others also surged to new all-time highs. But then on Tuesday, September 7th, the markets suddenly came crashing down. BTC dropped to as low as $43.2K, falling by almost $10K.

Source: Coin Metrics Reference Rates

What caused the flash crash? As usual, there were likely many factors at play. Right before the crash, El Salvador officially accepted BTC as legal tender, a much anticipated event that was months in the making. Some traders may have been buying the rumor and selling the news, cashing out amidst the anticipated media attention. 

This news or other events may have caused an initial price drop, but as is often the case in crypto markets the sudden crash was likely mostly due to a series of liquidations of  leveraged futures. There was over $2.3B worth of liquidations on Tuesday, the most since May 19th.

Leverage can be used to increase the potential returns of a futures contract. Using leverage effectively allows a trader to wager larger amounts of capital than they currently have in the account. But using leverage also amplifies risk.

After taking out a leveraged position, traders must keep a certain amount of collateral in their account or risk being liquidated and losing their investment. Sudden price movements can cause a trader to fall below margin requirements and result in liquidation. Highly leveraged trades typically require high levels of maintenance margin, which means relatively small dips in price can lead to getting liquidated.

Liquidations can also cause spot price to swing in one direction or the other. As short positions are liquidated exchanges (or arbitrageurs) may be forced to buy the underlying asset to cover. And when longs are liquidated, they may be forced to sell, putting pressure on spot price. Because of this, liquidations tend to be self-reinforcing - liquidations trigger more liquidations. This can lead to liquidation cascades, which can sometimes cause large, sudden movements in spot price. 

Historically, crypto futures markets have allowed for relatively high amounts of leverage. Binance, FTX, and other exchanges recently reduced their maximum leverage from 100x to 20x, which has helped remove the ultra high risk trades. But it likely hasn’t had too much of an impact on the overall number of futures contracts being opened using leverage. 

Before Tuesday’s crash, futures open interest had climbed back to levels last seen in May. During May the crypto market also experienced a large crash amplified by a liquidation cascade

Source: Coin Metrics Charting Tool

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. As large liquidations occur, open interest can quickly start to decrease as the market delverages.

Before the crash, BTC total open interest across the major exchanges reached as high as $19.8B. But it was still well below the all-time high of $23.25B set on April 12th, and below May’s high of $21.1B.

Source: Coin Metrics Charting Tool

The amount of ETH open interest reached a new all-time high before Tuesday’s crash. ETH open interest hit $11.6B on September 6th compared to a previous high of $11.3B on May 11th. ETH open interest increased drastically in September, growing by over $3B since the start of the month. But although ETH price was approaching $4K on September 6th, it was still below the all-time high of $4,155 set on May 10th. 

The rapid rise in ETH open interest was likely aided by high amounts of leverage. As traders became increasingly bullish about ETH’s future many began to take out leveraged long positions, anticipating that price would continue to rise. 

Source: Coin Metrics Charting Tool

In another sign of ETH bullishness, before the crash ETH perpetual futures funding rates ticked up to their highest levels since May. When the funding rate for a perpetual futures contract is positive, holders of long positions pay short positions. If the funding rate is negative, short positions pay long positions. Increasing funding rate signals that there’s a growing amount of long contracts that are willing to pay the funding rate in order to remain open, typically a sign of positive market sentiment.

Source: Coin Metrics Market Data

ETH trading volume spiked in September although it was still significantly less than the levels seen in May leading up the run above $4.1K. But like most of crypto, ETH has significantly more futures trading volume than spot trading volume. The relatively large amount of futures trading, much of which is opened using leverage, makes crypto susceptible to the types of crashes seen on Tuesday and in May. 

Source: Coin Metrics Charting Tool

Although painful in the short-term, leverage flushes are typically healthy over the long-term. If the system gets overleveraged flash crashes can help flush out some of the riskier contracts and reset to healthier levels. This creates a more solid foundation for building towards the next leg up. 

While liquidation cascades have dramatic effects on price, they don’t change underlying fundamentals. Ethereum alone has added more than 6.2M addresses holding 0.01-1 ETH since the start of 2021. User adoption is growing at a rapid rate, and was not meaningfully impacted by the crash. 

Source: Coin Metrics Charting Tool

As long as there is leverage there will be flash crashes. But despite the short-term price, the ecosystem should continue to grow over the long run as crypto gets adopted by more and more people around the world.

To explore the data used in this piece check out our new market data metrics. For an in-depth introduction to crypto futures data see our Crypto Futures Data Primer. And to see our other available assets 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

Hash rate for BTC and ETH continued to increase over the last week from July lows. While BTC hash rate is still ~25% lower than May highs, ETH hash rate has hit an all time high. ETH miner revenue was up ~20% as NFT activity in projects such as Loot  and its many spin-offs, has likely pushed priority gas fees (miner tips) higher. 

Network Highlights

ETH gas prices spiked on Tuesday as trading activity and transfers initiated from DeFi protocols picked up during the flash crash. On top of this, NFT mania raged on with the launch of a new project called “The Sevens.” As a result, high base fees translated into negative ETH issuance during many blocks Tuesday (blocks with negative ETH issuance are represented by the red dots below). 

In one extreme example, over 95 ETH was burnt in a single block. Last week, ETH had its first deflationary day post EIP-1559 with over $54M of ETH burned on September 2nd. September 7th marked the second deflationary day for ETH.

Source: Coin Metrics Network Data Pro

Stablecoins faced yet another test amidst yesterday’s volatility. Analyzing stablecoins’ prices during times of market tumult is important because stablecoins can be thrown off their peg during rapid liquidation events or periods when demand increases for safer assets. With total supply now over 115B, stablecoins play a vital role in the crypto ecosystem.  

Stablecoins remained fairly close to their $1 peg during the height of Tuesday’s liquidations. The two largest stablecoins by supply, Tether (USDT) and USDC, did not deviate much from their peg. Tether did start trading at a larger premium to its peg however, perhaps as a the result of a rush to relative safety. DAI also fared okay compared to other periods of volatility such as March 2020 when DAI’s price far exceeded the $1 peg

Source: Coin Metrics Reference Rates 

A brief exception was HUSD, the stablecoin issued by Stable Universal and first listed on the Huobi exchange. HUSD can be used to access Huobi-specific stablecoin markets (e.g. HUSD-BTC) and it is possible rapid liquidations in these markets led to large short-term imbalances. 

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • We are excited to announce that Coin Metrics has been integrated across all Chainlink Price Feed deployments. As such, Coin Metrics is now supporting DeFi applications through Chainlink Price Feeds across numerous leading blockchain networks including Ethereum, Solana, Polkadot, Polygon, and more.

  • 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.

© 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 118

Tuesday, August 31st, 2021

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

Introducing New EIP-1559, Miner Flow, and Payment Metrics

By Nate Maddrey, Kyle Waters, and Lucas Nuzzi

Last week Coin Metrics released a major update to our metric coverage including new EIP-1559 metrics, Ethereum miner flows, valuation ratios, and payment metrics. In this week’s State of the Network we do a deep dive into some of these new metrics and explore how they can be used to help analyze BTC and ETH. You can find more about the rest of our Network Data Pro metrics here

EIP-1559 Metrics

Launched on August 5th, EIP-1559 introduced a major redesign of Ethereum’s transaction fee mechanism. 

While previously Ethereum used a first-price auction to determine gas prices, EIP-1559 introduces a base fee at each block. The base fee is a required payment to be included in a block and is programmatically determined based on the previous block. This in effect automates the gas price bidding system. Under the chosen parameters, the base fee cannot move up or down by more than 12.5% from one block to the next. 

This provides something that is more akin to a predetermined list price (as opposed to a first-price auction) that a user can reject or accept. However, the user has the option to also add a tip. 

While all transaction fees were previously paid to miners, the base fee is burned instead of being included in miner revenue. In other words, the ETH used to pay for base fees is permanently taken out of circulation. This effectively lowers net ETH issuance and decreases the annual inflation rate. Our new metrics include both total base fees burnt as well as mean base fees. So far over 130K ETH has been burnt, worth over $400M.

Source: Coin Metrics Network Data Pro

Paying a Base Fee is a prerequisite to having a transaction included in a block, but it does not guarantee that a transaction will in fact be picked by miners. Users may choose to pay for a miner tip (also known as a priority fee) in addition to the base fees. In essence, miner tips were designed to nudge miners to prioritize user transactions in times of network congestion. So far, priority fees have typically accounted for about 20-30% of total daily fees.

Source: Coin Metrics Network Data Pro

These metrics can be used to create ratios and empower macro analyses of Ethereum’s new monetary policy. For example, if the ratio of total ETH issued to total ETH burnt is lower than 1, this means that more ETH was Burnt than Issued, which signals monetary deflation, or a decrease in total ETH in circulation.

The burnt base fees have dropped ETH’s net annual inflation to an average of 1%-3%, depending on the amount of total daily transaction fees.

Source: Coin Metrics Network Data Pro

Not all wallets have natively implemented the EIP-1559 transaction format upon activation. Although EIP-1559 was introduced via a hard fork and, as such, is mandatory for all network participants, there still exists a mechanism within Ethereum nodes that converts legacy transactions into EIP-1559. This was put in place to minimize the impact that the new transaction type would have on Ethereum wallets. 

In light of this, we have also devised a metric that can be used to track the native adoption of the EIP-1559 transaction format from industry wallets.

EIP-1559 Tx Cnt showcases the sum count of transactions taking place in the network with the native EIP-1559 format. This can be combined with the legacy transaction count to get a view on the adoption of EIP-1559.  

Source: Coin Metrics Network Data Pro

The chart above shows the number of transactions that are natively EIP-1559-compliant (red), relative to non-EIP-1559 compliant transactions taking place in the network (green). The ratio of both metrics can be calculated using our Formula Builder to get a percentage of the adoption of EIP-1559.

Miner Flows Expansion

In order to track the health of Ethereum’s mining ecosystem post EIP-1559, we have also expanded our Miner Flows to support ETH. Clients now have access to the full set of Miner Flows metrics for Ethereum. We believe that flows will be an important data point to track as miner revenue is expected to continue to decrease (at the protocol layer, at least). 

However, as showcased by the chart below, the adoption of EIP-1559 has not affected the ETH accumulation trend currently observed in addresses that belong to individual miners (addresses that are 1-hop away from the coinbase transaction, which is typically paid out to a mining pool). In fact, the amount of ETH held by individual miners is at its highest level ever. 

Source: Coin Metrics Network Data Pro

Net flows to individual Ethereum miner addresses have mostly been positive following the crash in May, with a big spike in June.

Source: Coin Metrics Network Data Pro

New Payments Metrics

In order to better reason about the nature of the users interacting with a crypto network, it is important to understand the value of the payments that are being settled. In order to empower this type of analysis we have developed a new family of metrics that accounts for all transfers below a certain value threshold being settled in a network. This new family is called Payments Below $X, where $X represents the supported value thresholds. At this time, the following value USD thresholds are supported: $100, $500, $1,000 and $10,000. Through this framework, we calculate 2 metric types:

Sum of Payments Below $X USD, which represents the sum of all payments (transfers) that have occurred in the measuring interval below a specific USD amount, displayed in units of USD.

Count of Payments Below $X USD, which represents the count of all payments (transfers) that have occurred in the measuring interval below a specific USD amount, displayed in units of USD.

Source: Coin Metrics Network Data Pro

This also allows for analysis on how smaller transfers are affected by high transaction fees, and other ecosystem variables. As shown in the below chart, the number of ETH transfers below $100 has generally moved inverse to the average transaction fee, since high fees effectively price out some smaller transactors. 

Source: Coin Metrics Network Data Pro

Asset Additions

NDP 5.0 brings 5 new assets to the Coin Metrics coverage universe:

  • Dfinity Internet Computer (ICP)

  • Polygon (MATIC_ETH)

  • Perpetual (PERP)

  • Revain (REV_ETH)

  • Livepeer (LPT)

ICP is being released under our CM Labs initiative, which enables us to add experimental assets to NDP with the caveat that service uptime might not be as optimal as more established assets. These tend to be relatively new assets with fragile nodes, which means their metric availability and service uptime might be impacted without prior notice.

To see our other available assets 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

BTC and ETH mostly moved sideways over the past week after BTC surged back above $50K on August 22nd. Active addresses for both networks dropped week-over-week. BTC transaction count increased by 1% while ETH’s decreased by 4%.

ETH transaction fees, however, continued to rise thanks to an ever-increasing number of new NFT drops. Total ETH fees increased by almost 100% week-over-week for an average of over $32M a day. BTC transaction fees averaged about $600K per day on the week.

Network Highlights

The daily transfer value of bitcoin in USD terms seemingly hit an all-time high of ~$102B on August 26th. However, when looking on an adjusted basis transfer value was ~$13B. 

This large difference shows why unadjusted transfer value can be misleading when taken at face value, especially for UTXO-based chains like Bitcoin. 

Coin Metrics has long implemented a methodology to remove noise and isolate meaningful economic throughput on Bitcoin and other chains. In particular, change outputs muddy the picture for UTXO chains. For example, when a holder of a 100 bitcoin UTXO wants to send 1 bitcoin, the 100 bitcoin UTXO is spent in its entirety with 99 bitcoin received back in change.

An “obvious change” heuristic removes outputs cycled directly back into the originating address. Other non-economic transfers such as exchanges reshuffling cold wallets are excluded in the adjusted transfer figure. With heuristics like this, adjusted figures better represent meaningful on-chain economic traffic.

Coin Metrics Updates

This week’s updates from the Coin Metrics team:

  • State of the Network will be published on Wednesday, September 8th next week due to the Labor Day holiday schedule. 

  • 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.

© 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 117

Tuesday, August 24th, 2021

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

Crypto’s August Rebound 

By Nate Maddrey and Kyle Waters

After falling as low as $29.76K in July, bitcoin (BTC) price broke back above $50K on Monday. Data suggests that BTC is on the path to recovery after a market wide crash just three months ago.

Source: Coin Metrics Reference Rates

In May, a surprise government crackdown caused Chinese miners to suddenly shut down their operations and relocate to friendlier jurisdictions. Miners and other Chinese investors sold their BTC amidst news of crackdowns on exchanges and further regulation. The ensuing panic contributed to a market wide crash that saw BTC’s price drop by over 50%.

As mining operations moved out of China Bitcoin hash rate plummeted to its lowest level since 2019. But it started to recover in July and August after hitting a local bottom on June 26th. The recovering hash rate is a signal that some mining operations are starting to come back online in new locations and that the worst of the crackdown is likely over.

Source: Coin Metrics Network Data Charts

BTC SOPR (7-day average) turned negative for most of June, a sign that investors were selling at a loss. 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. To learn more about how to interpret SOPR check out our On-chain Indicators Primer.

But BTC SOPR has turned positive again in August, a sign that the capitulation period has ended and that the market is back on more solid ground. 

Source: Coin Metrics Network Data Charts

BTC perpetual futures open interest has started to climb back up over the last month and has returned back to May levels, although it is still below the peak reached in April. 

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. As large liquidations occur, open interest can quickly start to decrease as the market deleverages.

On July 19th, Binance reduced their maximum amount of leverage to 20x, down from a previous max of 100x. On July 25th, FTX made a similar announcement, reducing maximum leverage to 20x. Although open interest is rising the overall amount of leverage is likely lower than seen in April and May. Lower leverage should help reduce the risks of the extreme liquidation cascades that occurred during May’s crash

Source: Coin Metrics Market Data

The rest of the crypto market has bounced back over the past month as well. Smaller-cap assets have outperformed BTC over the last 30 days led by Cardano (ADA) and Polkadot (DOT). Other potential Ethereum competitors have broken out over the last month, including new all-time highs for Solana (SOL).  ETH has outperformed BTC over the last 30 days as CryptoPunks, Art Blocks, and other Ethereum-based NFTs have caught fire

Source: Coin Metrics Network Data Charts

Spot trading volume has begun to rebound as well. Combined trusted trading volume of BTC, ETH, XRP, BNB, DOGE, ADA, DOT, and UNI topped $25B on August 19th. But it is still well below the levels seen in April and early May - on May 9th, DOGE alone accounted for over $20B of trading volume. Retail frenzy is still relatively muted compared to earlier this year, even as prices march back towards all-time highs. 

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

BTC and ETH usage continued to climb over the last week, growing 4.6% and 4.2% respectively week-over-week. Although ETH transactions increased by 3%, total fees dropped by 25.9% for an average of $16.3M a day. While ETH fees have cooled off some since last week they still remain at their highest levels since May mostly thanks to a burst of new NFT drops.  

Network Highlights

The number of BTC and ETH addresses with relatively small holdings has been rising throughout 2021. The total number of BTC addresses holding between 0.001 and 0.1 bitcoin has increased ~15% so far in 2021 but has been somewhat flat since the end of April. The number of ETH addresses holding 0.01 to 1 ETH is up ~58% YTD and has continued to steadily increase throughout the summer. With NFT summer raging on Ethereum, it is possible that retail interest in NFTs is helping Ethereum adopt new users.

Source: Coin Metrics Network Data

Daily net ETH issuance has fallen from an average ~13K over the week preceding EIP-1559 to averaging near 9.5K now, about a 27% decrease due to the new base fee being burnt. Altogether, roughly 32% of the cumulative ETH issued since EIP-1559 went live on August 5th has been burnt. Over 81K ETH has now been burnt to date.

Source: Coin Metrics Network Data

The percentage of Ethereum transactions using the EIP-1559 fee mechanism has been increasing as wallets catch up in supporting the new format. On August 18, MetaMask started rolling out EIP-1559 support to its users. Since this announcement, the daily percentage of transactions using EIP-1559 vs. the legacy fee mechanism has accelerated, rising from ~23% of transactions to a little over 40% on August 22nd. More transactions should be EIP-1559 compliant moving forward as more wallets implement support for the new fee mechanism.

Source: Coin Metrics Network Data

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.

© 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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