Coin Metrics' State of the Network: Issue 92

Tuesday, March 2nd, 2021

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

Weekly Research Focus

Back on Solid Ground

By Nate Maddrey and the Coin Metrics Team

The market took a downturn last week after bitcoin (BTC) reached as high as $58K. The stock market also sold off as the 10-year Treasury note yield had its highest one-month increase since 2016. As a result of the dual selloffs the 90-day rolling correlation between BTC and the S&P 500 (SPY) started to increase over the past week after trending downwards for most of February. The correlation between the two shot up after the March 2020 crash but has been dropping since November 2020 with BTC’s rise. 

Source: Coin Metrics Correlation Charts

BTC futures open interest levels hit record highs preceding the selloff. A measurement of the total amount of active futures contracts, high open interest can signal that system-wide leverage is at high levels. Futures contracts are commonly bought using leverage, effectively using borrowed capital to increase potential returns. 

But open interest came crashing down on February 21st. As BTC price fell, futures contracts were liquidated en masse, closing out a portion of open interest. Although liquidations can be painful in the short-term they can be healthy over the long-term as leverage levels get reset.

Source: Coin Metrics Market Data

The week’s liquidations can be seen in the below chart which shows the value of liquidated BTC perpetual future contracts for February 12th-25th. 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. 

Short sellers were liquidated at a relatively steady pace on the run up towards $60K. But major pain occurred on the way back down. As BTC dropped below $50K a large amount of long contracts were liquidated in the $47-49K range. 

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. On that note, some market participants considered this drawdown overdue as it had been over a month since a similar pullback had occurred. Open interest may therefore have become "overheated" and in need of a reset. 

Source: Coin Metrics Market Data

On-chain data also shows signs of a reset. Spent output profit ratio (SOPR) is a ratio of price at the time a UTXO was spent to its price at the time of creation. In other words, it’s a proxy for price sold over price paid. It’s typically used to estimate whether holders are selling at a profit or at a loss.

BTC SOPR dropped below one on February 27th for only the second time since October 2020, which implies that investors were capitulating and selling at a loss. But it rebounded back above one on February 28th which signals that the market is stabilizing. To read more about SOPR and other on-chain indicators see our On-chain Indicators Primer report.

Source: Coin Metrics Formula Builder

Amidst the market volatility Coinbase released their S-1 regulatory filing on February 25th in anticipation of going public. The filing was over 200 pages and contained a lot of interesting information about Coinbase’s operations. As part of the filing Coinbase disclosed their amount of users: about 43 million registered retail users and 7,000 institutional accounts. Monthly transacting users grew to 2.8M in Q42020, eclipsing Q1 2018.

Source: Coinbase S-1

But there’s been a big difference between the type of users in Q4 2020 vs Q1 2018: during the current run a majority of trading volume has been institutional compared to mostly retail driven volume in 2018. This adds to the growing evidence that institutions are increasingly embracing crypto and is a good sign for BTC’s continued growth throughout 2021. 

Source: Coinbase S-1

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

The market was down this past week but on-chain metrics held relatively steady. BTC active addresses increased by 0.8% week-over-week while ETH active addresses grew by 1.1%. Hash rate also continued to climb for both Bitcoin and Ethereum. A proxy for network security, increasing hash rate is a positive sign for the health of both blockchains.

Stablecoins had a big week amidst the market volatility. USDC led the way, with market cap increasing by about $1B on the week. USDC transfers also surged, increasing by 13.5% week-over-week for an average of about 60.4K a day. 

Network Highlights

USDC is going parabolic. Total USDC supply passed 9 billion on February 28th after passing 8 billion just six days earlier. USDC supply has more than doubled since the start of the year.

Source: Coin Metrics Network Data Charts

As a result of USDC’s rapid rise Tether’s (USDT) supply dominance has dropped to 70%, its lowest level ever. 

Source: Coin Metrics Network Data Charts

Stablecoins as a whole are on the rise again in 2021. Stablecoins are now used extensively in decentralized finance (DeFi) as collateral and for other purposes. They’re used to hold money on the sidelines amidst market volatility and are used to trade in and out of BTC, ETH, and countless other cryptoassets. Additionally, they’re increasingly being used to move money around the world and for foreign aid. As the use cases for stablecoins continue to grow, supply will likely keep on rising.  

Total stablecoin supply has increased to over 50 billion, growing from about 30 billion to start the year.

Source: Coin Metrics Network Data Charts

Stablecoin active addresses have also surged along with supply, signaling high activity. Throughout most of February stablecoins have averaged over 300K unique active addresses per day. On February 18th stablecoin total active addresses topped 400K, a new all-time high. 

Source: Coin Metrics Network Data Charts

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 91

Tuesday, February 23rd, 2021

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

Weekly Research Focus

Analyzing Miner to Exchange Flows

By Nate Maddrey and the Coin Metrics Team

Miners are often considered natural sellers of bitcoin (BTC). Their revenue is earned from block rewards and transaction fees which are paid out in BTC. But their costs, like electricity and rent, are paid using fiat currencies. Miners therefore need to sell a certain amount of their BTC to cover costs and stay profitable. 

Because of their crucial place in the ecosystem, miner on-chain behavior is important to understand. But up until now there has not been much data about how often miners send their BTC to exchanges and which exchanges they send it to. 

In his latest research piece, Following Flows II: Where do Miners Sell?, Karim Helmy introduces a new set of metrics for tracking the flow of BTC from miner addresses to exchanges. The metrics are built upon his prior research into miner flows, which introduced a method for identifying transfers to mining pools and individual miners. 

Miner-exchange flows give an interesting look into miners’ on-chain behavior. Two exchanges in particular are by far the biggest recipient of transfers from miners: Binance and Huobi. 

These results aren’t surprising considering Huobi and Binance are the only two exchanges in our coverage that also operate mining pools. But the large share of inflows is also likely because both exchanges have a strong presence in Asia, where most miners are based.

The report also analyzes the amount of total miner-exchange flows and looks at exchange deposits and withdrawals compared to BTC price. Overall, there’s a low correlation between miner-exchange flows and price. This can be seen in the below chart which compares miner outflows, exchange inflows, and BTC price. These values rarely move in tandem, indicating a low correlation.

There are still some blind spots in the data. Miners often sell on OTC desks as opposed to retail exchanges and OTC flows are not reflected in the data. Additionally, the flows do not yet include a few major exchanges, including Coinbase. But this first iteration serves as a solid foundation for miner -exchange flow data, and will continue to be improved upon in future releases.

Read Karim’s full piece on miner-exchange flows here: Following Flows II: Where do Miners Sell?

To keep up to date with our mining flow data and 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

Bitcoin (BTC) and Ethereum (ETH) both had strong weeks. With BTC price pushing towards $60K and ETH crossing $2k market cap and realized cap for both assets reached new all-time highs. On-chain activity dropped a little bit week-over-week, with a 3.4% drop in BTC active addresses and a modest 0.7% gain for ETH. But that comes on the heels of a very strong week of on-chain activity. Daily active addresses still remain near all-time highs, with a daily average of 1.1M for BTC and 601K for ETH.

Stablecoins also continue to ascend amidst the market volatility. Tether market cap grew by 8.1% week-over-week to over $34.6B. USDC market cap also grew by a little over 8%. 

Network Highlights

Bitcoin hash rate has surged to new all-time highs in February. As price climbs higher, miners earn more through block rewards (in USD terms) and transaction fees. This increase in revenue incentivizes miners to join the network and contribute more hash power to try to win the growing reward. The following chart shows the 7-day average Bitcoin hash rate and difficulty. 

Source: Coin Metrics Network Data Charts

The large price increase to start 2021 has also caused realized capitalization to shoot up to new all-time highs. Realized cap can be thought of as a gross approximation of bitcoin’s aggregate cost basis. It’s calculated by valuing each unit of bitcoin individually at the price that it was last transacted on-chain. Therefore it discounts the price of coins that were last moved during periods where price was relatively low.

Market value to realized value (MVRV) is calculated by dividing bitcoin’s market capitalization by its realized capitalization. In our variant of the MVRV calculation, we use free float (i.e. liquid) market capitalization in place of the traditional version of market capitalization which is based on total on-chain supply.

BTC’s free float MVRV reached about 3.1 on February 21st. Historically, an MVRV over 3 has signalled local price peaks, like in July and December 2017. MVRV also reached about 3.0 on January 8th, 2021, as BTC price reached $40K before dropping back down to about $30K. But it's important to note that historic performance doesn’t necessarily mean that the trend will continue moving forward. Market conditions are different now than they were in 2017, and have also differed in the past. For example, free float MVRV peaked at over 5 during 2013 and 2014. 

For more details about MVRV and other on-chain indicators see our Bitcoin On-chain Indicators Primer

Source: Coin Metrics Formula Builder

Fees continue to rise on both Bitcoin and Ethereum. The average transaction fee on both networks has now reached over $20.

Source: Coin Metrics Network Data Charts

High transaction fees have led to new rounds of talks of potential Ethereum killers - smart contract platforms that could overtake Ethereum’s big lead in decentralized applications.This time around an unexpected contender has emerged: the Binance Smart Chain (BSC). 

As the name implies, the BSC is operated by a centralized exchange: Binance. It’s also designed to be compatible with the Ethereum Virtual Machine (EVM). BSC fees are much lower than Ethereum, which could potentially lure over some Ethereum users. But low fees come at a cost; the Binance Smart Chain is inherently more centralized than Ethereum due to the control exerted by Binance. 

So far the big increase in ETH fees has not led to a noticeable drop in ETH daily active addresses. Ethereum usage remains near all-time highs despite the fees, at least for now, which shows the high demand to use the network. 

Source: Coin Metrics Network Data Charts

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 90

Tuesday, February 16th, 2021

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

Weekly Research Focus

Crypto Trust Supply Sinks

By Nate Maddrey and the Coin Metrics Team

Late last week BNY Mellon, the world’s largest custodian bank with over $2 trillion in assets under management, became the latest institution to announce support for digital currencies. According to the report, BNY Mellon will “eventually allow digital currencies to pass through the same financial network it currently uses for more traditional holdings like U.S. Treasury bonds and equities.”

As institutions continue to embrace Bitcoin (BTC) they are looking for new ways to get exposure to crypto without necessarily having to hold it themselves. Trusts are emerging as one of the most popular options for institutional investors to gain access to BTC and other cryptoassets. 

To date, the largest Bitcoin and Ethereum (ETH) trusts are operated by Grayscale and have over $31B and $5.6B AUM, respectively. Grayscale’s trusts allow investors to get exposure to crypto through a traditional investment vehicle by buying publicly quoted shares. Grayscale’s Bitcoin Trust trades as GBTC and its Ethereum Trust trust trades as ETHE. 

The trusts are structured to hold the underlying crypto and the value of each share is dependent on the amount of crypto under management. For example, Grayscale’s Bitcoin trust currently holds about 650K BTC valued at around $31.1B. With 689,769,300 shares outstanding each share represents 0.00094789 BTC, or about $45. Current market price of a GBTC share (as of February 12th) is $48.91, a slight premium compared to the amount of BTC held per share. 

Additionally, trusts are eligible for tax benefitted accounts like IRAs, and provide a familiar structure for accounting and taxation. High demand from institutional investors has led to the high premium on Grayscale’s BTC and ETH trusts. 

Source: The Block

A key feature of Grayscale trusts is that there is no way to redeem the underlying crypto, at least for now. So when BTC or ETH is deposited into the trusts it stays there indefinitely. The lack of redemption options plus high institutional demand has created an interesting side effect: crypto trusts are becoming large supply sinks that lock up cryptoassets and effectively take them out of circulation, reducing the overall liquid supply.

Although BTC’s supply is commonly considered to be about 18.63M the actual amount of free float, liquid supply is significantly lower. The following chart shows BTC’s free float supply, which is about 14.55M, compared to the total supply. Trusts are not currently excluded from free float supply but the Grayscale Bitcoin Trust alone effectively removes an additional 650K BTC from circulating supply.

Source: Coin Metrics Network Data Charts

Furthermore, a large portion of BTC supply is held for the relatively long-term. Only about 42% of total BTC supply has been moved on-chain within the last year. The percent of supply moved on-chain has been increasing since October 2020 but is still near all-time lows. 

Source: Coin Metrics Network Data Charts

The trust supply sink becomes especially potent when mixed with Chicago Mercantile Exchange (CME) futures. CME futures give institutional investors another way to get exposure to crypto derivatives, both long and short. 

Institutional investors can take advantage of the Grayscale Bitcoin Trust premium by simultaneously depositing BTC into the trust (in exchange for GBTC shares priced at NAV) while shorting BTC on CME. This allows them to remain market neutral and pocket the premium on GBTC. This dynamic has created a vortex that has drawn a large amount of BTC into the Grayscale Trust supply sink. 

Source: The Block

CME just launched ETH futures on February 8th, 2021. Since then over 90K ETH has flowed into the Grayscale Ethereum Trust with an inflow of over 53K ETH on February 11th alone. 

Source: The Block

The Grayscale Trusts have been dominant to date but other trusts are starting to emerge. Bitwise is a competitor that offers both Bitcoin and Ethereum funds. Bitwise currently offers weekly redemptions but plans to terminate redemptions before the start of quotations of shares on the OTC Market. 

Additionally, Coin Metrics is serving as the Index Provider for two newer crypto trust entries. On February 9th BlockFi announced the launch of their new Bitcoin Trust which already has over $50M worth of BTC under management. Similar to Grayscale, BlockFi does not currently have an option to redeem BTC from the trust after it’s been deposited. And the Osprey Bitcoin Trust, which reopened for private placement in November 2020, offers a low-cost alternative. The Osprey Bitcoin Trust offers 0.49% management fee compared to Grayscale’s 2% annual fee. 

As trusts grow more popular and a larger and larger percentage of supply will be locked up and held indefinitely. Amid an already hot market, this is adding more fuel to the fire for crypto’s 2021 bull run. 

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

BTC, ETH, and the rest of crypto had a strong week following Tesla’s announcement of a large BTC purchase on Monday. BTC led the way in most categories, with market cap growing 26.5% week-over-week compared to a 12.1% growth for ETH. BTC fees gained ground on ETH fees, growing 56.8% week-over-week for a daily average of $7.7M. But ETH fees still remain at all-time highs with an average of $27M worth of total fees per day. Despite the uptick in market cap usage remained relatively flat on the week. Active addresses dropped by 0.2% and 3.1% for BTC and ETH, respectively.

Network Highlights

After pumping up Dogecoin (DOGE) over the last few months, Elon Musk shared some concerns on Sunday. Implying that a small group of whales controlled a large part of the supply, he tweeted that “too much concentration is the only real issue” with DOGE.

Examining the data, DOGE is indeed relatively concentrated. The top 1% of addresses collectively hold 94.2% of the total supply.

Source: Coin Metrics Formula Builder

Drilling down further, the top 100 largest DOGE addresses hold 68.1% of total supply. Comparatively, the top 100 largest BTC addresses only hold 13.7% of total supply.

Source: Coin Metrics Formula Builder

It’s important to note that some of these large addresses are exchanges. Exchanges typically hold large amounts of crypto and show up at the top of whale lists. Many owners of DOGE are likely holding their coins on centralized exchanges and brokers.

But considering there are over 2.7M addresses holding at least 1 DOGE, the supply is still top heavy. 

Source: Coin Metrics Network Data Charts

Overall, DOGE supply is relatively concentrated towards large holders. The following chart shows the percent of total supply that different sized addresses collectively hold. 

Starting from the bottom of the chart, the pink band represents the amount of supply collectively held by addresses that each hold between 0 and 0.0001% of total supply. The light blue band represents the percent of supply held by addresses that each hold 0.0001% - 0.001% of supply, and so on.

Source: Coin Metrics Formula Builder

It’s also important to note that supply concentration is far from the only problem with DOGE, as pointed out in a thread by Lucas Nuzzi.

DOGE hash rate, which is a proxy for network security,  is still far below all-time highs despite price skyrocketing. The price of DOGE is up 1200% YTD while hash rate grew only 15% YTD. This potentially makes DOGE an attractive target for an attack.

Source: Coin Metrics Network Data Charts

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 89

Tuesday, February 9th, 2021

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

Weekly Research Focus

Inflection Points

By Nate Maddrey and the Coin Metrics Team

Tesla announced a $1.5B purchase of bitcoin on Monday, less than two weeks after Elon Musk added #bitcoin to his Twitter bio. The large buy adds Tesla to the growing list of public companies buying and holding bitcoin (BTC) in their treasuries. BTC price jumped up to over $44,000 following Tesla’s announcement, a new all-time high. 

Source: Coin Metrics Mobile App, BTC Reference Rate for February 8th, 2021

Large institutions have increasingly been purchasing BTC since Q4 2020 and it appears that trend will only accelerate from here. Tesla’s high-profile endorsement will likely cause many other companies to start considering purchasing BTC. 

The announcement also comes on the heels of MicroStrategy’s Bitcoin Summit conference which focused on the benefits of holding bitcoin as a treasury asset and catered to a largely institutional audience. During the conference, Ross Stevens revealed that his bitcoin-focused firm NYDIG currently has over $6B in AUM from institutional investors and is confident they will have over $25B by the end of the year

There’s also evidence for a growing amount of institution-sized investors on the Bitcoin blockchain. The following chart shows the percent of total supply held by addresses holding specific ranges of BTC. Starting from the bottom of the chart up, the yellow band represents the percent of supply held in aggregate by addresses holding 0-1 BTC, the blue band shows supply held by addresses holding 1-10 BTC, and so on.  

The amount of supply held by BTC addresses holding institution-sized amounts (between 1K and 10K BTC) has increased significantly since late 2020. This group of large addresses now holds about 30% of total BTC supply. Simultaneously, addresses holding between 10 and 1K BTC have been losing supply. On the other hand, addresses holding between 0 and 10 BTC have been gaining supply share since mid-2020, indicating that retail-sized investors are accumulating along with institutions. 

Source: Coin Metrics Network Data Charts

Ether (ETH) also reached new all-time highs on Monday following Tesla’s announcement. Monday’s surge followed a rally at the end of last week that saw ETH break through $1,700 for the first time. Although Tesla did not announce any ETH allocation, evidence suggests that institutions are finally starting to buy and hold ETH. In their recently published 2020 Year In Review report Coinbase revealed that “ a growing number [of institutional clients] also took positions in Ethereum” over the course of the year. 

Addresses holding large amounts of ETH are starting to show similar growth to addresses holding large amounts of BTC. The following chart shows the number of addresses holding at least 1K BTC compared to the number of addresses holding at least 10K ETH (shown on the right-hand side). 

Source: Coin Metrics Formula Builder

Monday, February 8th also marked the launch of ETH futures on the Chicago Mercantile Exchange (CME), the world’s largest financial derivatives exchange. CME futures give institutional investors a way to get exposure to ETH derivatives, both long and short. CME’s launch may potentially accelerate ETH inflows into Grayscale’s Ethereum Trust (ETHE) - investors can buy into the Grayscale Trust while simultaneously shorting ETH, remaining market neutral and pocketing the ETHE premium. Grayscale’s Ethereum trust does not currently have a method for withdrawing ETH so it effectively serves as a large token sink for ETH. 

But as ETH prices have grown, so have fees. ETH transaction fees are hitting new all-time highs even compared to the DeFi-driven highs set during August and September. The average ETH transaction fee reached $25.80 on February 5th, its highest level ever. The median transaction fee topped $14.32.

Source: Coin Metrics Network Data Charts

High transaction fees are increasingly becoming a problem for those trying to use the Ethereum network. Use cases like trading on decentralized exchanges, locking funds into DeFi apps, and transferring NFTs are becoming prohibitively expensive for users who do not want to pay excessive fees.

Over the summer the number of daily active addresses dropped off as fees spiked. Smaller players were likely priced out as fees began to rise. But so far in 2021 Ethereum usage has remained high despite the high fees. Since January ETH active addresses have stayed relatively high, averaging between about 550K and 600K a day. 

Source: Coin Metrics Network Data Charts

But there are also signs that the network is becoming too expensive for smaller holders. ETH’s median transfer value has risen to an average of about $312, higher than September 2020’s peak of $268. While still well below the all-time highs of January 2018, this is the highest median transfer value in years. 

Source: Coin Metrics Network Data Charts

High fees are a double-edged sword. They show that there’s huge demand for block space but also threaten to grind the network to a halt as users become priced out. 

Ethereum has a large lead over the other smart contract platforms but high gas prices will be a large stress test for the network. High fees put pressure on Ethereum application developers to quickly figure out ways to help increase scalability and decrease fees. Uniswap, Synthetix, and others are already hard at work on integrating Layer 2 solutions like Optimistic Rollups to help ease congestion. 

Ultimately, this could be an important inflection point for Ethereum. If fees remain high there’s a risk that some developers and users start leaving for other blockchains. But if Ethereum app developers are able to deliver better scalability Ethereum’s lead could accelerate, putting it further out of reach of competitors. 

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

BTC and ETH on-chain metrics were in the green across the board this past week. BTC market cap grew by 12.9% week-over-week, while ETH market cap grew by 19.6%. BTC and ETH realized cap also grew by 3.3% and 12.8% respectively, as both continue to set new all-time highs. The increase in price and fees have been beneficial for miners. Bitcoin mining revenue increased 20.3% week-over-week, for a daily average of $40.4M. Ethereum mining revenue increased by 54.7%, for an average of $45.7M per day. 

Network Highlights

ETH’s on-chain transfer value has topped BTC’s. ETH’s adjusted transfer value reached over $19B on February 4th, its highest level ever. The following chart shows the 7-day average ETH transfer value, adjusted to remove self-sends and other noisy behavior. 

Source: Coin Metrics Network Data Charts

The new all-time high is due to a huge surge in the amount transferred by Ethereum smart contracts. Automated transfers are used heavily in DeFi and other decentralized applications. 

The surge in transfer value on February 4th may have been slightly exaggerated due to a complex exploit used to drain funds from yearn.finance. But despite the anomaly, transfer value remained high in the days before and after the 4th. 

Source: Coin Metrics Network Data Charts

As prices surge, on-chain activity has been growing throughout crypto. But BTC and ETH still remain dominant compared to the rest of the largest assets by market cap. BTC and ETH each have more daily active addresses than XRP, XLM, LINK, LTC, ADA, BNB, and DOGE combined. 

Source: Coin Metrics Network Data Charts

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 88

Tuesday, February 2nd, 2021

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

Weekly Research Focus

In Retrospect, It Was Inevitable

By Nate Maddrey and the Coin Metrics Team

The stock market was turned upside down last week. Retail investors organized on Reddit and took over, making a killing off of heavily shorted stocks like GME and AMC while major hedge funds lost billions. Bitcoin was mostly left on the sidelines, at least for now. But retail’s attention may soon start to shift. Bitcoin was designed to be a monetary system that does not rely on trusting traditional financial institutions. It seems inevitable that as trust in institutions continues to crumble more people will start to turn to BTC. 

In the meantime, institutions continue to endorse crypto. On January 28th Ray Dalio released a 14 page note called “What I Think of Bitcoin." Similar to other billionaire investors like Paul Tudor Jones he wrote about bitcoin as a form of digital gold and hedge against inflation, stating “there aren’t many alternative gold-like assets at this time of rising need for them (because of all the debt and money creations that are underway and will happen in the future).”

Dalio and Bridgewater are approaching cautiously and still appear to be in an exploratory phase. But considering that up until this point Dalio was mostly uninterested in crypto, this is more evidence that many of the largest financial institutions in the world are starting to change their minds. 

Not every billionaire is approaching bitcoin as cautiously as Dalio. Amidst a mostly sideways week BTC had a temporary surge on January 29th after Elon Musk added #bitcoin to his Twitter bio. He also sent out a cryptic Tweet which may have been referencing Dogecoin. 

But after jumping from under $33K to about $38K in a few hours BTC deflated nearly as rapidly. The mini-bubble encapsulates current market conditions: crypto is increasingly becoming a potent mix of social media fueled hype and endorsements from billionaires.

Source: Coin Metrics Reference Rates

There’s no better example of social media driven crypto hype than Dogecoin’s (DOGE) meteoric rise. Born from a meme, DOGE is unsurprisingly being embraced on social media and fueled by groups on platforms like Twitter, TikTok, Discord, Telegram, and Reddit. DOGE price jumped up to over $0.085 on January 29th, shattering the previous all-time high of $0.017.

Source: Coin Metrics Network Data Charts

DOGE also benefited from Robinhood’s shortcomings: after Robinhood limited buying of GME, AMC, and other stocks on the morning of January 29th many investors turned toward DOGE. Despite the huge run up in price DOGE active addresses did not even reach a new all-time high. This suggests that most new buyers bought and held on centralized platforms like Robinhood rather than buying DOGE and holding it in their own addresses.

Source: Coin Metrics Network Data Charts

For the second weekend in a row decentralized finance (DeFi) had a big surge. Led by Uniswap, SushiSwap, and other decentralized exchanges, DeFi market cap burst through to a new all-time high.

Source: Coin Metrics Network Data Charts

With growing anger at Robinhood and other traditional trading platforms DeFi is in prime position to benefit from the anti-financial institution sentiment. Additionally, the impending Coinbase IPO is still a hot topic with rumors that the firm will be valued at upwards of $50B. Uniswap and other decentralized exchanges (DEXs) may be benefiting from Coinbase’s lofty valuation as investors anticipate renewed attention on crypto exchanges. 

Source: Coin Metrics Reference Rates

Still only a month into 2021 interest in crypto is accelerating and narratives are shifting at a lightning fast pace. With the unprecedented mix of retail and institutional interest it’s gearing up to be a transformative year for crypto. 

Network Data Insights

Summary Metrics

Source: Coin Metrics Network Data Pro

On-chain activity for both Bitcoin and Ethereum remains at high levels. BTC active addresses averaged over 1.1M on the week, hovering around all-time highs. And ETH is now averaging over 1.2M transactions per day which is around previous all-time highs set during the peak of January 2018.

BTC and ETH fees also continue to heat up, growing 15.3% and 18.5% respectively week-over-week. Uniswap, the largest decentralized exchange (DEX) built on Ethereum, is currently averaging over $2M worth of daily fees on its own. Uniswap (UNI) had a huge surge this week with active addresses growing by over 96% and adjusted transfer value growing by 128.6%. UNI price reached a new all-time high over the weekend, with V3 of the Uniswap protocol still on the horizon. 

Network Highlights

Stablecoin daily active addresses have reached new highs since the start of 2021. Tether is still the most dominant stablecoin by most measures and accounts for a large majority of active addresses.  

Source: Coin Metrics Network Data Charts

Tether activity has increasingly shifted over to the Tron version of the stablecoin. Tether is issued on many different platforms, including Ethereum (USDT_ETH), Tron (USDT_TRX), and the Bitcoin-based Omni protocol (USDT). Since the beginning of 2021 the amount of USDT_TRX active addresses has eclipsed the number USDT_ETH active addresses. The shift is likely related to fees - as Ethereum transaction fees have grown due to rising demand from DeFi, Tron fees have remained miniscule. 

Source: Coin Metrics Network Data Charts

Stablecoin on-chain transfer value has also surged to new highs in 2021. Unsurprisingly, it is also dominated by Tether. 

Source: Coin Metrics Network Data Charts

But unlike active addresses, USDT_ETH still has significantly more daily transfer value than USDT_TRX. Although there are more individual addresses using the Tron version, the Ethereum version of Tether still accounts for a majority of the economic throughput. 

Source: Coin Metrics Network Data Charts

Users of the Tron version of Tether are sending much smaller transactions than the Ethereum version. The below chart shows median transfer value using a log scale. 

The median transfer value for USDT_TRX is about 10x smaller than the median transfer value for USDT_ETH - about $95 on Tron compared to about $1,085 on Ethereum. Most other stablecoins’ median transfer values are closer to the $1,000 range. For example, USDC’s median transfer value is about $1,570. 

Source: Coin Metrics Network Data Charts

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.

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