Coin Metrics' State of the Network: Issue 50
Tuesday, May 12th, 2020
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Stablecoin Heatmaps Show Tether is Mostly Used During Asian and European Market Hours
Stablecoin market capitalization has almost doubled since the Black Thursday crash. But the exact cause of the surge is still unknown.
To help elucidate how different stablecoins are being used, we analyzed the times of day that stablecoins are being transferred and created heatmaps to show daily usage patterns.
USDT-ETH has a clear pattern of heavy usage from about 2:00 to 16:00 UTC which corresponds with the hours that Asian and European stock markets are open.
Prior to March 12th PAX transfers appear to also mostly be clustered between 2:00 and 16:00 UTC (although not as dense as USDT-ETH). But as of April, PAX transfers have gotten noticeably more dispersed throughout the day.
Prior to March 12th USDC was slightly denser during U.S. hours. But after March 12th there has been a large uptick in usage between 1:00 and 8:00 UTC, which corresponds with Asian market hours.
DAI transfers have mostly been concentrated during U.S. working hours (14:00 - 22:00).
Stablecoin market capitalization has almost doubled since the Black Thursday crash, despite a drop-off for most non-stablecoin assets. As of May 7th, the aggregate stablecoin market cap has grown to over $10B.
There have been many theories about what has been causing this dramatic increase.
Some have speculated that the growth is caused by an increase in the amount of investors holding stablecoins as “dry powder” in anticipation of a new bull run. Others have proposed that it’s a reaction to a shortage of U.S. dollars, or a general rush to safety. Another theory is that Asian OTC traders are pouring money into stablecoins as an onramp to crypto markets.
While the exact cause of the market cap increase is still unknown, on-chain data can help point us in the right direction. In this week’s State of the Network we dive into on-chain transfer data to analyze the usage patterns of different stablecoins in order to shed light on some of the different theories about why market cap is growing.
Stablecoin Transfer Heatmaps
To help elucidate stablecoin usage patterns, we broke down stablecoin transfers by time of day.
The following heatmaps show the amount of stablecoin transfers by hour of day for different Ethereum-based stablecoins. The x-axis is the date, starting from the beginning of February. The y-axis is the hour of day ranging from 0 - 23 (UTC time zone). And the coloring represents the amount of transfers that occurred during that one hour block. So for example, the cross-section of March 1st on the x-axis and 0 on the y-axis represents the amount of transfers that occurred from 12:00 - 1:00 AM on March 1st.
We start by investigating the transfer patterns of Tether issued on Ethereum (USDT-ETH).
USDT-ETH has a clear pattern of heavy usage from about 2:00 to 16:00 UTC which corresponds with the hours that Asian and European stock markets are open. Transfers go dark towards the end of the day - there are very few transfers after 20:00, which is when the New York Stock Exchange closes.
The amount of transfers has also grown significantly since the middle of March. There are clusters of red (i.e. high transfer counts) towards the end of April, which appears to correspond with the hours that Asian markets are open.
While the above heatmap shows the total number of transfers per hour, the following heatmap shows the percentage of the total daily transfers that happened within that hour.
For example, if there were 100,000 daily USDT_ETH transfers and 6,000 happened between 8:00 and 9:00 UTC that hour would account for 6% of the daily total and would be colored yellow/orange. This gives a slightly clearer picture of daily usage patterns, regardless of the total number of transfers.
The following heatmap also shows that USDT-ETH is mostly transferred during Asian and European hours, with a flurry of activity towards the close of Asian markets. This bolsters the theory that USDT-ETH is being used by Asian traders.
Paxos (PAX) usage has also increased dramatically since March 12th. In fact, PAX daily transfers have tripled since March 12th, and reached a new all-time high of 24.4K on May 5th.
As a result, PAX has passed both USDC and DAI in terms of daily transfer count.
Prior to March 12th PAX transfers appear to also mostly be clustered between 2:00 and 16:00 UTC (although not as dense as USDT-ETH).
But as of April, PAX transfers have gotten noticeably more dispersed throughout the day. The on-chain transfer data potentially shows that PAX is increasingly getting non-institutional, global usage.
USD Coin (USDC) had a huge amount of activity on March 12th and the following week, but has dropped off since then. Notably, MakerDAO added USDC as a collateral option on March 17th, which likely contributed to the flurry of transfers.
Prior to March 12th USDC activity was slightly denser during U.S. hours. But after March 12th there has been a huge uptick in usage between 1:00 and 8:00 UTC, which corresponds with Asian market hours.
Interestingly, USDC had a string of days in April where close to 20% of daily transfers occurred in a single hour. The other stablecoins in our study did not have over 12% of daily transfers in a single hour.
Similar to USDC, DAI had a large increase in transfers on March 12th and the days immediately following, but has dropped off since then.
DAI transfers have mostly been concentrated during U.S. working hours (14:00 - 22:00). However DAI transfers are relatively spread out, and not nearly as concentrated as USDT-ETH.
Stablecoin transfer patterns show that different stablecoins are potentially being used for different purposes, and are favored in different parts of the world.
USDT-ETH transfers are concentrated during Asian and European market hours. USDC transfers are also clustered during Asian market hours, but not as densely packed as USDT-ETH. PAX transfers are more dispersed, which could signal that it is being used for non-institutional purposes. And DAI transfers mostly occur during U.S. hours.
Stablecoins are a crucial part of the crypto ecosystem, and will only keep growing in prominence. We will continue to keep our eye on stablecoins, and track their usage and growth as they continues to develop.
Network Data Insights
Both Bitcoin (BTC) and Ethereum (ETH) had another mostly strong week in the lead up to BTC’s halving. BTC’s market cap briefly topped $180B as price approached $10,000. The week ended on a volatile note, however, with BTC market cap dropping back down to about $160B.
BTC and ETH transaction fees were both up over 30% again this week, after ETH fees grew by 31% last week and BTC fees grew by a massive 170%. Fee growth is a positive sign that demand for block space is growing, which generally signals that network usage is increasing.
BTC hash rate grew to all-time highs in the lead up to the halving. As the halving approached, miners rushed to get the last of the 12.5 BTC reward blocks, causing hash rate to increase and average block time to decrease.
The following chart shows BTC hash rate smoothed using a seven day rolling average.
The amount of BTC held by BitMEX and Bitfinex has reached new lows following the March 12th crash. Bitfinex now holds 93.8K BTC, down from 193.9k on March 13th. BitMEX’s BTC supply is now down to 216.0K BTC, down from a peak of 315.7K on March 13th.
Meanwhile, the amount of ETH held on Bitfinex continues to climb to new highs. As of March 10th, Bitfinex held over 5M ETH.
Market Data Insights
The most noteworthy market news this week was the endorsement of Bitcoin by hedge fund manager Paul Tudor Jones. In a note shared to clients, he cites its attractive store of value characteristics in the face of unparalleled monetary stimulus that he has termed the “Great Monetary Inflation”.
Markets had a rational response to the news with Bitcoin outperforming most other major cryptoassets. This marks the second consecutive week of notable outperformance and deserves continued observation.
For nearly a year, correlation between Bitcoin and other assets has remained high and dispersions in returns has remained small, but history has shown us that these periods of calm are interspersed with periods of large shifts within crypto markets. In our previous State of the Networks, we have commented on these regime shifts and the difficulty it poses for fund managers.
The somewhat moderate reaction and the lack of large moves in traditionally high-beta altcoins suggests that we are still far from the irrational investor sentiment that characterizes the late stage of market bubbles.
Paul Tudor Jones’s prediction of unchecked monetary stimulus leading to an increase in inflation is still, surprisingly, a contrarian view that is not yet priced in according to five-year, five-year forward inflation expectations. This measure of inflation is widely cited as a proxy for long-term inflation expectations that is less sensitive to the demand shocks of today or the volatility of food and energy prices.
So far, despite everything that has happened, inflation expectations are stable and the Fed still has its credibility intact. In short, the market believes that the Fed will do what is necessary to defend its price stability mandate. The issue is that we could face a situation where the Fed’s dual mandate of maximum employment and price stability becomes untenable and it will have to favor one over the other. These fears manifested itself in higher inflation expectations in the years following the 2008 financial crisis leading to a multi-year period where assets that rose from rising inflation expectations benefited. Ultimately, the inflation alarmists were proven incorrect as the Fed was able to thread the needle and provide enough stimulus to heal the economy without stoking undue inflation.
The market is betting that it will do the same this time. But it is clear that if the market is incorrect, we could see much higher prices for Bitcoin in the future.
CM Bletchley Indexes (CMBI) Insights
All CMBI and Bletchley Indexes gave up most of last week’s returns, except for the Bletchley 40 and Bletchley 40 Even which were the only indexes that finished the week positive, returning 4.6% and 5.1% respectively. Whilst the CMBI Bitcoin Index was down 3.9%, it was the CMBI Ethereum Index that retraced the most during the week, falling 11.1%.
Even weight indexes are a mechanism of gaining greater exposure to the smaller-cap assets and as such, can often provide different return profiles to market cap weighted indexes. This week’s return profile demonstrates just that, with even weighted indexes, excluding the Bletchley 10, outperforming their market cap weighted counterparts for the week. This type of performance demonstrates that the lower weighted assets within each index were some of the better performers.
Coin Metrics Updates
This week’s updates from the Coin Metrics team:
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