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Weekly Research Focus
In Retrospect, It Was Inevitable
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.
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.
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.
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.
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.
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
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.
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.
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.
Stablecoin on-chain transfer value has also surged to new highs in 2021. Unsurprisingly, it is also dominated by Tether.
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.
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.
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/
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