Coin Metrics' State of the Network: Issue 73
Weekly Feature
Q3 Refresh of Trusted Spot Volume Framework
By Jon Geenty and the Coin Metrics Team
The following is an excerpt from a full-length report which has been truncated due to space limitations. Read the full report here.
This post is designed to be a follow up to our ‘trusted volume’ framework post (link) earlier this summer. We have made a few adjustments to take into account changes in the industry as well as reader feedback.
In the original post, we used a three pronged approach to measure the reporting quality of an exchange’s volume. This included volume correlation between the exchange and a group of ‘benchmark’ exchanges, an analysis of key ratios including web traffic and trading volume, and a blended score to quantify more qualitative features of an exchange such as developer tools, trading rules, and KYC thresholds.
One aspect that we would like to clarify is that the purpose of this framework is to lay a foundation for more dependable asset level metrics based on volume. It is not to discredit any exchanges. For example, this more conservative definition of trading volume can help institutions considering ETFs to more confidently gauge an asset’s daily spot trading volume for market sizing.
In this post we’ll cover a number of updates to our original framework, including:
Removing potential Western bias in correlation and qualitative measures
Adding BitMEX to the benchmark set
Including volume of perpetual futures in correlation tests
Changing the weightings of web traffic data
Removing Western Bias
We’re constantly working to make our frameworks as objective as possible, and remove any unforeseen biases that may crop up. With that in mind, we made a few changes to make our framework less biased towards Western countries and less location sensitive.
One of the initial changes that we made was to the correlated volume metrics. To reduce some of the seasonality differences in hourly volume that may present itself when comparing Eastern vs. Western exchanges, we have now used daily volume. This should create a more holistic image of daily trading as opposed to hourly trends they may negatively impact by exchanges located in timezone outside of the control group.
Above is a look at the correlations between the volume from exchanges and the volume from our ‘trusted’ control group for a few of the more well known assets, sorted by the correlation in the Bitcoin markets.
Additionally, we felt that the qualitative parameter regarding a U.S. headquarter was unnecessarily bringing down the scores of exchanges that are reputable. Other parameters regarding regulatory oversight, trading rules, KYC and other compliance based features were being taken into account independently of an exchange’s legal residence. The country on an exchange’s legal documents may give some general idea of “trading fairness” but it is not an efficient or precise measure. This change in methodology evened the qualitative scores between the U.S. and non-U.S. exchanges we reviewed.
Continue reading “Q3 Refresh of Trusted Spot Volume Framework” here...
Network Data Insights
Summary Metrics
Source: Coin Metrics Network Data Pro
Bitcoin (BTC) usage was a little down on the week, with active addresses dropping 2.7% and transactions decreasing by 3.1%. BTC daily transaction fees also fell back down to earth, dropping by 31% week-over-week after averaging $1M a day the previous week.
Ethereum (ETH) active addresses grew by 27% week-over-week, topping 600K per day from October 15th-18th. The last time ETH had at least 600K active addresses for at least three consecutive days was in January 2018.
ETH’s active address growth was driven by stablecoins, as USDC and Tether also had large spikes in active addresses. USDC active addresses reached 40,112 on October 15th, which is only the second time USDC active addresses have ever topped 40K in a day.
Network Highlights
Stablecoin active addresses hit a new all-time high on October 15th. Led by surges in USDC and Tether, the total amount of stablecoin daily active addresses topped 265K. The following chart is smoothed using a 7-day rolling average.
Source: Coin Metrics Network Data Charts
The number of addresses holding at least $1 worth of BTC topped 24M for the first time ever on October 13th. After rapid growth in August ETH is not too far behind, with 21.2M addresses holding at least $1 worth of ETH.
Source: Coin Metrics Network Data Charts
But the gap between BTC and ETH addresses holding at least $10 is much wider. There are about 16.45M BTC addresses holding at least $10 vs about 6.51M for ETH. This means there are close to 15M ETH addresses holding between $1 and $10 compared to about 7.55M for BTC.
Source: Coin Metrics Formula Builder
Market Data Insights
Bitcoin (BTC) and Ethereum (ETH) picked up momentum mid-week and finished the week strong, up 7% and 6% respectively. Most other mid-cap cryptoassets followed suit, with a majority finishing the week up 6-9%.
Privacy coins Monero (XMR) and Zcash (ZEC) continued their hot streaks, with XMR up 19% and ZEC up 15% on the week. Privacy coin network metrics have also shown recent signs of momentum, with XMR and ZEC on-chain transfers both reaching two-year highs (as covered in last week’s SOTN).
CM Bletchley Indexes (CMBI) Insights
This week was mixed across the board, but it was the large cap assets that again proved to perform best during market uncertainty. This was evidenced by the relatively strong performance of the CMBI Bitcoin which closed the week at $11,450.58, up 0.8%. Interestingly, despite the CMBI 10 closing the week up 0.4%, the CMBI 10 Excluding Bitcoin finished down which indicates that most of the large cap strength is attributable to Bitcoin. The small cap assets (Bletchley 40) bore the brunt of uncertain markets this week, falling 4.8% as investors seemingly moved into large cap assets.
The CMBI Bitcoin Hash rate again reached all time highs this week, peaking at 158 exahashes per second. This was short lived however, as Bitcoin underwent a difficulty adjustment over the weekend which has since resulted in hash rate falling 20% to close the week at 125 exahashes per second.
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, don’t hesitate to reach out at info@coinmetrics.io.
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.