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Coin Metrics' State of the Network: Issue 138
Wednesday, January 19th, 2022
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Trading Volume Reflects Geographic Shifts in Global Crypto Activity and Adoption
Crypto exchanges play a critical role in facilitating crypto adoption. Exchanges serve as the primary point of access to the crypto-economy, allowing users to exchange fiat currencies for crypto assets and stablecoins. For this reason, crypto exchanges are often referred to as “fiat on-ramps.”
Unlike some other financial markets, crypto trading has historically been less geographically centralized (in contrast to London’s central role in the physical gold market, for example). There are many reasons for this, including the distributed nature of crypto networks and the high portability of crypto assets. But despite the fragmentation, trading volume can still provide some insight into the geographical distribution of crypto activity, as traders will tend to use exchanges that have the strongest presence in their region or to stay within regulatory boundaries.
Decreasing Activity on China-focused Exchanges
Over the last year, exchanges popular with Chinese traders have lost market share pointing to the country’s decreasing crypto activity. The swift outflow of Chinese Bitcoin miners and the country’s renewed crackdown on crypto activity has stunted trading volume on exchanges that have historically targeted mainland China customers.
The share of BTC spot trading volume on Huobi, one of the largest exchanges to operate in the region, has been decreasing. At the beginning of 2021, trading on Huobi accounted for roughly 15% of spot volume across the selected group of exchanges below. Today, that share is down to around 5%.
Source: Coin Metrics Market Data Feed (includes all BTC trading pairs)
Other exchanges have started to pick up market share. FTX’s share of BTC spot volume has swelled to 10% from just 1% at the start of 2021. Coinbase’s share has also ticked up from 9% to 14%.
A similar trend is visible for trading in ether (ETH). Note that OKEx, another Chinese-focused exchange, hasn’t seen as much of a decrease. However, the reliability of the exchange’s volume profile has been tough to gauge in the past.
Source: Coin Metrics Market Data Feed (includes all ETH trading pairs)
Since September 2021, Huobi has been shutting down mainland China operations and retiring existing user accounts to comply with new restrictions. Huobi claimed that all such accounts would be retired by the end of last year. It is tough to determine, but some have posited that this may in part explain some of the recent selling pressure towards the end of 2021.
Data collected on-chain complements the market data above: the percentage of total BTC and ETH supply on Huobi has fallen considerably. Looking at the amount of crypto assets held on exchange can be a good sanity check for gauging trends in overall trading volume.
As Chinese activity dwindles, US-focused exchanges seem poised to capture an increasing share, especially as Bitcoin mining increasingly shifts to the West.
In a potential sign of increased activity in the US, the percentage of BTC spot volume during US market hours (9:30am-4:00pm, ET) has picked up in 2022. Although it is a relatively small sample size at 17 days (and includes weekends), more volume has been distributed in this time window so far.
Trading Volume in Turkish lira-quoted Markets Increases
Studying which fiat currencies are traded most against crypto assets on exchanges can also serve as an indicator for crypto activity in a region. Over the last year, trading in Turkish-lira quoted markets (e.g. BTC-TRY) has accelerated amid the country’s ongoing currency and inflation crisis.
According to data from the Turkish Statistical Institute (TURKSTAT), inflation reached a staggering 36% YoY in December.
Source: The Central Bank of the Republic of Turkey, announced by the Turkish Statistical Institute (TURKSTAT)
In the face of a quickly devaluing local currency, Turks have increasingly turned to crypto assets. Trading volume on Turkish-lira denominated markets on Binance reached $160B in 2021.
Dollar-backed stablecoins have been particularly popular with Turks. Over $7B of Binance’s stablecoin BUSD traded against the lira in 2021 while $36B of Tether (USDT), the largest stablecoin by total supply, traded against the lira last year. The lira’s share of all Tether volume has expanded to surpass the euro, British pound, and other major fiat currencies.
Stablecoins offer Turks an alternative way to gain exposure to dollar-backed assets. Turks are increasingly viewing crypto assets like BTC and stablecoins as desirable replacements for their local currency which is rapidly losing value due to inflation. In an effort to increase confidence in the lira, Turkish President Recep Tayyip Erdogan has vowed to compensate holders of lira deposits for losses, but the currency remains volatile. This will be an ongoing case study worth following as it continues to unfold in 2022.
Network Data Insights
On-chain activity was flat with BTC and ETH active addresses averaging 914K and 602K per day respectively in the last week. Stablecoin activity decreased moderately over the week, with Tether and USDC daily transfer value dipping 14% and 16%, respectively.
For the first time since 2019, USDC supply on Ethereum surpassed Tether supply. USDC supply on Ethereum is now over 40B, rising 10x from just 4B at the beginning of 2021. Tether is still the largest stablecoin by total supply though, with an additional 39B USDT on Tron (TRX).
The number of transactions on Ethereum using the EIP-1559 type fee structure has moved up to over 75%. Recent analyses from academic researchers, Coinbase and others have shown that using EIP-1559 type transactions reduces user wait times, prevents overspend, and introduces savings in effective gas prices.
Since the explosion of NFT activity last summer, the number of transfers of ERC-20 and ERC-721 tokens have moved inversely with one another. One theory is that one type of activity can effectively “crowd out” the other. Another factor might be the USD price of ETH: because NFTs are generally priced in ETH terms, activity tends to move inversely with price. On the other hand, ERC-20 activity might move up with ETH price as token prices are generally very correlated with ETH itself.
Coin Metrics Updates
This week’s updates from the Coin Metrics team:
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