Coin Metrics’ State of the Network: Issue 214

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By: Tanay Ved & Kyle Waters

On this particular version of State of the Community, we take a data-driven have a look at the most necessary occasions that impacted the digital property trade from Q2 2023.

In a dynamic first half of 2023, digital asset markets began the 12 months on a powerful footing, with bitcoin (BTC) and ether (ETH) surging 83% and 55%, respectively, buoyed by a risk-on sentiment in January. On the different hand, Q2 exhibited a extra subdued efficiency, with BTC and ETH posting good points of 7% and 4%. In gentle of elevated regulatory scrutiny from the SEC and the Federal Reserve’s ongoing battle towards inflation, a spectrum of occasions over the quarter has influenced market sentiment, including complexity to the evolving relationship between conventional and digital asset markets.

Source: Coin Metrics Formula Builder

Utilizing Bitcoin as a proxy for the wider crypto-market, its 90-day correlation towards equities in the S&P 500 index has fallen to 0.09—its lowest stage since June 2021. This declining correlation signifies a shift between the tech-heavy S&P 500 and digital property, diverging from the pattern witnessed in 2022 when these markets have been in nearer alignment as a result of the Federal Reserve’s price hike cycle. Also known as “digital gold,” BTC’s correlation to Gold has been greater throughout occasions of monetary misery as market individuals flock to “safe-haven” property as different shops of worth. The present 90-day correlation with the commodity is at 0.16, rising from 0.03 since March throughout amplified fears of the regional banking disaster. Moreover, BTC has continued to show an inverse relationship with the Greenback Index (DXY) and the volatility index (VIX), though weakening to -0.21 and -0.22 respectively. 

Source: Coin Metrics Reference Rates

Q2 introduced a blended bag in digital asset efficiency, influenced by the interaction of market forces corresponding to regulatory ambiguity, potential price hikes amid indicators of easing inflation and essential crypto-native developments. Bitcoin’s power shines by, posting an 82% year-to-date return, surpassed solely by Lido (LDO) and Bitcoin Money (BCH) amongst property with a market cap over $1B, rising 95% and 133% respectively. For liquid staking protocol Lido, these good points have been largely pushed by anticipation round Ethereum’s Shapella improve at the starting of the 12 months whereas BCH was helped by its itemizing on EDX Markets, a brand new alternate launched by institutional giants corresponding to Constancy, Citadel, and Charles Schwab in June.

In distinction, Solana (SOL), Polygon (MATIC), and Cardano (ADA) skilled 20% declines in June as a result of their alleged safety standing in the SEC’s Coinbase lawsuit. Amidst 1 / 4 full of regulatory headlines, XRP managed to realize a 41% achieve with the choice of the SEC vs Ripple case inching nearer after greater than two years because it started. 

Source: Coin Metrics Network Data

The 12 months has additionally created a major stir round stablecoins, amplified by the impacts of Silicon Valley Financial institution’s collapse in March. USDT has been a beneficiary of elevated strain (also known as “Operation Choke Point 2.0”) utilized to on-shore stablecoin issuers, with its present provide reaching an all-time excessive of $85B. In stark distinction, USDC’s present provide has fallen to $26B, revisiting ranges final seen in September 2021. Alongside the de-pegging, negotiations on the $31.4 trillion debt ceiling prompted Circle to diversify reserves by investing in short-dated treasury payments. Tether additionally disclosed allocations to bitcoin and short-term treasuries. Following this pattern, the composition of Dai generated by collateral has additionally gone by important adjustments, with solely 8.6% being generated by USDC vs over 50% a 12 months in the past. Regardless of the turbulence, stablecoins proceed to be one of the most compelling use instances of public blockchains and the quarter noticed new experiments introduced, together with German multinational SAP launching cross-border funds with USDC or EUROC.

In June, the Securities and Change Fee (SEC) intensified regulatory scrutiny on digital asset markets, submitting a lawsuit towards Binance, the largest international crypto alternate. The allegations spanned from insufficient consumer fund segregation to unlicensed US operations and providing unregistered securities. Concurrently, Coinbase confronted an SEC go well with for alleged securities-related violations, and working as an unregistered alternate, dealer and clearing company. Amidst these allegations, spot quantity share of Binance-US compressed considerably, whereas Binance’s share of buying and selling volumes skilled a decline of 20% in late March as a result of CFTC charges towards the alternate. 

Source: Coin Metrics Formula Builder

Notably, the SEC pinpointed 13 altcoins in its grievance towards Coinbase, together with Solana (SOL), Polygon (MATIC), and Cardano (ADA), contributing to a dip in these tokens’ costs. This mounted extra strain on markets with depleted volumes and deteriorating liquidity consequently of retreating market makers in Might. 

Source: Coin Metrics datonomy™

In stark distinction to the narrative in early June, the second half noticed a flurry of constructive institutional curiosity. A cascade of ETF functions emerged, led by BlackRock—the largest asset supervisor with $9T in property beneath administration—adopted by Constancy. Prior candidates—together with WisdomTree, Invesco, Valkyrie, and ARK Make investments—additionally rejoined the race. Moreover, the aforementioned EDX Markets additionally launched on June 20th, including to an inventory of funding autos facilitating better flows for the asset.

In the wake of these developments, the Grayscale Bitcoin Belief (GBTC), which has been buying and selling at a reduction to its internet asset worth (NAV) since 2021, started narrowing the disparity to 29.2% as of June 29th, as hopes of its conversion to an ETF product accelerated. 

Sources: Coin Metrics, Grayscale

In 1 / 4 overshadowed by regulatory and macroeconomic headlines, the Bitcoin community additionally witnessed essential developments that introduced welcomed adjustments, significantly for Bitcoin miners. After the rise of Ordinals and Inscriptions took the Bitcoin ecosystem by storm in Q1, the introduction of a brand new token normal on Bitcoin known as BRC–20 introduced a brand new wave of exercise. Setting apart the ongoing philosophical debate amongst Bitcoiners, one important final result has been the resurgence of the Bitcoin price market. 

Out of the whole $2.4B miners earned in Q2, $184M got here in the type of consumer transaction charges. This was an distinctive change to the latest pattern of a tepid price market. As depicted in the chart under, Bitcoin miners earned extra in charges in Q2 2023 than the earlier 5 quarters mixed.

Source: Coin Metrics Network Data

Although the tempo of price payouts has slowed considerably in latest weeks as exercise has waned, pleasure abounds as the token normal does unlock experimental new use instances for Bitcoin’s core transaction sorts, and accelerates the push to scale Bitcoin with the Lightning Community. 

Although many hurdles stay, miners’ prospects brightened in the quarter, as a rising BTC value bolstered top-line revenues, whereas receding inflation pressures translated to lower industrial electrical energy charges in the US. Miners additionally notched a win with the blocking (for now) of the Biden administration’s proposed Digital Asset Mining Power (DAME) tax in the US Debt Ceiling settlement. Nonetheless, regardless of these victories, competitors stays as fierce as ever, with Bitcoin’s hashrate breaking new highs throughout the quarter at 375 EH/s. Utilizing novel knowledge produced from our newest report The Sign & the Nonce, we see that the total community’s effectivity continues to increase with the adoption of fashionable ASICs corresponding to the S19 XP. As mining trade individuals look to the second half of the 12 months, they may proceed to deal with a posh combination of market variables. 

April marked a vital milestone for the Ethereum community, with the profitable launch of staked ETH withdrawals by the Shapella Improve. A extremely anticipated occasion not just for stakeholders of the Ethereum ecosystem, but additionally individuals of digital asset markets at massive—signifying the completion of one other main improve after The Merge. Taking part as an Ethereum validator previous to this was a one-way avenue, permitting solely deposits to the consensus layer. Nonetheless, the enablement of withdrawals closed the loop, permitting customers to regain entry to their staked ETH, making the system to operate in unison. 

Source: Coin Metrics Network Data

The provision of ETH staked has continued its ascent, presently sitting at 25.7 million ETH in the consensus layer contract. Since the daybreak of Shapella, whole deposits have outpaced withdrawals by 4.15 million ETH after an preliminary surge of withdrawal exercise, dispelling fears of a selloff. The demand for staking ETH—measured by the quantity of validators in the queue—has reached 92K validators with a 45-day wait time based mostly on a price restrict on entry known as the churn restrict. Though operational and technical dangers nonetheless stay, the gravity of the occasion on the crypto ecosystem can’t be understated. 

Q2 2023 has formed as much as be an enthralling quarter for the digital asset panorama, marked by contrasting themes of regulatory strain, institutional curiosity, and technical evolution. These developments not solely replicate rising mainstream acceptance of the asset class but additionally lay the basis for elevated flows into digital property. Moreover, international efforts from the likes of UK and Hong Kong to determine themselves as crypto hubs underscore the widening attain of the digital asset house. As we transfer ahead into Q3, the resolutions of ongoing authorized battles and selections on ETF functions maintain important potential to steer the trade’s course as we come nearer to the Bitcoin halving in 2024.

This quarter’s updates from the Coin Metrics crew:

  • Earlier this month we launched a sweeping new report fingerprinting Bitcoin ASICs to derive higher perception into vital points like Bitcoin’s power consumption and E-waste. Try The Sign & the Nonce here.


  • Try MINE-MATCH, a dashboard showcasing novel Bitcoin analytics from The Sign & the Nonce report


  • Coin Metrics was named one of the high 5 knowledge firms in the inaugural 12 months of Fortune 40 Crypto


  • We just lately revamped our Insights page, making it simpler to discover our catalog of State of the Community and different analysis filtered by subject


  • On April twentieth, we held a stay webinar with members of the Coin Metrics crew to debate crypto asset pricing and markets. To look at it, discover the recording here


  • Earlier this month, we launched new liquidity metrics together with Bid-Ask Unfold, Order E book Depth, and Slippage.


  • Wish to form the future of cryptoasset knowledge analytics? Be part of our upcoming Person Analysis research to check out our latest concepts and supply suggestions. Upon completion, individuals might be eligible for 1 of 5 unique API keys, usually solely obtainable to establishments, for entry to our skilled knowledge units.


As at all times, if in case you have any suggestions or requests please let us know here.

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