The Weekly #166

Crypto markets buckle slightly after a week of consolidation. Arbitrum sees over $2B of inflows into its ecosystem shortly after going live.

Bitcoin Shows Mixed Signals

Just as the global crypto market cap was approaching ATH levels of $2.5T, crypto assets have taken a breather over the last week. BTC faced key resistance at $53k before retracing 18% last Thursday. Since the start of August, BTC has formed a bearish RSI divergence where the likelihood of a ‘reset’ was increasing.

Key drivers of the recent volatility was the rise of leverage in the futures market where the funding rate was reaching as high as 0.025% while BTC open interest climbed to $19B. Leveraged longs were flushed out completely but have since returned indicating an overall bullish trader positioning once again.

One key signal last week was the net outflow of BTC from exchanges where we saw a 1% decline in exchange supply. This is the lowest number of BTC that has sit on centralized exchanges since November 2018.

The BTC net outflows of may be an indication of opportunistic buying by traders although the rate of these flows started before the correction last week perhaps indicating a resumption of a more general trend.

Layer 2 Solutions Take Flight

Momentum behind layer 2 scaling solutions for Etheruem and DeFi is starting to pick up. On August 31st, Arbitrum opened up Arbitrum One to the public. Total liquidity on L2s is now at an all-time-high ($3B) with Arbitrum taking a 74% market share.

L2 liquidity is now rising faster than L1 liquidity with the ratio of L2/L1 liquidity climbing to 3.5%.

The release of Arbitrum is likely to accelerate the full launch of alternative scaling solution, Optimism with the team stating a ‘big announcement this week. Optimism’s limit of 50k tx/day now seems to be lifted with both network now printing over 70k tx/day.

Solana’s SPL Premium

SOL continues to be a top performing asset alongside other L1 core assets, reaching and ATH price of $216. The more interesting data point is the aggregate value of SPL (Solana’s token standard) remains higher than the fully-diluted-value (FDV) of SOL itself.

This is at odds with the Fat Protocol thesis where the protocol is equally or more valuable than the application layer (which can be observed for Ethereum). As the Solana ecosystem matures, we might reasonably expect the two to eventually converge closer to 1. However, for now SPL tokens seem to be carrying a ‘institutional premium’ that could be driven by growing institutional interest in the emerging ecosystem.

Put differently, the combined FDVs of all SPL tokens has now overtaken the top 5 ERC-20 by market cap by the widest margin (53%).


Total performing assets over the last week have been smaller cap L1 ecosystems that are catching a bid from recent higher-cap L1 interest.

Global:

  1. Algorand (+72%)

  2. Elrond (+60%)

  3. Harmony (+59%)

  4. Osmosis (+48%)

  5. Near (+40%)

DeFi:

  1. IDEX (+315%)

  2. Trustswap (+41%)

  3. Olympus (+39%

  4. Serum (33%)

  5. Rocket Pool (31%)


OSMO

The Cosmos-based DEX has printed new daily volume ATHs ($24m) with the exchange housing more than $400m in liquidity. While still being nascent, Osmosis now prints ~2% of Uniswap V3 volume and is shaping up to be a core exchange protocol for the Cosmso ecosystem.

AAVE (-66% U/O)

AAVE still trading far below fair value according to the APT ratio. Borrow volumes dipped below ATH levels ($10B). AAVE has a 39% market share vs. Compound and MakerDAO. AAVE Arc (permissioned pools) has yet to be launched).

COMP (-64% U/O)

COMP trading far below fair value by the widest margin according to the APT ratio. Compound showing similar daily borrow volumes trends to Aave standing at ~$9B.

wNXM/NXM

wNXM trading at a 47% discount to NXM (ATH ceiling). The mutual has now earned over 238 stETH (~$817k) from its ETH2 staking initiative.


  • Balancer's BAL liquidity mining incentives are now live for Arbitrum. LPs are rewarded for participating in BAL/WETH (42% APR) and WBTC/WETH/USDC (19% APR) pools. Track LM rewards here.

  • Yearn launched new yvBOOST vault, that holds yveCRV tokens (can be minted from CRV on Yearn or bought on the secondary market). The vault compounds automatically and has 59% APY. Check the vault here.

  • Apricot Finance, a new lending protocol on Solana, launched on testnet. Apricot maximizes yields through cross-margin leveraged yield farming while covering user downside with an automated self-deleveraging mechanism. Learn more.

  • Lido's liquid staking for Solana is live, LPs can stake their SOLs for 6% APR and receive liquid stSOLs, which in turn can be staked in Raydium (stSOL/USDC, 17%) and Saber (stSOL/SOL, 9%) farms.

  • Orca, an exchange protocol on Solana, launched three pools for Marinade's liquid mSOL token: mSOL/USDC (57% APY), mSOL/ORCA (96% APY), and mSOL-SOL (27% APY). More on mSOL staking options is here.


Global market cap: $2.1T; Global market cap has decreased by 14% for the week as crypto assets prices cool off.


DeFi market cap: $129B; DeFi market cap declined 9% over the last week.


DeFi Dominance: 2.2%; DeFi dominance fallen slightly over the last week with the sector market cap declining faster than the wider market.


Market shares; Bitcoin dominance has stayed relatively flat for the past week (45%).


BTC/USD

ETH/USD

ETH/BTC

Price action; BTC/USD broke below 200d MA but finding support at ~$44k with daily RSI in neutral territory. ETH/USD using 50d EMA (shorter-term MA) as support. Slight weakness of ETH relative to BTC over the week with ratio consolidating.


Volatility (BTC & ETH); BTC and ETH 30d volatility have fallen slightly over the last week.


Combined order books; Order books look heavier on the bid side. Heavier resistance all the way up to $45.5k (Source: Bitcoinity).


BTC vs. SPX and Gold; BTC still perceived as a risk-on asset with BTC/SPX rolling correlation near 1. Almost every Bitcoin correction in 2021 has coincided with an SPX correction of at least 2%.

The next key macro event will be the Fed’s FOMC meeting 21-22nd September where a formal signal on tapering can be given.


GBTC premium; GBTC still underperforming vs. spot. GBTC discount widened slightly to 14.5%.  Discount still kept below the multi-month ceiling (-5.5%) over the past week.

ETHE premium; Discount at 7% with evidence of oppurtunistic buying during ETH spot weakness. ETHE volumes continuing to increase steadily indicating growing interest in secondary markets. Volumes are still ~40% lower than ATHs printed in May 2021.


Bitcoin Mempool activity (Size in MB); The mempool size for the Bitcoin network remains low indicating low network congestion.

Mempool Size is the aggregate size of transactions waiting to be confirmed on the Bitcoin network. The more low value transactions are stuck in the Mempool, the more network resources are being expended by higher value transactions.


On-chain real (BTC) & off-chain volume; BTC on-chain volume increased 52% over the past week while off-chain volume has decreased 23%. ETH spot volumes have increased 4% for the week (divergence with BTC).


Hashrate & Difficulty; Hashrate has increased by 3% (7d MA) with miner commitment of resources looking healthy. BTC difficulty increased 4.5% on September 8th.


Active addresses (BTC); Active addresses (30d MA) has increased 2% over the past week.


Trader positioning; BTC and ETH funding rates remain slightly positive after leveraged longs were flushed out with 35% drops in BTC and ETH OI since the recent local highs.


Omenics Sentscore (BTC); Sentiment around BTC has stayed relatively high.


Exchange inflow/outflow (BTC, ETH); Moderate net outflows for BTC and ETH (7d MA).


Exchange inflow/outflow (stablecoins); Moderate net outflows of USDT, USDC, and DAO over the past week. We are now seeing minor net inflows which could either be margin traders covering positions or opportunistic spot buying.


USD(b) supply; Total stablecoin supply has stayed relatively flat over the past week, standing at 118.5B.


📚 Ethereum Investor Guide [Standard Charter]
📚 Blockchain Bridges [Dmitriy Berenzon]
📚 Inversion [Sahil Bloom]
📚 On Arbitrum [Nick Chong]
📚 Investigating Bitcoin Market Crashes With Option Probabilities [Sam Chepal]

🎙️ Investing in the Future | Cathie Wood, Chris Burniske, Yassine Elmandjra [Bankless]
🎙️ The Timeline for Central Bank Digital Currencies Is Accelerating [The Breakdown]
🎙️ This Week In Crypto [CoinStack]
🎙️ Weekly Roundup 09/10/21 [On The Brink]
🎙️ Was Coinbase CEO Brian Armstrong Entitled to a Meeting With the SEC? [Unchained]


The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.