Coinbase Mid-Year Review: 10 Charts Breaking Down Crypto Market Fundamentals and Technology Trends

Written by: David Han, Coinbase

##Compiled by: Kate, Mars Finance

In our mid-year review, we present 10 charts covering some key crypto market fundamentals and technical trends.

Key Takeaways

We normalize total value locked through the price appreciation of the native gas token on the top layer 1 (L1) and layer 2 (L2) network ( TVL ) growth.
• We isolate the impact of CME futures underlying trading on ETF flows, showing that the growth of the BTC ETF’s unhedged exposure has slowed significantly since early April.

In our mid-year review, we provide 10 charts covering some key crypto market fundamentals and technical trends. We normalize the growth of total value locked (TVL) by the price appreciation of the native gas token on the top layer 1 (L1) and layer 2 (L2) network. We also took a relative approach, measuring the impulse of on-chain activity in these networks by total transaction fees and active addresses, and then broke down the biggest drivers of Ethereum transaction fees specifically. We then examine the current state of on-chain supply dynamics, correlations, and crypto spot and futures market liquidity.

Also, a more closely tracked indicator in the cryptocurrency space is the inflows and outflows of the U.S. Bitcoin Spot ETF, which is often seen as an indicator of changes in cryptocurrency demand. However, the growth in CME Bitcoin futures open interest (OI) so far suggests that some of the ETF’s inflows since launch have been driven by basis trading. We isolate the impact of CME futures underlying trading, showing that the growth of BTC ETFs’ unhedged exposure has slowed significantly since early April.

Fundamentals

TVL Growth

Rather than comparing the raw TVL of different chains, we track the growth of TVL through the price appreciation of its native gas token. Typically, native tokens make up a large portion of the TVL in the ecosystem due to the use of collateral or liquidity. Adjusting TVL growth by price growth helps distinguish how much of TVL growth comes from net new value creation as opposed to pure price appreciation.

Overall, TVL is growing faster than the total crypto market capitalization, growing 24% year-over-year. The fastest growing chains – TON, Aptos, Sui and Base – can all be considered relatively new and benefiting from a phase of rapid growth.

Activity Drive: Fees and Users

We compared each network’s (1) average daily active addresses in May to (2) during the same period ) Average daily cost or revenue, both measured as standard deviation compared to the previous four months (January - April). it shows:

• Except for Solana and Tron, on-chain fees generally dropped in May
• Due to the fee drop after EIP -4844, active addresses on Ethereum L2 (especially Arbitrum) increased significantly
• Cardano and Binance Smart Chain fees fall below wallet activity

Transaction fee drivers

Pre-Ethereum Cost breakdown for 50 contracts is categorized. Together, these contracts account for over 55% of total gas consumption year-to-date.

After upgrading Dencun in March, rollup expenses gradually decreased from 12% of mainnet fees to less than 1%. MEV (Maximum Extractable Value) driven transaction fees increased from 8% to 14%, and direct transaction fees increased from 20% to 36%. Although ETH has been experiencing inflation since mid-April, we believe a return to market volatility (and demand for high-value transactions) may offset this trend.

Ethereum L2 Growth

Ethereum L2’s TVL has increased 2.4 times year-on-year. As of the end of May, L2’s total TVL was $9.4 billion. As of early June, Base currently accounts for around 19% of total L2 TVL, behind Arbitrum (33%) and Blast (24%).

Meanwhile, after the launch of blob storage in the Dencun upgrade on March 13, total transaction fees dropped significantly, although TVL (and therefore transaction counts on many chains) are at all-time highs.

Bitcoin Active Supply Change

The decline in the active Bitcoin supply, which we define as the number of Bitcoins moved over the past 3 months, history has been lagging local price peaks, indicating a slowdown in market volumes. Active Bitcoin supply peaked locally at 4 million BTC in early April, the highest level since 1H21, before falling to 3.1 million BTC in early June.

At the same time, however, the inactive supply of BTC, that is, BTC that has not moved in over 1 year, has remained flat year to date. We believe this suggests that recent market optimism has waned, although longer-term cyclical investors remain focused.

Technical

Correlation

Based on a 90-day window, Bitcoin’s returns appear to be correlated with each of a number of key macroeconomic factors. Diurnal variations are moderately correlated. This includes U.S. stocks, commodities and the multilateral U.S. dollar index, although the positive correlation with gold remains relatively weak.

Meanwhile, the correlation between Ethereum and the S&P 500 (0.37) is nearly identical to the correlation between Bitcoin and the S&P 500 (0.36). Cryptocurrency pairs continue to trade with high correlations compared to cross-sectors, although the BTC/ETH correlation has declined slightly to 0.81 from a peak of 0.85 in March-April

Increase Market Liquidity

The average daily spot and futures trading volume of Bitcoin and Ethereum is down 34% from the peak of $111.5 billion in March 2024. Still, sales in May ($74.6 billion) were higher than any month since September 2022 except for March 2023.

After the US spot Bitcoin ETF was approved in January, spot Bitcoin trading volume also increased significantly. Spot centralized exchange (CEX) Bitcoin trading volume in May increased by 50% compared with December ( US$7.6 billion versus US$5.1 billion). In May, spot Bitcoin ETF trading volume was $1.2 billion, accounting for 14% of global spot trading volume.

CME Bitcoin Futures

CME open interest has grown 2.2x since the beginning of 2024 (from $4.5 billion to $9.7 billion), An 8.1x increase since the beginning of 2023 (to $1.2 billion). We believe most of the new flows year-to-date can be attributed to basis trading following the approval of spot ETFs. Following their launch, Bitcoin basis trading can now be completed entirely through traditional securities brokers in the United States.

Perpetual open interest also increased from $9.8 billion to $16.6 billion, with the proportion of CME open interest remaining at around 30% for the year (29-32%). That being said, CME futures’ market share has increased significantly from 16% at the start of 2023, indicating increased interest from U.S. onshore institutions.

CME Ethereum Futures

CME ETH futures open interest is near all-time highs. However, ETH open interest is still dominated by perpetual futures contracts, which are only available in certain non-U.S. jurisdictions. As of June 1, 85% ($12.1 billion) of total open interest was futures trading, while CME futures trading accounted for just 8% ($1.1 billion).

The impact of endogenous ETH catalysts on open interest is often visible, with the last major spike in open interest following the approval of a spot ETH ETF in the United States (19B-4 filing). Prior to this, the Dencun upgrade on March 13 saw open interest peak.

Also, traditional fixed-maturity futures on centralized exchanges remain popular, with open interest comparable to CME futures.

Isolating CME Bitcoin Basis Trading

Normalizing total spot ETF market cap against CME Bitcoin open interest shows that since early April ( Since Day 55), most of the spot ETF flows can be attributed to basis trading.

After the spot ETF was approved, as of March 13 (day 43), the number of Bitcoins held by the ETF increased by approximately 200,000 Bitcoins. This suggests that Bitcoin was directionally bought during this time, which partly explains the price increase during that time. Since then, Bitcoin in custody of the ETF has remained in the 825-850k range, only breaking out strongly in late May.

The above is the detailed content of Coinbase Mid-Year Review: 10 Charts Breaking Down Crypto Market Fundamentals and Technology Trends. For more information, please follow other related articles on the PHP Chinese website!