Author: Coinbase & Glassnode
Compiled by: Felix, PANews
What has happened in the crypto markets over the past three months? Bitcoin’s price action has been largely range-bound, consolidating between $50,000 and $60,000, with some volatility in between. But a closer look reveals important developments unfolding behind the scenes.
First, the liquidity and sophistication of crypto markets increased this quarter. Institutional interest in cryptocurrencies remains strong. U.S. Bitcoin spot ETFs saw net inflows of $5 billion, indicating that institutions are still participating despite occasional volatility. Ethereum prices hit a record high, reflecting that traditional finance is exploring new ways to interact with digital assets. At the same time, stablecoins remain one of the most widely used applications of cryptocurrencies, with a market capitalization of a record $170 billion, and growing trading volumes proving their continued utility in cross-border transactions and other areas.
This report provides a comprehensive overview of the forces driving these trends, as well as identifying possible shifts and directions that major assets, especially Bitcoin and Ethereum, may take as we approach the end of the year.
The following is the full report:
Polymarket is a breakthrough application for the crypto election year and an example of how blockchain technology can help increase transparency, accessibility, and trust in markets and information.
Source: @rchen8, Dune Analytics, Grayscale Investments Data as of September 30
Among L1 blockchains, Ethereum’s fee market share has rebounded, from a low of 9% in late August to 40% in late September.
Source: Token Terminal, September 24
Ethereum staking yields are more than 2 times the real (inflation-adjusted) yield on a 10-year U.S. Treasury bond.
Source: CoinDesk Indices
(CESR measures the average annualized rate of return earned by validators who stake ETH, composed of consensus rewards and priority transaction fees; while ETH's inflation rate has been negative for most of its history, it has recently turned positive, so stakers should consider its impact on staking returns)
Many successful applications generate revenue that exceeds the infrastructure they run on.
Source: Token Terminal, MakerBurn, DeFiLlama, Tronscan
Annualized revenue is calculated over the past 90 days. Solana revenue includes base fees, priority fees, and MEV tips; data as of September 25th
Last year, the number of token issuances surged 13x, with Solana accounting for the lion’s share.
Source: Dune Analytics
Market Overview
Both BTC and stablecoin dominance increased in Q3 as market participants gravitated toward the highest-quality assets.
As the market matures, the volatility of BTC and ETH has shown a significant downward trend.
In the third quarter, perpetual contract funding rates traded in a narrow range, indicating a balance between buyers and sellers in the market.
U.S. spot BTC ETFs attracted more than $5 billion in net inflows in the third quarter.
After weeks of outflows, U.S. spot ETH ETF flows rebounded at the end of the third quarter.
The basis (CME futures minus spot) for both BTC and ETH declined in Q3.
Extreme swings in basis, whether positive or negative, are often associated with large swings in market sentiment.
Cryptocurrencies show low or negative correlation with all major asset classes.
Source: Bloomberg, Coinbase. Data from July 1 to September 30
Since 2020, Bitcoin’s average correlation with the S&P 500 has been just 0.33, and its average correlation with gold has been just 0.13.
Stablecoins surge
The total stablecoin market capitalization hit an all-time high of nearly $170 billion in the third quarter of 2024, and new rules from the European Union under the Markets in Crypto Assets Authority (MiCA) came into effect.
Both events reflect the growing mainstream adoption of stablecoins, which are increasingly being used to build payment systems, facilitate remittance payments and simplify cross-border transactions, and awareness of the advantages they can offer, including speed, cost and security.
Integrating stablecoins into existing payment systems is just one example of the increasing application of cryptocurrencies in the real economy.
Stablecoin supply reached an all-time high in Q3 as market participants continued to adopt stablecoins for a variety of new and existing use cases.
Stablecoin trading volumes have surged to nearly $20 trillion so far this year.
L2
As we enter the fourth quarter, the price of ETH is close to where it was at the beginning of the year. But beyond the price, we can see a rapidly growing Ethereum ecosystem, mainly due to the new innovative L2.
As developers and end users continue to migrate to the blockchain, the number of active users and transaction volume have risen sharply. At the same time, L2 fees have dropped significantly after Ethereum’s Dencun upgrade.
While it remains to be seen how activity evolves between Ethereum L1 and the various L2s, L2 brings more users, more activity, and more innovation to the Ethereum world.
The Ethereum ecosystem has seen a sharp rise in daily active addresses this year, with L2 seeing the most significant increase, while Base leads the pack.
The number of daily transactions in the Ethereum ecosystem has increased 5x since the beginning of 2023 as new L2s and use cases flourish.
After Ethereum’s Dencun upgrade in March 2024 significantly reduced transaction fees on L2, total fees paid fell sharply despite a surge in transaction activity.
Bitcoin（BTC）
The current BTC cycle is closely correlated with the 2015-2018 and 2018-2022 cycles, which saw total returns approaching 2,000% and 600%, respectively.
Bitcoin has gone through four cycles, each of which included bull and bear markets. In this chart you can see how the current market cycle (which began in 2022) compares to previous cycles. (Past performance is not indicative of future results)
BTC’s performance since the fourth halving has been most similar to that after the third halving, when prices moved sideways for several months before surging sharply in the year following the halving.
This chart measures Bitcoin's total returns during each halving cycle, or period. After a halving, prices tend to trade sideways, as they have in the six months since the April 2024 halving. However, prices have risen significantly in the 12 months following the first three halvings. After the first halving, prices rose by more than 1,000% in the first 12 months. After the second halving, prices rose by 200% in the first 12 months. After the third halving, prices rose by more than 600% in the first 12 months. Since the fourth halving on April 19, 2024 (black line), Bitcoin's price has fallen by 1.2%.
As of the end of the third quarter, just nine months after launch, U.S. spot BTC ETFs had nearly $60 billion in AUM.
Crypto markets are becoming increasingly liquid. So far this year, BTC trading volume has averaged $2 trillion per month, up 76% from the same period last year.
In the third quarter of 2024, open interest in Bitcoin derivatives averaged $44 billion.
Following the massive long liquidations associated with the unwinding of short Japanese yen carry trades in early August 2024, Bitcoin positions look much clearer.
BTC derivatives summary statistics:
BTC Traditional Futures Specifications
Throughout Q3, the size of BTC’s liquid and illiquid supply remained fairly stable.
As the market moves sideways, sentiment has shifted from greed to fear, perhaps setting the stage for the next rally.
Ethereum (ETH)
After closely tracking the 2018-2022 cycle, the current ETH cycle has begun to diverge as ETH prices fell in the third quarter.
ETH has gone through two cycles, each of which included a bull market and a bear market. You can see how the current market cycle (which began in 2022) compares to the previous cycles in this chart. In the current cycle, ETH has risen by more than 125% since hitting the cycle low in November 2022. (Past performance is not indicative of future results)
The U.S. spot ETH ETF was launched in July and had a total size of $7.1 billion at the end of the third quarter.
Crypto markets are becoming increasingly liquid. In 2024, ETH’s average monthly trading volume is expected to be $930 billion.
In the fourth quarter of 2023, open interest in ETH derivatives averaged $15 billion.
ETH long liquidations surged immediately after the launch of the spot ETH ETF in the U.S. and the unwinding of short JPY carry trades in early August.
ETH derivatives summary statistics
ETH Traditional Futures Specifications
Although fees rose towards the end of Q3, there is still persistent net inflation in ETH issuance.
The amount of ETH staked hit an all-time high in the third quarter as more holders looked to extract yield on their positions.
The amount of ETH locked in DeFi rose 11% in the third quarter.
Staking has become the main source of consumption of ETH liquidity.
As ETH prices retreated, sentiment shifted from greed to fear, perhaps setting the stage for the next rally.
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