Original title: Announcing: "Digital Assets: Insights and Market Trends H1 2024" Report by CME & Glassnode
Original author: CME & Glassnode
Original source: glassnode
Compiled by: Mars Finance, Eason
The Digital Assets: Insights and Market Trends H1 2024 report is produced in partnership between CME Group and Glassnode. This report combines a wide range of information including price performance, on-chain analysis, industry events, and derivatives data. Our goal is to equip institutional traders with the knowledge they need to effectively navigate the complexity of the digital asset landscape.
Key highlights of the report include:
Market Overview: Get a broad view of the current state of the digital asset market, focusing on the major asset classes, their market capitalizations, and the dominance of Bitcoin and Ethereum in the ecosystem.
Capital Flows and Market Cycles: Analyze the capital flows of Bitcoin, Ethereum, and stablecoins, and gain in-depth understanding of market cycles and investor behavior at different market stages.
Derivatives Market Basics: A detailed review of the growing futures and options markets for digital assets, including insights into open interest, trading volumes, and the growing dominance of institutional players like CME Group.
Here is a brief preview of the report:
Bull Market Correction Retracement: The declines in the current bull market are relatively small compared to previous cycles. This trend indicates that the market is maturing, with lower volatility and more stable price performance, providing a more predictable environment for investors.
ETH/BTC Ratio: The ETH/BTC ratio is a key indicator of capital rotation and market sentiment. Despite the bullish market since late 2022, Ethereum continues to underperform relative to Bitcoin due to competitive pressure and regulatory progress.
Settlement volume comparison: Bitcoinâs daily on-chain transaction volume has reached a level comparable to traditional financial giants such as Visa and Mastercard. This milestone highlights Bitcoinâs growing importance in the global financial system and its potential for further integration and adoption.
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The following is an excerpt from the report:
Introduction
Over the past few years, digital assets have transformed from a niche, exotic investment to a mature asset class. The approval of the spot Bitcoin ETF and its record inflows prove that digital assets continue to offer unique opportunities and remain an attractive investment option.
However, they also present unique risks. To thrive in this market, investors need a deep understanding of these characteristics, including asset fundamentals, market cycles, and the vast datasets available on the blockchain about the sentiment and behavior of market participants.
This report aims to provide investors with insight into the emerging digital asset class.
Overview of the digital asset landscape
The digital asset space has grown rapidly in recent years, with growing interest from institutional investors, especially as a macro asset class. Bitcoin has historically led the market and continues to do so in 2023 and 2024.
Since hitting a cycle low in November 2022, Bitcoinâs market cap has grown by over $1.13 trillion (+370%) as of its current ATH in March 2024. Ethereum, the second-largest asset in the space, has also seen its valuation increase by $354 billion (+267%) over the same period, broadly in line with the broader altcoin space. Total stablecoin supply has also begun to increase since March 2024, following an extended period of net redemptions that began in mid-2022.
Figure 1: Markets: Performance dominated by major assets since November 2022
Image source: Glassnode
Overall, the digital asset space currently has a total market cap of approximately $2.56 trillion, with Bitcoin accounting for more than half of that at $1.33 trillion. Ethereum currently has a market cap of $451 billion, while the broader altcoin space has a total market cap of $611 billion. Stablecoins have become an important pillar in the digital asset market structure, expanding to a total supply of $145 billion over the past four years. Tether (USDT) remains the dominant stablecoin at 74%, followed by USD-Coin (USDC) at 22%. USD-denominated stablecoins still account for more than 99% of the total stablecoin volume, while other fiat currencies have seen negligible overall adoption.
Over the past 16 years, Bitcoin has maintained its position as the largest digital asset, accounting for more than 52.7% of the total industry value. Bitcoin dominance is a metric often used by analysts to assess market cycles. Bitcoin dominance tends to grow in bear markets and early bull markets as capital seeks relatively safe havens. Historically, Bitcoin dominance has declined in the more speculative phases of bull markets as risk appetite increases. Ethereum has become the dominant asset in the altcoin space for several years and currently accounts for 41.7% of the space. Since mid-2023, Ethereum's dominance has declined slightly as competitors in the smart contract blockchain space have increased. Stablecoin capital currently accounts for about 5.7% of the entire digital asset market, peaking at 16.1% at the end of 2022.
Figure 2: Market: Details of changes in net capital realized value
Image source: Glassnode
Figure 2 shows how these waves of capital have flowed between sectors of the market over the past six years. Digital assets exhibit internal market cycles as capital rotates through sectors of the market over time. We can model these capital rotations using on-chain data, measuring the 30-day change in capital flowing into Bitcoin, Ethereum, and the change in the total stablecoin supply. Historically, capital tends to rotate into Bitcoin as the largest asset during market downturns and in the early stages of market recoveries. Capital has historically rotated downward into Ethereum as investor confidence in the sector grows, and then further up the risk curve in the later stages of bullish trends. Stablecoins have become the quote currency of choice for both centralized and decentralized exchanges. Therefore, growth in total stablecoin capital can provide a proxy for demand further up the risk curve.
Bitcoin Basic Indicators
Bitcoin has a predetermined supply schedule, with the rate of currency issuance decreasing by 50% every 210,000 blocks (roughly every four years). The total supply in circulation is currently 19.696 million BTC, and the issuance rate has recently been halved from 6.25 BTC/block to 3.125 BTC/block on April 20, 2024. These newly mined coins make up a large portion of the revenue stream for Bitcoin miners, and halving events significantly reduce this income. As the Bitcoin network continues to grow, the increase in the US dollar exchange rate and user transaction fees becomes increasingly important to offset the decline in newly mined coins as rewards.
Figure 3: Bitcoin: Circulating Supply and Issuance
Image source: Glassnode
The Bitcoin network is a mechanism for storing and settling value across a peer-to-peer network of nodes and miners. The network is decentralized and operates without trusted intermediaries such as banks and payment processors.
On an unfiltered basis, Bitcoin currently handles approximately $46.4 billion in on-chain transaction volume per day, which is comparable in size to traditional payment processors like Visa and Mastercard.
Glassnode is a pioneer in applying advanced filtering heuristics that assess whether on-chain volume is economic or internal transactions managed by wallets on exchanges such as Coinbase and Binance. Once this filtering is applied, economic transfer volume is close to $6.5 billion per day, which is very similar to the daily spot volume of centralized exchanges.
Centralized exchanges are the primary venue for investors to trade Bitcoin, with billions of dollars worth of BTC deposited and withdrawn every day through on-chain transactions. In March 2024, total deposits on exchanges hit an all-time high, with more than $4.37 billion in BTC deposited across 89.6K deposit transactions (with an average deposit size of $487,000). Increased volume and activity associated with exchanges tends to be a feature of growing adoption, while such activity tends to decrease during periods of less speculation.
Bitcoin miners provide computing work that supports the network's decentralized security system. Miners are responsible for building blocks and including transactions. Miners are rewarded with newly minted BTC through issuance, while also receiving transaction fees paid by users.
The Bitcoin hash rate, a measure of the total computing power applied by miners, has been growing at an astonishing exponential rate since the networkâs inception. The hash rate recently hit an all-time high of over 617 exahashes per second, helped by more mining equipment coming online and the increasing efficiency of ASIC chips that make computing more efficient.
Hash price is an important indicator for evaluating miner profitability, reflecting the dollar value earned per unit of hash rate applied ($/EH/day). Although total miner revenue (in USD) is close to a high of more than $33 million per day, hash price continues to decline due to the highly competitive mining environment. After the fourth halving, hash price recently hit a new all-time low of $48,000 per exahash per day.
Bitcoin Price Performance Indicators
Figure 4: Bitcoin price performance after halving
Image source: Glassnode
The halving event is a widely watched event in the Bitcoin calendar, both because it reflects the assetâs programmed scarcity and from a market performance perspective, which has historically closely followed halving events. Figure 4 shows the indexâs performance over the 365 days following the past four halving events. The 2016 (blue) and 2020 (green) cycles are perhaps more relevant points of comparison, as they represent a more mature and developed digital asset landscape. Following the halving, both of the first two cycles experienced a few months of relatively quiet performance before experiencing significant peak returns of +350% and +650%, respectively. The 2024 Bitcoin market has been following a similar trajectory in the weeks following the fourth halving in April 2024. Since the event, the BTC price has traded in a range of only a few percentage points.
Figure 5: Bitcoin bull market retracement
Image source: Glassnode
The 2024 uptrend has also experienced relatively shallow pullbacks compared to previous bull runs. The deepest pullback since November 2022 was a -20.3% price decline from the local high. Previous cycles experienced much deeper pullbacks, ranging from -25% to -35% in 2016-17 and as high as -50% to -63% in the 2020-21 cycle. As the Bitcoin market scales and sees wider institutional adoption, many analysts expect volatility, returns, and pullbacks to compress over time.
Bitcoin On-Chain Metrics
The database contained in the Bitcoin and other digital asset ledgers is transparent, allowing analysts and data providers to examine the total volume and transaction volume of the entire network. This allows each coin to be price-tagged based on when it last moved on-chain. Price tagging also enables analysts to calculate the average cost basis of all coins in the supply and determine the proportion of the supply that is "profitable" or "losing."
Figure 6: Bitcoin: Market capitalization and realized market capitalization valuation model
Image source: Glassnode
Realized market cap is an important on-chain metric for Bitcoin because it captures the total value of all coins, calculated at their price when they were last traded on-chain. In many ways, it is similar to a kind of âon-chain market cap.â Realized market cap, currently at $591 billion, measures the level of cumulative capital inflows into Bitcoin over its history.
Historically, in late bear markets, spot market cap trades close to or below realized market cap, meaning the average token holder is experiencing unrealized losses. We can also identify periods during uptrends where market cap is above realized market cap, meaning the average token holder is experiencing increasing unrealized profits.
Ethereum Basic Indicators
Ethereum is the second-largest asset in the digital asset ecosystem, with a current circulating supply of ETH at 119.76 million. Ethereum's issuance rate has been more nuanced than Bitcoin's and has gone through several phases through developer- and community-driven changes, often in response to changing technological and economic factors. Ethereum was originally launched as a proof-of-work blockchain, which differs from Bitcoin by using an algorithm that favors GPU mining chips. In September 2022, the Ethereum project transitioned its consensus mechanism to a proof-of-stake system, shifting the role of block construction from miners to validators. Instead of using computational work to build the blockchain, validators hold 32 ETH as collateral, which can be slashed in the event of adverse behavior. This shift, known as a "merge," resulted in a significant drop in daily issuance from approximately 14.3K ETH/day to just 2.6K ETH/day.
Figure 7: Ethereum: Circulating Supply and Issuance
Image source: Glassnode
Validators replace miners in the Ethereum proof-of-stake system and are responsible for transaction ordering and proposing the next valid block. Each validator is required to post 32 ETH as collateral and is rewarded with newly minted ETH and part of the transaction fees paid by users. There are currently more than one million active validators participating in the Ethereum proof-of-stake network, and there has been little net decrease in the number of validators to date.
Currently, validators have locked up a total of 32.2 million ETH as staking collateral. The amount of ETH staked typically increases over time, with only short periods of time when the total amount decreases. Currently, this accounts for more than 27% of the circulating ETH supply.
Newer technologies such as liquid staking tokens allow validators to use their staked ETH collateral as a mobile asset in the growing decentralized finance ecosystem. These tokens are issued by entities such as centralized exchanges and staking pools, which manage the technical requirements of validators for users. This process greatly improves the user experience and the capital efficiency of the network.
Figure 8: Ethereum: Issuance and Supply Destruction
Image source: Glassnode
Ethereum has a supply destruction mechanism that was provided as part of the EIP1559 upgrade in August 2021. This mechanism destroys a portion of transaction fees, which may sometimes exceed the total amount of newly minted ETH issued to validators. Therefore, during peak network activity, the ETH supply may experience periods of net deflation, reducing the overall circulating supply. Figure 8 shows the total amount of ETH destroyed per day (green) compared to the new ETH issued to miners/validators (blue). The sharp drop in new issuance can also be seen as Ethereum's transition from proof-of-work to proof-of-stake.
Ethereum Price Performance Indicators
Since its rise in 2017, Ethereum has maintained its position as the second largest asset in the digital asset ecosystem. Since the birth of the Ethereum protocol in 2015, its market performance has tended to be more similar to that of Bitcoin in early growth market cycles. We can see that after the Bitcoin halving, ETH price volatility has increased, with larger declines and larger increases. In the 365 days after the Bitcoin halving event, ETH's market performance has been more divided, with a decline of -45% in the 2016 cycle and then an increase of more than 3,400%, while in 2020, its price more than doubled in the following months and continued to rise by 2,150%.
Figure 9: Ethereum: Price performance after halving
Image source: Glassnode
Compared to Bitcoin, Ethereum has experienced relatively deep corrections, with the largest drop so far in the 2022-24 cycle being -42%. In previous cycles, both early and late in the macro bull market, corrections exceeded -65%.
As market cycles progress, the cryptocurrency market experiences an internal rotation of capital between various assets along the risk curve. Historically, the largest asset, Bitcoin, tends to lead the market in bear and early bull markets, but lags in the more speculative phase of the late bull market. The ETH/BTC ratio is a tool used by many analysts to measure the extent of capital rotation, based on Ethereum being a bellwether asset for general risk appetite. However, an interesting shift from the cyclical norm occurred in the 2023-24 cycle, as the ETH/BTC ratio continued to decline, despite the market being in a bull market since late 2022. There are two possible reasons for this relative underperformance. The first is the early approval of a Bitcoin spot ETF in the United States in January 2024, which has put significant additional buy-side pressure on the market leader. The second is the increasingly competitive landscape of proof-of-stake blockchains, with Ethereum directly competing with it in terms of liquidity, capital, user experience, and scalability. However, with the launch of an Ethereum spot ETF in the United States, this could be the catalyst to reverse this downward trend.
Figure 10: ETH: Annualized realized volatility
Image source: Glassnode
As the assets and ecosystem around Ethereum mature and market cap rises, Ethereum's volatility has experienced a similar compression. During the 2017 bull run, realized volatility reached 135% to 165% over a rolling window of three months to one year. Realized volatility in 2024 has fallen to between 50% and 65%, just half the volatility of previous market cycles.
Ethereum On-Chain Metrics
Figure 11: Ethereum: Market Cap and Realized Market Cap Valuation Model
Image source: Glassnode
Ethereumâs realized market cap captures the value of each token at the time of its last transaction on-chain. Ethereum uses a different blockchain accounting model than Bitcoin, utilizing accounts rather than individual tokens.
Ethereumâs ecosystem is also more complex, with tokens used as collateral and in lending markets and liquidity pools on decentralized exchanges. Therefore, calculating Ethereumâs realized market cap requires a different approach to account for these nuances.
Ethereumâs realized market cap is currently $240 billion and has often intersected with market cap in late bear markets. This means that the average unit of ETH is in an unrealized loss.
Derivatives Market
The derivatives markets for Bitcoin and Ethereum have grown significantly in recent years, reflecting the maturity and institutionalization of the asset class. Since 2021, the futures market has tended to account for the majority of trading volume and open interest in the space. Currently, open interest in the Bitcoin and Ethereum futures markets exceeds $29 billion and $14.7 billion, respectively. Open interest in the Bitcoin market has now exceeded the $12.9 billion high during the 2021 bull run, while the announcement of a US spot Ethereum ETF has just pushed open interest in Ethereum contracts to a new high.
Futures markets remain the primary source of volume in the digital asset market, often 5 to 10 times larger than spot volumes. Since October 2023, futures market volumes have rebounded, with daily contract volumes exceeding $34.4 billion for Bitcoin and $26.7 billion for Ethereum, respectively. Daily volumes of this magnitude are similar to previous market cycles, although they are still below all-time peaks in the first half of 2021.
Perpetual swap contracts have no expiration date and are commonly used to invest in Bitcoin and Ethereum. In order to keep these products in line with the corresponding spot index price, perpetual swap contracts use a financing rate, and traders receive a certain interest rate income based on the deviation between the futures price and the spot index price. The financing rate is designed so that when the perpetual price is higher than the spot index price, traders holding long positions will pay interest rates to short traders at regular intervals. When the perpetual price is lower than the spot index price, the situation is the opposite. The financing rate is usually paid in eight-hour units and incentivizes market makers to provide liquidity and capture arbitrage opportunities through cash holding yields.
Figure 12: Options: Open Interest
Image source: Glassnode
Options markets are another key area of ââgrowth and maturation for the digital asset industry, with total open interest for Bitcoin and Ethereum climbing to $30.2 billion and $14.6 billion, respectively.
The size of open interest in options markets is now similar to that of futures markets, reflecting the overall maturity and increasing liquidity of options markets. In 2024, Bitcoin and Ethereum options volumes also hit record highs, reaching $3.2 billion/day and $2 billion/day, respectively. The maturity and increasing liquidity of options markets provide institutional investors with greater risk management, hedging flexibility, and tools to execute more complex strategies.
