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CryptoEconomic Research

Cryptoeconomic Markets Research

Crypto shows signs of stability and resilience as it navigates macro headwinds.
by Simran JagdevOctober 28, 2022
Cryptoeconomic research

Relative to macro volatility, crypto has remained stable as retail and institutional appetite for risky investments continue to remain low and limited by both cash crunch and attractive risk-free yields. Here are the top 10 charts showing crypto stabilizing and remaining steadily resilient in turbulent markets:

  • Both investors and leading protocols are turning to risk-free assets given attractive rates

Divergence in USDC and US Treasury yields have spurred the outflow from stablecoins in favor of risk-free assets. As a result, the market cap of USDC has declined 19% since June, as both investors and protocols can earn additional yield by turning to off-chain bonds. Among them is Maker DAO, who recently made the unprecedented step of diversifying its holdings by collateralizing DAI with yield-bearing assets (US Treasuries).

USDC vs. US Treasuries (2y) USDC market cap

Screen Shot 2022 10 28 at 4 25 52 PM
Data: Bloomberg, CoinMarketCap
  • However, relative to recent macro volatility, crypto has remained stable

For an asset that has historically been considered highly volatile, Bitcoin’s 10-day realized volatility has set new lows when compared to that of Dow Jones albeit tremendous macroeconomic uncertainty. 

Realized volatility of stocks (Dow) vs. crypto (BTC) has broken all time lows

Screen Shot 2022 10 28 at 4 24 54 PM
Data: TradingView
  • Crypto outperformed traditional assets in Q3, despite rough macroeconomic conditions

Crypto experienced a severe downturn across all sectors at the end of the second quarter, after the $60B implosion of the Terra ecosystem and fallout from VC firm Three Arrows Capital. However, the third quarter demonstrated resilience as crypto returns turned positive despite continued macro headwinds that continued to impact traditional assets.

Quarterly returns across crypto and traditional assets

Data: Kaiko
  • Web3 address activity – active wallet decline stabilizes

As total addresses continue to grow across all the top chains, consecutive decline in active addresses since May reversed and is up 11% for the month of October. Largest contributor was Binance, up 31% from the prior month. On average for the year, Binance represented 38% of all active addresses, followed by Solana at 29% and Ethereum at 19%.

Active addresses stabilizing, led by Binance

Data: Etherscan, bscscan, polygonscan, ftmscan, arbiscan, optimistic.etherscan, snowtrace, theblock
  • State of Ethereum gas usage by transaction type

In addition to transaction count, gas usage by transaction type is another indicator of user demand as the throughput of Ethereum is limited in units of gas available per block. These charts capture various use cases in relation to on-chain transactions and gas consumption.  Ethereum usage this year has been declining or flat across popular transaction types such as stablecoins, bridges and NFTs. However, gas consumption for DeFi, specifically Uniswap, has been relatively robust despite decline in ETH price suggesting relatively higher demand and economic value assigned by users.

Data: Glassnode
  • NFT sales count remains suppressed but gaming remains resilient & diverse

Weekly NFT sales count also remained suppressed for the quarter and the month. However, sales in gaming have remained positive for the quarter while arts and collectibles trended downward. This may be due to the fact that sales within arts and collectibles predominantly come from NBA TopShot while sales in games are relatively diversified. New marketplaces such as X2Y2 have also enabled features that may be more suitable for use cases outside of arts and collectibles.

Data: The Block
  • NFT marketplace and chain share – concentration spurs competition

At one point, OpenSea was commanding more than 70% of volume (May 2022). However, competing marketplace X2Y2 has surpassed OpenSea volume. The reason for X2Y2’s popularity was the fact that it reduced transaction fees to zero to encourage listing and trading of high quality NFTs, and distributed 600k native tokens to buyers and sellers to subsidize gas fees generated during transactions. In August this year, X2Y2 also undertook a controversial decision to remove royalty fees for collections, giving buyers the choice of whether to pay royalties or not.

Data: The Block
  • VC funding in blockchain slows but outperforms broader trend

Venture capital has slowed down across the board and blockchain-based companies have not been immune. Nevertheless, investors in the space are proving more resilient than in other industries.

Data: CB Insights, Crunchbase, KPMG
  • Gap between blockchain and venture capital valuations widens

Blockchain companies are displaying growing valuations despite less capital, meaning investors are concentrating on fewer, higher quality deals. But investors are also starting to mark down valuations of companies most exposed to global macro headwinds.

Median valuations in blockchain vs. other venture capital

Data: Galaxy Digital
  • Investment in CeFi & NFTs shrinks; shift to other Web3 projects

Capital breakdown has shifted away from NFTs and CeFi amidst market turmoil and regulatory uncertainty, towards core Web3 developments (gaming and protocols) and infrastructure. DeFi has also grown its share of capital following the 3AC fallout and collapse of several CeFi firms.

Funding breakdown by category

Data: Galaxy Digital

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