Blockchain Infrastructure Adoption, Ethereum L2 Networks, 2024 Bitcoin Halving Are Potential Crypto Market Drivers – Report

Coin Metrics has provided a data-driven look at the most “important” developments that have significantly impacted the digital assets industry from Q3 2023.

With Q3 in the books, Coin Metrics reflects on the notable developments and trends shaping digital asset markets as we transition “into the final quarter of 2023.”

According to Coin Metrics, Q3 continued to be “characterized by macroeconomic and regulatory developments or, in some cases, the lack thereof.” Evolving trends in “the stablecoin and exchange landscape also made headlines.”

Following the collective surge in Q1 and the relative calm of Q2, this quarter trended generally lower, “with the total crypto-asset market capitalization approaching $1.09T, down around 10% from $1.2T in July 2023.”

Despite this, BTC and ETH have so far “posted gains of 63% and 40% YTD with several other assets showcasing outsized returns buoyed by asset specific catalysts.”

Notably, MKR rallied 185% “following the successful incentive schemes to increase Dai supply, driven by a hike in the Dai Savings Rate and capitalizing on the DAO’s US T-Bill allocation (more on this trend below).” The Coin Metrics report also mentioned that Solana (SOL) also had its fair share of positive developments, “while XRP ended the quarter up 53% higher year-to-date despite giving up some gains after Ripple Labs’ partial victory against SEC in the courts.”

However, monetary and liquidity conditions “remain tightened as global central banks hint at further rate hikes to bring inflation down to their targets.”

With total crypto market capitalization and the Nasdaq index “up 32% and 28% year-to-date, it raises the question of whether risk-assets can continue their march forward.”

The Coin Metrics report added that “on the back of banking crisis fears in March, BTC’s 90D correlation with the S&P 500 index reached a low of 0.05, while its correlation with Gold strengthened.”

As of Q3, however, BTC’s relationship “with the highly technology concentrated S&P 500 index seems to be strengthening again.” Consequently, market participants “will be keen to follow whether there emerges a general aversion to risk-assets amidst a higher interest rate environment, or if the tightening correlation between stocks and BTC experiences a reversal.”

Stablecoins continue to be “a central theme within the digital asset landscape, with the launch of PayPal’s stablecoin, PYUSD, and Visa’s foray into stablecoin settlement marking important developments in the quarter.”

Coin Metrics pointed out that the launch of futures and spot based exchange traded funds are considered to “represent major investment vehicles for greater institutional adoption and inflow into the asset class—a crucial piece missing from prior cycles.”

Additionally, partial victories in the courts “along with accommodative regulation overseas signal a potential reversal in the SEC’s grip over the industry.”

The report concluded:

“The adoption of on-chain infrastructure, Ethereum Layer-2 networks (including the likes of Optimism, Arbitrum, Base) and the 2024 Bitcoin halving indicate several potential catalysts on the horizon.”

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