Coin Metrics has shared key industry insights on the Bitcoin, crypto and blockchain space in their latest State of the Network’s Q3 2024 report.
Tanay Ved and Matías Andrade from Coin Metrics noted that despite volatility from factors like Mt. Gox repayments and the Yen carry trade, Bitcoin demonstrated considerable stability. In fact, the report pointed out that BTC and SOL now notably lead performance YTD (+54% and +53% respectively).
The Coin Metrics report added that Ethereum ETFs debuted in August of this year, witnessing relatively weaker inflows, and reduced validator profitability amid lower L1 network activity post-Dencun upgrade.
The Coin Metrics explained that the impact of Ethereum‘s rollup-centric scaling roadmap and value accrual “continue to evolve.”
The research study added that the DeFi or decentralized finance sector saw significant activity, including Maker‘s rebrand to the “Sky Ecosystem” & Wrapped-Bitcoin’s (WBTC) restructuring from BitGo.
In this latest edition of State of the Network, Coin Metrics take a data-driven look at key developments that impacted the digital assets ecosystem during Q3 2024.
As stated in the Coin Metrics update, Q3 2024 was characterized by a combination of “catalysts” and “market pressures,” inducing bouts of market volatility.
In the face of creditor repayments, market selling from various entities and the side-effects of the Yen-carry trade, on-chain infrastructure remained resilient, Bitcoin (BTC) displayed “remarkable stability” and the stablecoins continued their ongoing and steady expansion across the Web3 ecosystem.
Over the course of 2024, BTC remains the “best performing” crypto-asset (+54%), followed by SOL (53%), while Microstrategy (MSTR) is having a strong year on the back of its bitcoin buying spree.
Ethereum entered the ETF sphere in August, but displayed relatively “weaker performance” failing to garner strong inflows relative to Bitcoin, as on-chain activity reached a low.
The Federal Reserve notably moved to slash interest rates by 50 basis points during the September FOMC, marking a reduction in the federal funds rate for the first time in 4 years.
The Coin Metrics report pointed out that this had a significant impact across various asset classes as investors digested implications of the cut, “creating subsequent volatility and a positive outlook for technology stocks and cryptocurrencies alike.”
Examining the performance of the top 30 crypto-assets in the datonomy universe with a “market capitalization over $1B in Q3 reveals assets with strong tailwinds.”
N0tably, Sui (SUI)—a high-throughput Layer–1 blockchain based “on the Move programming language (originally developed by Facebook for its Diem project) outperformed in September, with a 116% return over Q3.”
Aave (AAVE), the largest on-chain lending and borrowing protocol displayed strength across the entire quarter, “rising by 71% on the back of improving fundamentals, major governance proposals acting as catalysts for tokenomics and a revival of DeFi liquidity.”
Despite a slew of market pressures arising from German Government selling and Mt.Gox liquidations, Bitcoin’s liquidity “remains robust.”
The Coin Metrics report further noted that BTC’s market depth within 2% of mid-price across Coin Metrics’ suite of exchanges “ranges between $50-$100M, with a recent expansion towards $150M ($12B in average daily volumes), suggesting adequate liquidity to stabilize major price impacts.”
On July 23, 2024, which is a little over 5 months since the Bitcoin ETF was approved, the SEC extended their approval for the Ether ETF.
While on-chain holdings now reach upwards of $7.4B, we have seen net flows of –163M ETH since the inception of the ETF, mostly leaving from Grayscale’s Ethereum Trust (ETHE) upon conversion to an ETF which levies much higher fees than its competitors.
In Q3, the decentralized finance (DeFi) sector was also in the limelight, with fundamental catalysts, ecosystem specific rebrands and “restructurings central to the discussion.”
Aave, the largest money market protocol with $20B in assets supplied across markets on 13 networks is “one of the highest revenue generating protocols in the ecosystem.”
On August 9th, 2024, BitGo had announced plans to restructure WBTC’s oversight through a joint venture with BiT Global, involving Justin Sun.
The report from Coin Metrics added that this partnership raised eyebrows across the industry, “particularly among DeFi protocols offering WBTC collateral markets.”
Sky (formerly MakerDAO) swiftly reacted by “preventing new borrows against WBTC.”
Consequently, while 5,610 WBTC ($358M) remains in Maker Vaults and Spark Protocol, Aave V3 has seen “an all-time high of 35,000 WBTC ($2.2B) supplied as WBTC holders migrate their assets.”
In response, several Bitcoin-based derivatives have emerged, including Coinbase’s cbBTC and Threshold’s tBTC.
The research report from Coin Metrics also mentioned that these offerings have been onboarded “as collateral on various platforms, further expanding exposure to Bitcoin-collateralized assets.”
Q3 2024 presented a “dynamic landscape” of catalysts and challenges, resulting in increased crypto market volatility.
Despite this, the Coin Metrics report noted that several assets and market segments demonstrated resilience, with Bitcoin showcasing its stability.
As we look towards Q4, the U.S. elections and evolving digital asset policies stand out as “pivotal factors shaping the market.”
The Coin Metrics report added that entering a low interest-rate environment for the first time in 4 years, following one of the Federal Reserve‘s most aggressive tightening cycles, the outlook for crypto-assets “remains optimistic” as stablecoins continue to march towards “record highs” while signs of a revival in valuations and on-chain activity emerges.