Daily analytical reviews of the crypto market by StormGain

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The total count of active Ethereum validators approaches 1 million​

Despite the efforts of its competitors, Ethereum maintains its status as the leading smart contract platform. Its share of the DeFi sector has returned to growth in 2024, reaching 60.8% in terms of Total Value Locked (TVL).

Ethereum is the most secure network after Bitcoin due to the large number of validators. There are currently 965,000 validators, and the milestone of 1 million will soon be reached.

This year we are seeing renewed interest in staking for two reasons. First, several new projects have been launched offering tokens to replace blocked ETH. These tokens can be pledged in the same way on another platform, thereby improving the overall performance of staking. For example, since January, EigenLayer's TVL has increased 8-fold to $8.8 billion.

Second, Ethereum is outperforming Bitcoin by 6.9% this year, which makes investing in cryptocurrency (including staking) even more tempting.

Ethereum trades low bandwidth and high fees for unrivalled security. This has provided blockchains like Solana and Avalanche the opportunity to significantly expand their market presence. However, the expected Dencun upgrade in March will give a second wind to Ethereum-based Layer 2 (L2) networks. Fees are expected to drop to $0.01 or less from the current $0.2-0.3.

In many cases, L2 will be preferable when choosing a platform to implement a project as security and fault tolerance will be provided by Ethereum, and speed and fees will be similar to Solana.

If Dencun makes an impact as anticipated, Ethereum may outperform Bitcoin in 2024.


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Open interest in Bitcoin hits a record $31 billion​

The excitement around the world's first cryptocurrency is gaining momentum, as evidenced by a record high of $31 billion in terms of open interest (total number of outstanding Bitcoin futures or options contracts in the market). The previous record of $24.3 billion was set in April 2021.

The funding rate has been at record levels for at least the last six months, suggesting a significant preponderance of buyers in the derivatives market.

The second-highest weekly net inflows into exchange-traded crypto funds this year ($1.8 billion) also points to the high demand. Some 94% of the inflows came into Bitcoin. Record-breaking weekly inflows of $2.45 billion were registered two weeks ago.

This was not without a spoonful of tar in a barrel of honey – the Grayscale crypto fund, which switched from a trust to spot, experienced heightened outflows again. This is now predominantly driven by the high fund management fee of 1.5% versus 0.2–0.3% for competitors. Last week, Grayscale's GBTC posted $1.4 billion in withdrawals, and the fund has lost a total of $9 billion since the relaunch.

Bitcoin's potential is also evidenced by outflows from gold ETFs. Recently, investors have increasingly contrasted these assets, which have similar limited reserves and store of value status.

However, Bitcoin ETFs are showing much more vigour. For example, a BlackRock fund took just 39 days from launch to rack up 10 billion in investments. The first gold ETF in the U. S. took more than two years to achieve such a feat.

Price dynamics in 2024 are also not in favour of gold, which is up just 2.6% compared to 58.3% for Bitcoin.

Forecasts are being revised upward as quickly as Bitcoin breaks new records. Bitwise Chief Investment Officer Matt Hougan believes that due to strong demand, the price could reach $200k or higher before the end of this year.


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Confirmed: Bitcoin's price rises every four years​

It took Bitcoin 846 days to set a new high and confirm a key investment thesis: the cryptocurrency's price grows every four years. In other words, when an investor buys Bitcoin, this is the longest they'll have to wait to see a profit.

Just two and a half years have passed since Bitcoin hit its previous peak, and the price has already set a new high above the $69,000 mark. The rule was confirmed ahead of schedule, leaving sceptics at a loss.

This rapid growth was fuelled by the launch of spot ETFs in the US, giving investors easier access to the cryptocurrency. Now, investment companies are actively incorporating the new instrument into their trading platforms, an action that is reflected in the crypto funds' growth in total portfolio and trade volume. For example, among banks, Wells Fargo, Bank of America and Merrill Lynch already offer clients access to Bitcoin spot ETFs, while Morgan Stanley is still considering it.

On 5 March, Bitcoin spot ETFs broke the record for total volume, hitting the $10 billion mark. Among them, BlackRock's IBIT, Fidelity's FBTC, Bitwise's BITB and Ark Invest's ARKB have reached new highs.

Immediately after setting a new high, Bitcoin rushed downwards. The forced liquidation of positions in the futures market reached $1 billion. Short-term holders and speculators aside, miners remain the main selling group. This year, their reserves are down 15,000 BTC to 1.82 million BTC.

However, news that whales are starting to stir has yet to be confirmed. In contrast, the number of addresses with more than 1,000 BTC is up 3.4% this year to 2,094.

Most market participants expect Bitcoin's price growth to continue to at least break the $100,000 mark in the current four-year cycle.

The local high limited by the $1 million model is expected in the second half of 2025.


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2024 could be the best year ever for Ethereum​

Bitcoin has had a landmark year in 2024, with institutional and retail investors now enjoying easier access to the cryptocurrency. However, the year could become more significant for Ethereum thanks to upcoming changes. Investment inflows into crypto ETFs have started to increase again, suggesting a shift in sentiment towards the altcoin.

Ethereum is the most trusted environment for executing smart contracts. The network is backed by around 1 million active validators and has a 59% or $54.3 billion share of the decentralised finance sector. The closest competitor, Tron, has just $9.8 billion.

The downside to high reliability is low speeds and high network fees. This year, the average user cost has risen from $5 to $29, which is making it harder to adopt new projects directly on Ethereum or attract a wider audience.

However, the development of Layer-2 (L2) networks that use Ethereum as a guarantor of reliability and security offers a way out. Simply put, by conducting fast, cheap transactions within the network, L2s commit them to L1 in a more compressed form.

Ethereum now has 44 L2s with a total staked amount of $36.8 billion. Arbitrum holds the first place with a 42% share. The average commission at Arbitrum is over $0.20, which is still a lot compared to competitors like Solana or Avalanche.

However, the situation will change significantly with the Dencun hard fork, which is scheduled to roll out on 13 March. The update will allow transaction data to be packaged even more densely, resulting in a 5-10x cost reduction for L2. L2's low expenses will attract new projects, which will eventually affect demand in L1, as well.

Another positive change for Ethereum is the increased likelihood that it will no longer be seen as a security. Recent litigation shows how hard it is for the US Securities and Exchange Commission (SEC) to defend the status, and there are contradictions with the Commodity Futures Trading Commission (CFTC).

If the SEC persists in labelling Ethereum a security, it will make it hard for the CFTC to deal with entities that trade Ethereum futures. At a Congressional hearing on 6 March, CFTC Chairman Rostin Behnam said that both Bitcoin and Ethereum are commodities.

At the same time, the recognition of the altcoin as a commodity will put the SEC in an awkward position since a number of organisations have already received fines (e.g., Kraken) for working with this "security", while others are still awaiting court hearings (e.g., Coinbase). However, it's still easier for the regulator to take a step back than to continue to stick to its line.


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The powerlessness of Bitcoin bears​

With Bitcoin rising above $70,000, the market entered a euphoric phase in which all coin holders were in the black. In the history of cryptocurrency, this is the fourth cycle that's seen the repetition of the same patterns.

This is primarily a matter of wealth distribution. After hitting an all-time high, long-term holders (LTH) are starting to sell off their reserves, while short-term holders (STH), on the other hand, are only whetting their appetite.

LTHs' reserves peaked in November 2023, and since then, their cumulative volume has fallen by 660,000. BTC. Meanwhile, STHs added 810,000 BTC to their reserves. The excess is due to a reduction in cryptocurrency exchange reserves, which are not accounted for in the cohort analysis. This distribution trend is shown time after time when the price sets a new high.

Second, the euphoria phase is characterised by an increase in speculative interest and fear of missing out (FOMO) on profit. This leads to a significant preponderance of buyers in the futures market, where the funding rate rises well above average values.

Typically, increased speculative activity is followed by the increased volatility and strong sudden corrections so typical of cryptocurrencies. This time, however, the bulls have exchange-traded funds on their side. The ETFs buy an average of $250 million worth of Bitcoin every day. This leaves no chance for the bears to try to ride other participants' excessive optimism.

If market trends continue, a supply shock is expected due to significant demand from buyers and a lack of willingness on the part of sellers to part with the cryptocurrency at current prices. The situation will worsen after the halving event when the coin's issuance will be halved. Most forecasts agree that Bitcoin will exceed the $100,000 mark as early as this year.


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Whales and long-term holders are selling off Bitcoin​

Hitting a new record-high price traditionally leads to profit-taking by some market participants. For example, whales (>1,000 BTC) have begun selling off assets since March, causing their number to drop from 2,159 to 2,055.

long-term holders (LTH) have exhibited the same behaviour. Their stocks fell by 660,000 since their November peak. BTC. Each cycle, this group accumulates coins in a bear market to profitably sell during a new rally.

Demand gradually gets saturated, and the price consolidates or a correction occurs. This time around, the balance of power has shifted significantly in favour of buyers due to the approval of spot ETFs in the US and the opening of direct access to cryptocurrency to trillions of dollars worth of capital.

We're now in the third month since the ETFs launched, and demand for Bitcoin is only getting stronger. On 12 March, net inflows set a record of $1 billion. Among fund managers, BlackRock set a new high by adding $849 million in one day.

Daily capital inflows into Bitcoin have reached $2 billion per day, according to analyst agency Glassnode.

Because of the overweighting of buyers, the price is rising almost without correction.

Analysts are predicting a quick correction based on signals from technical indicators. A correction can only occur if capital inflows weaken, but there are no signs of that happening right now. Moreover, major investment platforms are just getting into the game by adding ETFs to their trading instruments.

Investment bank JMP Securities predicts that inflows into spot ETFs will accelerate, causing the total volume of funds to grow to $220 billion in the next three years, with Bitcoin reaching $280,000 per coin.


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Inflows into Bitcoin ETFs decline sharply​

Since February, spot Bitcoin exchange-traded funds have been the leading force on the demand side, driving over 75% of cash inflows into the cryptocurrency. On average, they've attracted $270 million each day since they launched. However, the net inflow last Thursday was $133 million and $199 million on Friday.

Without a significant boost from ETFs, the price immediately began to undergo a correction since miners, whales, and long-term holders have been engaged in active profit-taking this March. The number of whale addresses (>1,000 BTC) has dropped from 2,159 to 2,081 since the end of February.

We also warned on 4 March that after a relatively quiet accumulation phase, Bitcoin has moved into a growth phase characterised by corrections of 36% to 71%. It's unlikely that the new cycle will feature smaller drawdowns.

And it's all about the spontaneous nature of Bitcoin here. In any traditional market, if the price of an asset drops by 10%, the regulator usually halts trading. But Bitcoin has no such safeguards. Its decentralised nature provides both a high level of freedom and an appropriate response to market overheating from excessive optimism.

The latter is vividly evidenced by the strongly increased funding rate, rising debt in the DeFi lending market and new record highs for open interest in the derivatives market.

This means that when inflows into ETFs (and especially outflows) stop, Bitcoin will start correcting. The forced closure of traders' margin positions on crypto exchanges and lending platforms will cause an even bigger decline. When some ETF investors see the correction, they'll start panicking and selling off assets. All of this will lead to another chain reaction, and Bitcoin will once again be criticised for its increased volatility.

At the same time, the cryptocurrency's long-term prospects remain bright, and a potential correction in no way reduces its chances of hitting the six-figure mark as early as this year.

When planning a strategy, you should rely on the classic "buy and hold" rule, taking the MicroStrategy or El Salvador's approach as an example. Salvadoran President Nayib Bukele, who has been buying a coin a day since November 2022, said, "[El Salvador] won't sell, of course; at the end, 1 BTC = 1 BTC (this was true when the market price was low, and it’s true now)."


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Inflows into Bitcoin ETFs followed by record-high outflows​

After hitting an all-time high, all the conditions for a correction were ripe, including increased leverage by derivatives traders, rising debt in the DeFi lending market and coin dumping by whales and long-term investors.

The price was kept from correcting only by a significant inflow of investments into crypto exchange-traded funds, which last week reached a previously unseen $2.9 billion. Of that amount, 99% went to Bitcoin.

This week, inflows have been replaced by net outflows, with yesterday's outflow totalling a record $326 million.

On 18 March, the negative performance was driven by a record-high $643 million outflow from Grayscale's GBTC fund, which had the highest management fee. Then, on 19 March, BlackRock's IBIT delivered one of the worst results, bringing in just $75 million.

Once inflows into exchange-traded funds waned, Bitcoin went into a correction, sweeping away hundreds of millions of dollars worth of margin traders' positions in the process.

This is a common reaction to the market overheating due to over-optimism. The only issue that's somewhat intriguing is whether exchange-traded fund investors will succumb to the panic. As was recently revealed, the main influx is from retail investors, and the average investment in IBIT is only $13,000. Without experience with such a volatile instrument, these investors may rush to the exits, which will amplify the correction.

However, there is a positive side to this news: institutional investors have yet to fully join in on Bitcoin investments. Among these players is the world's largest pension fund, Japan, with $1.5 trillion in assets, which sees cryptocurrency as a tool to hedge risk.

Goldman Sachs head of digital assets Mathew McDermott confirmed yesterday at the Digital Asset Summit that Bitcoin's rise to new highs is mainly driven by retail trading. However, the company also noted increased interest from institutional investors. Over time, this group will incorporate exchange-traded funds into their investment portfolios, which will eventually lead to the cryptocurrency reaching new heights.


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SEC will seek to label Ethereum a security​

The latest news suggests that the SEC's intention to designate Ethereum as a security remains unwavering, despite previously approved ETFs on Ethereum futures, potential multi-million dollar losses for companies that work with the altcoin, and disagreements with the Commodity Futures Trading Commission (CFTC).

Fortune magazine reported yesterday that several US companies have received a subpoena from the SEC demanding details of their interactions with the Ethereum Foundation. By implication, the crypto community has speculated that the Ethereum Foundation has also received a "chain letter" with various demands and an order not to disclose its contents. Firstly, this is evidenced by the text deleted from the official website in late February:

"The Ethereum Foundation (Stiftung Ethereum) has never been contacted by any agency anywhere in the world in a way which requires that contact not to be disclosed. Stiftung Ethereum will publicly disclose any sort of inquiry from government agencies that falls outside the scope of regular business operations".

Second, gone is the yellow canary logo that many companies use to mark the absence of confidential subpoenas from judicial or government agencies. Web developer Pablo Pettinari later confirmed the foundation's receipt of the letter from the government agency.

For Ethereum investors, this is a bad sign as the realisation of risks will lead to Ethereum further lagging behind Bitcoin.

Most were counting on the emergence of spot Ethereum ETFs in May when the deadline for a number of filings comes due. The probability of approval is now estimated to be less than 30%. But that's not the most unpleasant part. The security status will force most US companies to decline to work with the altcoin since the level of requirements will increase by an order of magnitude.

Anticipating that something would happen, institutional investors increased investment outflows from Ethereum ETFs to $14 million last week. The trend is likely to gain even more momentum this week.

Pressure from the SEC is also overshadowing the positives from last week's successful Dencun hardfork, which made it possible to significantly reduce fees in Layer-2 (L2) networks. After L2, trading volume in Ethereum rose to multi-year highs.

The last hope for American investors remains the intervention of Congress or the Supreme Court, which could more meaningfully divide crypto assets into commodities and securities. The SEC, on the other hand, has yet to outline clear criteria, instead relying on The Howey Test from 1946 for its reasoning.


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Bitcoin's likelihood of a post-halving crash​

When assessing the impact of the halving event on Bitcoin, most analysts rely on the emergence of scarcity that will unquestionably lead to a price increase. However, here, we'll list a few reasons why the first reaction may be negative.

Statistic

A third of the time, Bitcoin has corrected by more than 30% since the 2016 halving. There were no significant factors for a major sell-off, and the correction was an example of the old adage "buy the rumour, sell the news". The price has risen 75% since early 2016, and after the halving, it fell by 37% from the local high to $470 in two months.

The price is up 74% this year, similarly encouraging a number of players to sell in order to lock in profits. The last time the "buy the rumour, sell the news" principle was put into action was on the approval of spot Bitcoin ETFs, with the price correcting 21% to $38,500.

Halving compensation

What makes this fourth halving different from previous ones is that, firstly, Bitcoin has reached an all-time high ahead of the event, and, secondly, a 'Bitcoin hoover' has appeared in the form of ETFs. The halving represents an ultimate reduction in incoming supply, but ETF investors are just as subject to emotion as other market participants.

They have now accumulated $11.3 billion worth of Bitcoin, thus anticipating the upcoming deficit and ensuring the coin's rise to a new high. But what happens to the price if funds start actively unloading reserves? If that happens, they would offset almost all of the good momentum from the halving in the short to medium term.

The price is already under pressure as whales, miners and long-term holders lock in profits. Meanwhile, spot ETFs have seen net outflows for the fourth day in a row now. These are excellent prerequisites for the correction to continue.

The impact of miners

This time around, competition among miners is at an unprecedentedly fierce level, with almost a third of the network hashrate being provided by publicly traded mining companies. To appreciate the gravity of the situation, one only needs to look at the yields from a terahash of power, which are increasingly lagging behind the price.

If the correction drags on, most miners will ramp up the sell-off of their resolves due to falling revenues as a result of the halving, which CryptoQuant analysts estimate at 1.8 million BTC or $119 billion. Even if only a tenth is sent to market, it would have a significant negative impact.

Conclusion

Halving certainly has the long-term positive effect of reducing the flow of fresh supply, but in the first few months after it occurs, the market reaction may be negative. If all of these risks take place, the price may roll back to $45,000.


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Avalanche takes a wrong turn​

Every network that supports smart contracts is looking for its own niche. For example, Polkadot relies on developers to create a user-friendly and functional parachain-based environment. Ripple is bringing distributed ledger technology to traditional finance by offering governments a turnkey service to create central bank digital currencies (CBDC). Avalanche, on the other hand, took the controversial route of focusing on meme coins.

The attitude toward meme coins has been ambiguous in the crypto space and more so among regulators who have banned the circulation of these coins in certain countries. The issue is in the lack of a useful payload and high speculative interest. The meme coin boom can overwhelm some networks and cause significant increases in fees in others.

For example, due to the emergence of ordinals (a protocol that allows quasi-tokens to be minted and exchanged) in the Bitcoin network, the average transaction fee jumped from $2 to $31 in May and to $37 in December.

Image source: bitinfocharts.com

On Solana, the hype around meme coins has reached the point where several thousand new tokens have been minted a day since December. At first, users experienced delays in transaction processing. Then, on 6 February, the blockchain stopped for 5 hours.

Image source: analytics.solscan.io

Most networks view such bursts as a necessary evil, calling what happens a stress test. Avalanche, on the other hand, decided to open the doors to meme coins by rewarding users for being active and purchasing coins for their own fund as part of their Culture Catalyst programme.

"In particular, we note that meme coins generally have high community value because of the engagement, community spirit, and culture that they engender, which goes beyond the humour and virality that they embody".

Last week, the team allocated $1 million to reward users. These funds will follow a complex bonus scheme to reward activity with the following coins: COQ, KIMBO, NOCHILL, GEC, TECH, HUSKY, MEOW, KONG, MEAT and KINGSHIT (see detailed terms and conditions).

The ambiguity of Avalanche's policy is that many crypto participants (if not most) characterise such assets as nothing more than "shitcoins". For example, to get on the Culture Catalyst list, the age limit is limited to just a week (see a full list of requirements).

It's obvious that Avalanche is trying to reach Solana's figures with similar programmes. However, in terms of the number of active addresses, the network has seen a decrease compared to the previous year.

Image source: avax.network

What's more, buying quasi-tokens with the fund's money in the long term lays a bomb under the sustainability of the underlying AVAX token since most quasi-tokens fail.

Image source: StormGain Cryptocurrency Exchange

AVAX has only risen 42% this year, lagging behind both Solana and Ethereum. If developers continue to emphasise meme projects, this gap is very likely to widen.


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Volume of accumulated Bitcoin hits a new high​

Last week saw a record net outflow of $942 million from ETFs, with Bitcoin accounting for 96% of those funds. In a note to investors on 21 March, analysts at JPMorgan noted the cryptocurrency was overbought and risked a continued correction.

Image source: coinshares.com

Investors' decision to sell was influenced by the desire among long-term holders, whales and miners to take profits in March after hitting a new record high for Bitcoin.

Image source: StormGain Cryptocurrency Exchange

However, by the end of last week, the mood had dramatically changed, and while crypto funds continued to show cumulative outflows, cryptocurrency exchanges saw an increased withdrawal of coins to cold wallets. This is one of the signs that market participants are unwilling to part ways with coins at current prices.

The outflow from Coinbase sharply accelerated in March, shrinking the crypto exchange's reserves to 344,900 BTC (excluding institutional assets). This is a level last seen in 2015. The total reserves across all crypto exchanges also dropped after rising earlier in the month. That figure is now 1.98 million BTC.

Image source: cryptoquant.com

However, a tendency to hodl was most clearly seen in accumulation addresses, which set an inflow record on 22 March of 25,300 BTC. The signs of an accumulation address (miner and crypto exchange addresses are excluded) include:

• The absence of outgoing transactions
• More than two incoming transactions
• The latest activity taking place within the past seven years
• A balance of over 10 BTC.

Image source: cryptoquant.com

If we break down cohorts into groups, whales and sharks have moved back to accumulating Bitcoin. They're responsible for the significant loss seen in stablecoins' reserves.

Image source: twitter.com/santimentfeed

In February, BTC's price was boosted by significant inflows into spot ETFs, which faded by mid-March. However, there was no significant sell-off since other market participants quickly moved from taking profits to accumulating coins.

Image source: StormGain infographic

Despite the price 'prematurely' reaching an all-time high, most crypto enthusiasts believe that Bitcoin is very likely to keep going higher. Anthony Scaramucci, the founder of Skybridge Capital, give investors an interesting piece of advice on how to keep their nerves at bay with the sharp price changes:

"Act like you're dead with your bitcoin and don't sell your bitcoin".


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Arguments for Bitcoin's upcoming rush on $80,000​

Yesterday, we cited the actions of sharks and whales that have returned to accumulating coins as a source of support for continued growth. Today, we'll look at some more arguments that hint at Bitcoin setting a new price record.

Crypto ETFs

Last week, spot ETFs saw net outflows of $888 million. The reason was increased withdrawals from the Grayscale fund due to high management fees and lower inflows into the other funds.

Image source: twitter.com/biancoresearch

However, yesterday, interest in Bitcoin from ETF buyers returned with renewed vigour at $418 million. This is significantly better than the average of $225 million. Most analysts believe that the trend will intensify over time since institutional players still haven't begun trading in the new instruments, and the main flow of funds is coming from retail investors.

Image source: StormGain infographic

Low activity on the spot market

The main battles between bulls and bears are taking place in the derivative contracts market, which accounts for 70% of total trading volume. The market depth (the volume of placed orders on both sides of the price) on Bitcoin has finally approached the pre-crisis level.

Image source: kaiko.com

That said, of those who directly own Bitcoin, there are still few people willing to part with the coins at current prices. This is clearly seen by the volume of transfers within the network. If it exceeded $1 million on average per week in the previous bull cycle, it now doesn't even reach $200,000.

Image source: glassnode.com

Lack of response to negativity

Bitcoin's institutionalisation has proved to inoculate it against the problems of individual market participants. The arrest of Binance's top managers in Nigeria and yesterday's indictment of the KuCoin crypto exchange and executives (the exchange's annual volume exceeds $1 trillion) by the US Department of Justice for criminal offences did not affect the price.

Image source: StormGain Cryptocurrency Exchange

In the world's largest economy, Bitcoin is now an investment asset and a commodity that investors can access through licensed exchange-traded products. This made the connection to cryptocurrency exchanges more indirect.

Long-term factors

At its last meeting, the Fed reaffirmed its intention to cut its key interest rate by 0.75% in three rounds this year. The first adjustment could take place as early as June. This will reduce demand for Treasury bonds and increase interest in risky assets such as Bitcoin.

Image source: twitter.com/EricBalchunas

In mid-March, JPMorgan reported that volatility-adjusted Bitcoin was already outperforming gold in investors' portfolios by 3.7 times. This clearly demonstrates the outperformance of the two Bitcoin ETFs over the gold (and any other) ETF in terms of investment volume in the first 50 days of trading since launch.


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Stablecoins lose ground​

Stablecoins' share of the cryptocurrency market continues to shrink, hitting 5.8% in March. This is the lowest value since November 2021. They are also significantly lagging behind the previous bull run in terms of volume, gathering $1 trillion in February.

Image source: coingecko.com

The first reason for the sector losing ground is the launch of spot Bitcoin ETFs in the United States. Traders from popular platforms received access to Bitcoin's volatility while bypassing the crypto exchanges.

Image source: StormGain Cryptocurrency Exchange

The base currency for settling transactions on crypto exchanges is generally stablecoins. For licensed brokers, it's usually fiat currency. In March, the volume of ETFs set a new record at $111 billion.

Image source: twitter.com/EricBalchunas

The second reason is the drop in trust in stablecoin issuers. In May 2022, the Terra project's UST, the third-largest stablecoin by capitalisation, collapsed. In February 2023, after receiving a pre-trial enforcement action, the issuer of BUSD decided not to mint any more of the token. The following month, USDC from Circle was on the verge of folding as a result of the collapse of the bank holdings its reserves in the United States.

The impact of these events on investor sentiment is clearly reflected by the volume of stablecoin supply on crypto exchanges (data on the Ethereum blockchain):

Image source: glassnode.com

At the same time, USDT's share increased to 70%, and its capitalisation rose to $105 billion.

Image source: defillama.com

This significantly increases systemic risks since the community doesn't have reliable information about the banks they use or the quality of reserves. Tether's (non-audited) financial statements continue to list "other investments" and "collateralised loans" totalling $8.5 billion.

The company's balance sheets are so opaque that the Seychelles-headquartered crypto exchange OKX refused to work with USDT in the EU due to potential claims from regulators. As a result of the adoption of the MiCA law, other operators in Europe are likely to follow this example.

Some market participants call stablecoins an oxymoron because they aren't stable. Thanks to the appearance of investment products such as spot Bitcoin ETFs and the lack of strict regulatory control, the sector's share will likely continue to shrink.


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Is it worth investing in super-profitable memecoins?​

CoinGecko compared cryptocurrencies by price returns. Their selection included the following groups:

• Memecoins and shitcoins that don't offer any practical purpose
• RWA: crypto versions of real-world assets, such as gold or bonds
• AI: tokens of platforms that work with artificial intelligence
• DeFi: tokens of decentralised finance platforms
• DePIN: tokens of platforms that perform decentralised physical infrastructure projects
• GameFi: tokens of platforms from the gaming industry
• Layer-1: coins from layer-1 networks (Bitcoin, Ethereum, Solana, etc.)
• Layer-2: coins from layer-2 networks (Arbitrum, Optimism, etc.)

Among these groups, memecoins won by a wide margin in Q1, rising by an aggregate of 1313%. RWA took second place with a 286% increase, and AI tokens rounded out the top three with a 222% growth.

Image source: coingecko.com

Despite the amazing performance of Bitcoin Cash (131%) and Stacks (143%), layer-1 and layer-2 coins turned out to be outsiders. Their growth rates pale in comparison with memecoin leaders Brett (7728%) and Dogwifhat (2721%).

Image source: coingecko.com

However, CoinGecko's study makes a significant assumption: only the top-10 largest coins by capitalisation at the end of the quarter for each group are included in the analysis. In other words, hundreds of thousands of memecoins that appeared during the period under review weren't included in the report.

On the Solana blockchain alone, approximately 500,000 quasi-tokens were minted. The vast majority of them were dead on arrival. If the analysis had included all coins in the groups it presented, meme coins would be located at the bottom of the list.

Image source: solscan.io

The minting mania to try to create a profitable token reached such proportions that on 6 February, Solana was down for five hours. The network's founder, Anatoly Yakovenko, explained this hobby in an interview with CoinDesk as "people being terminally online and kind of having nothing better to do."

Image source: StormGain Cryptocurrency Exchange

It's worth noting for inexperienced users that the Ordinals protocol, which appeared in early 2023, made it possible to mint NFTs and quasi-tokens on almost any network. On the Bitcoin network, this caused fees to rise above $30, and users quickly cooled to them. However, Solana, which has sub-penny costs, appealed to the horde of 'degens' (the nickname for lovers of freshly minted meme coins on social media).

Image source: coingecko.com

Dogecoin stood out from among these meme coins. It has its own blockchain, is supported by miners, is the most decentralised and has the largest and most experienced army of fans. It also saw some pretty decent upward movement in Q1 as it more than doubled its price.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)

 

[StormGain_crypto]

Spot crypto trading volumes at a three-year high​

Cryptocurrency spot trading volume jumped 108% to $2.9 trillion in March. This is the best performance since May 2021.

Image source: ccdata.io

This activity is due to Bitcoin setting a new all-time high and an influx of investors eager to participate in the new rally.

Image source: StormGain Cryptocurrency Exchange

Spot Bitcoin ETFs played a leading role in the explosive growth, attracting $12.3 billion in investments in less than four months. Trade volume on them is growing month by month, reaching $111 billion in March.

Image source: twitter.com/EricBalchunas

Trade volume in derivative contracts also grew significantly, gaining $6.2 trillion. Compared to February, that was an 86.5% increase. Meanwhile, the share of this segment fell to 67.8%, the lowest level since December 2022.

Image source: ccdata.io

The rise in the share of spot trading is predominantly driven by investors' desire to move cryptocurrency to cold wallets after buying it. As a result, cryptocurrency exchanges' reserves have fallen by 7.6% to 1.945 million BTC since the end of January. This indicates that trading participants expect Bitcoin's price to rise further.

Image source: cryptoquant.com

On 29 March, open interest in Bitcoin in the futures market set a new record of $36.3 billion. Notably, the Chicago Mercantile Exchange continues to outperform Binance at $11.7 billion and $8.4 billion, respectively. This suggests increased interest in Bitcoin from institutional players.

Image source: coinglass.com

The cryptocurrency market continues to gain momentum as measured by trading activity. It's possible that new records will be set in April due to the market's reaction to Bitcoin's halving event and the expected increase in volatility.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)

 

[StormGain_crypto]

VanEck: The Ethereum L2 network will hit $1 trillion by 2030​

Ethereum is the most secure and decentralised environment for executing smart contracts, although it has low bandwidth and high fees. When addressing this problem, developers emphasised the development of Layer-2 (L2) networks. These networks process transactions quickly and cheaply, and Ethereum is used as a security guarantor by transmitting compressed packets of information (convolutions) to L1.

The demand for L2 is growing every month, causing ETH's share of total transaction volume in the Ethereum ecosystem to steadily decline.

Image source: vaneck.com

To move in the chosen direction, the Dencun hardfork was implemented on 13 March. Because of this hardfork, the information from L2 is now recorded at a separate level in so-called blob objects. This has reduced commissions on L2 by more than 90%.

Image source: vaneck.com

As a result, interest in L2 soared to unprecedented heights over the course of a month, and now Base (Coinbase's network) has surpassed Ethereum in the number of transactions over the last 30 days, increasing the number of active users in March from 19,000 to 171,000.

Image source: dune.com

The total value of L2 networks has nearly doubled to $41 billion this year, with investment firm VanEck predicting that the figure will rise to $1 trillion by 2030. If the forecast comes true, it'll be a growth driver for Ethereum, but it also contains potential risks.

Image source: StormGain Cryptocurrency Exchange

Developers are mainly concerned that ETH itself is increasingly being used for staking. The number of active validators is approaching 1 million, and the volume of blocked ETH has exceeded a quarter of the total supply.

Image source: validatorqueue.com

The growth of validators leads to network congestion due to increased messages, while the growth of staking coins entails systemic risks due to a bloated liquid betting market (when a token of a particular platform is issued in exchange for staked ETH). For example, Lido Finance alone has a 72% share in this market segment with a total staked value of $32.7 billion.

Image source: defillama.com

The development of L2 networks exacerbates these problems as activity on Ethereum's first layer declines. To solve them, the developers propose introducing a limit on the profitability of staking when a threshold on the number of validators or staked ETH is reached.

The community reacted negatively because this approach is strongly similar to central bank monetary policy. A solution that's acceptable to all has yet to be found.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)

 

[StormGain_crypto]

Bitcoin's on the verge of a major correction​

Spot ETFs are the leading reason why people are investing in Bitcoin. However, inflows are falling, with only $485 million coming in over the past week compared to a daily average of over $200 million. Moreover, net inflows fell into negative territory again yesterday, hitting -$224 million.

Image source: StormGain infographic

In March, a similar move was followed by a 9% correction.

Image source: StormGain Cryptocurrency Exchange

Bitcoin's biggest support group, long-term holders (LTH), is continuing to sell off Bitcoin to lock in profits. If we exclude the Grayscale fund, whose outflows persist due to high management fees, since December, LTHs have sold 614,000 BTC. That's 95,000 BTC more than has been accumulated by the newly created ETFs, with BlackRock at the head of the pack.

Image source: glassnode.com

The market is also under tangible pressure from miners, who have realised record volume on the OTC market since August 2023. Sales peaked at the end of March with 1,600 BTC per day.

Image source: twitter.com/cryptoquant_com

At the same time, the fear and greed indicator is near its maximum marks. This suggests that some market participants are overly optimistic.

Image source: alternative.me

They are mostly pushing back on the notion that Bitcoin's impending halving event is a surefire reason for its price to increase. The disadvantage of such an assessment is that this procedure has a long-term effect, whereas, in the medium term, other arguments may take over, such as the cryptocurrency being overbought due to excessive optimism. Things aren't so smooth, even statistically speaking. In 2016, Bitcoin's price didn't increase until 9 months after the halving event.

Image source: kaiko.com

This time, the coin hitting a new all-time high before the halving event is exacerbating the situation. This encourages cautious investors to take profits near current highs without waiting for a potential correction.

Another difference in the current cycle is that the maximum relative drawdown (so far) has only reached 22%, whereas in the past, it has ranged from 40% to 70%.

Image source: glassnode.com

BitMEX co-founder Arthur Hayes believes that excessive expectations of the halving event could cause the price to crash by half in April.

"When most market participants agree on a certain outcome, the opposite usually occurs."


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)

 

[StormGain_crypto]

Bitcoin's rally repeats patterns from 2021​

After hitting a then-all-time high in 2021, spot Bitcoin trade volume hit $14 billion per day. The all-time high set this year was also accompanied by a surge in trade volume.

Image source: glassnode.com

Another striking similarity is the fact that Bitcoin hit the 'pre-euphoria' and 'euphoria' zones when Bitcoin held in profit exceeds one standard deviation.

Image source: glassnode.com

What clearly differentiates these two cycles is the driving force behind them. In 2021, the primary inflow of investments came from institutional investors, while retail purchasers actively used crypto exchanges whose total reserves were 2.9 billion BTC.

Image source: BofA Research

This time, demand primarily came from retail investors, while new ETFs accounted for 30% of spot Bitcoin trade volume. Crypto exchanges' reserves are steadily declining and have already reached 1.94 million BTC.

Image source: cryptoquant.com

The impact of ETFs on spot trading is evident in the decline in market activity on weekends and holidays in the United States, when exchange-traded funds are closed.

Image source: glassnode.com

From this, we can draw a simple conclusion: to assess the prospects of Bitcoin's price continuing to rise, we should look at the influx of capital into ETFs and consider other traditional metrics.

Image source: StormGain infographic

During the past two weeks, it's been significantly below the average at $203 million. What's more, the past two days have seen an outflow of funds. This is primarily due to investors leaving Grayscale's fund because it has the highest management fee at 1.5%. In addition to this, Ark Invest's fund also saw an outflow of funds in April, and other ETFs experienced lower inflows.

Image source: StormGain Cryptocurrency Exchange

This, combined with long-term holders and miners selling off their reserves, creates the basis for a correction to form. If we take into account the similarity of the current cycle with the one from 2021, the potential drawdown could be 30% in the 'euphoria' zone. From the all-time high Bitcoin reached, the maximum drawdown target would be around $52,000.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)

 

[StormGain_crypto]

Cardano drops out of the Top 10​

The once very promising project known as the "Ethereum killer" continues to lose points in the crypto arena. According to CoinGecko's ranking, Cardano is now in 11th place by market capitalisation, coming in at $20.6 billion. It reached its peak capitalisation in 2021 when it hit $91.6 billion.

Image source: coingecko.com

Note: On CoinMarketCap, Cardano was still in the Top 10 since Lido's stETH, which has a market capitalisation of $33.6 billion, is not listed there.

In April, Cardano was definitively pushed out of 10th place by Toncoin, which has managed to increase its capitalisation from $3 billion to $25 billion in 12 months. However, Cardano's collapse started back in 2021, when it turned out that the "Ethereum killer" wasn't capable of properly working with smart contracts. After the Alonzo hardfork, the network's capitalisation and the price of ADA plummeted.

Image source: StormGain Cryptocurrency Exchange

The project's developers needed over a year to resolve the situation. Cardano missed its moment to consolidate its success, and it lost its spot to blockchains with more successful architectures. Now, along with networks such as Solana or L2 on Ethereum, Cardano no longer looks innovative. At least that's the assessment held by Grayscale, whose legal successes in 2023 opened the door to spot ETFs in the United States.

In July 2021, Grayscale added Cardano to its digital crypto fund, and in September, Alonzo identified network congestion after enabling support for smart contracts. The team believed in the product until the bitter end, but on 3 April 2024, Cardano was removed from the fund.

Image source: twitter.com/Grayscale

Cardano's problem is the lack of forward momentum. The network still doesn't support widely accepted stablecoins such as USDT and USDC. Instead, it introduced its own coin, Djed, whose capitalisation has been hovering around $3-4 million for a year now. Analytical agency K33 Research believes the lack of integration will lead Cardano to be completely forgotten.

Image source: k33.com

In the DeFi sector, the network dropped to 18th place with $385 million in total value locked (TVL). For comparison, Base, which launched last year, already has $1.5 billion.

Cardano's founder, Charles Hoskinson, always defends the network by pointing to the community's cohesion, but statistics on developer activity indicate the opposite.

Image source: tokenterminal.com

The combination of negative factors and investor disappointment has led to ADA missing out on this year's rally. Instead, it's trading down 2%.


StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)