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The state of crypto – August 2023

The state of crypto – August 2023

Cryptocurrencies
Mads Eberhardt

Cryptocurrency Analyst

Summary:  The crypto market has been characterized by remarkably low volatility in the last month. It appears that the market has found some price stability, from where much flow is required to move the price substantially in either direction. The Bitcoin ETF filing by BlackRock appears to attract investors to other exchange-traded Bitcoin instruments, as the latter saw a substantial inflow in July.

Immediately upon interacting with a blockchain, much data becomes publicly available on a public ledger. Analyzing this data may provide crypto traders and investors with helpful insight into the present state of the market. In “The state of crypto”, we take a look at the most important metrics to observe the market based on transaction and trading activity. Our main focus is the two largest cryptocurrencies Bitcoin and Ethereum, and we divide the metrics into short-term and long-term indicators. You find the report for the last month here.

Short-term

At the risk of repeating ourselves, the exchange balances of Bitcoin and Ethereum continue to slide. The exchange balances are now about 6.04% and 8.09% for Bitcoin and Ethereum, respectively, of which the drop of Ethereum has been especially striking this year, down more than three percentage points from 11.3% since the start of the year. For most of the year, Ethereum has each month taken on a new all-time low in terms of exchange balance.

Other than that, similar to traders on Wall Street, it appears that the crypto market went on summer break as well, as the one-week volatility was notably low. The low volatility led to modest exchange inflow due to limited price movements to trade, overall contributing to sparse volume in July. Due to the minimal volatility upon otherwise potent news such as the Ripple ruling in mid-July, it seems that the market has found some price stability, from where much flow is required to move the price substantially in either direction.

Exchange Balance in Percent. During times when crypto investors are more inclined to sell crypto, they often store their cryptocurrencies directly on an exchange to prepare to sell their holdings. On the contrary, they often move the funds to private wallets when they are less likely to liquidate them. In other words, low exchange balances on exchanges are often perceived as valuable for a potential upward trajectory. Source: Santiment
Exchange Inflow. This metric solely concerns the total deposit of Bitcoin and Ether to exchanges without considering the withdrawal of funds. By only considering deposits, we may better interpret what leads to sell pressure. Source: Santiment
Dormant Circulation. Shows how many Bitcoins and Ether were moved after not being moved for at least 365 days prior to that – accumulated on a daily basis. A high number may express eagerness from long-term holders to liquidate their portfolios. Source: Santiment
Supply Distribution for BTC. This illustrates the supply distribution in percent of Bitcoin and Ethereum based on the amount addresses hold. This may indicate which groups are buying or selling, for instance, whether whales are selling or buying. Source: Santiment
Supply Distribution for ETH. Source: Santiment
Price Volatility 1W. Source: Santiment

Long-term

What the crypto market did not offer in spot volatility, the market instead offered in terms of inflow to exchange-traded crypto products such as ETPs, mutual funds, and OTC trusts. The net inflow to Bitcoin-related products was about $244.6mn in July, whereas the net inflow to Ethereum was much less notable in the form of a $4.4mn inflow. The large inflow to Bitcoin is arguably mostly attributed to the filing of a US-based Bitcoin ETF by BlackRock in June, yielding renewed interest and conviction in exchange-traded crypto products.

Circulating Supply (5 years). For Bitcoin and Ethereum, there are continuously issued new Bitcoins and Ether to the supply, respectively. However, it may be the case that someone is permanently unable to access their wallet, which means the supply technically is lower. By looking at Bitcoin’s and Ethereum’s supply that has moved in the past 5 years, we might better interpret the authentic supply and whether large inactive wallets suddenly turn active. Source: Santiment
Market Value to Realized Value (MVRV) Ratio (5 years). The market value to realized value ratio (MVRV) calculates the average profit or loss of all holders based on when each token last moved over the past 5 years. For example, if the MVRV ratio is 1.5, holders are on average estimated to be up by 50%. Source: Santiment
Inflow and Outflow in ETPs, mutual funds, and OTC trusts. CoinShares publishes a weekly report on inflow or outflow into crypto ETPs, mutual funds, and OTC trusts. Since these products are particularly popular among more traditional investors, an inflow or outflow may describe the sentiment among this group of crypto investors.
Source: Saxo Group
Source: Saxo Group

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