In 2021, it has entered the golden autumn and October. Many changes have occurred this year. Whether it is outside or inside the circle, NFT has attracted much attention, notices have been issued, domestic exchanges have been cleared, and Bitcoin has been upgraded. But as far as the industry is concerned, how are each performing? Let us use 25 pictures to take you to review the 2021-Q3 market, organize your thoughts and re-understand the way forward.
In the third quarter of 2021, Bitcoin rose by 25% and Ethereum by 32%, significantly outperforming gold, the S&P 500 and bonds. This may be the charm of emerging markets.
At the same time, the price volatility of BTC and ETH is also much higher than that of traditional assets, and they are still a paradise for high risk appetite and short-term speculators.
The correlation between ETH and BTC is still high, while the correlation between BTC and gold, S & P 500 index, bonds and US dollar is gradually weakening.
Among the best-performing encrypted assets in the third quarter, ALGO, DOT, and ADA took the lead, ETH and BTC performed quite well, and the performance of established mainstreams such as LTC and EOS was not satisfactory.
After the big migration of computing power that started in May, BTC’s hash rate rebounded strongly in the third quarter. At present, the United States has become the country with the highest computing power, accounting for 35%.
Since El Salvador adopted BTC as its national legal tender, the BTC capacity in the Lightning Network has increased significantly, and has recently exceeded 2,900 BTC. Although BTC has always been considered as a store of value and digital gold, the rise of lightning network payments reminds people once again that with the help of lightning network, BTC also has the function of peer-to-peer electronic cash.
Since March this year, Grayscale GBTC has entered a negative premium stage, because there are currently better BTC investment exposures in the market, such as Canada's BTCETF products.
Judging from the proportion of BTC's market value from 2017 to September 2021, the dominance rate of BTC is showing a downward trend, which is related to the progress of the industry-many copycat projects in the past were pure conceptual hype without practical application, but now DeFi, The gradual rise of real applications such as NFT and chain games has also indirectly promoted the increase in the market value of ETH. At the same time, ETH and BTC are also mutually successful. The ecological prosperity of ETH will help BTC capture more user base and consensus, and also make BTC an interest-bearing asset.
Judging from the ratio of BTC and ETH spot and futures trading volumes, institutional investor interest began to increase in the second half of 2020, and this trend continued until the first quarter of 2021, then weakened in the second quarter, and became strong again in the third quarter rebound.
Although the participation of institutions has made the BTC market more mature, the short-term volatility is still very high, and large-scale liquidations in the contract market still occur from time to time (mostly when long leverage is liquidated).
In May, BTC experienced a wave of net inflows into trading platforms, causing a sharp retracement of prices. Since then, BTC has continued to show a trend of net outflow from trading platforms as a whole, and more chips are locked in cold wallets or DeFi protocols, which is more beneficial to the long-term rise of BTC.
In the third quarter, BTC transfer fees continued to decrease and remained below $2, which shows that the main function of BTC is value storage rather than payment.
The BTC Coin Days Destroyed (CDD) indicator can reflect BTC network economic activities. The principle of this indicator is-as long as a BTC remains on the chain for 1 day without moving, then it will accumulate for 1 day. When a BTC stays on the chain for 100 days and then moves, then the number of coin days destroyed is 100. As can be seen from the figure above, the CDD of Q3 has surged twice, indicating that some long-term chips have been moved. However, considering that there is no heavy volume, there is a high probability that some long-term holders choose to reduce their positions to reduce risks, rather than the main shipments.
The liquidity supply of BTC continues to decrease, and in the short term, this will exacerbate the rise or fall (both directions). In the long run, the chips are locked, as long as the demand for spot purchases continues, it will be more conducive to rising.
The burning of ETH's basic handling fee continues to increase, and it also has a positive support effect on the price of ETH. According to the current destruction rate, nearly 8,000 ETHs are destroyed on average every day, and the annual destruction amount is about 3 million (the data will change according to the activity on the chain). More than 4 million ETHs are issued every year. After deducting the amount of destruction, the annual inflation rate may drop to about 1%, which is lower than the 1.8% inflation rate of BTC. If the current level of destruction can be maintained, the long-term impact of EIP-1559 will be greater than imagined.
According to the official schedule, the timetable for converting ETH to PoS is March 31, 2022 (recently it was revealed that it may be postponed to May), and the peak of the total amount of ETH will be 119.6 million. The reward only produces 1,400 ETH per day, and it is conservatively estimated that the total amount of ETH will gradually decrease based on the rate of burning 5,000 ETH per day (as shown by the dotted line in the figure above). This will be a very important economic model upgrade for ETH.
In addition, after the implementation of EIP-1559, the gas price does not jump up and down as before, and the stability has been improved, but the overall transaction fee has not decreased.
This is also the reason why EIP1559 is so controversial. The handling fee has not been reduced, but the basic transaction fee has been burned (this part of the fee originally belonged to the miners' income). However, since August 4th, the dollar value of miners’ income has not changed significantly, thanks to the frenzy of the NFT market and the rise in ETH prices (destruction fees have played a large price support role). Therefore, from the perspective of US dollar income, during the transition process of the Ethereum network to PoS, the current income of PoW miners, the largest stakeholders, has not been greatly affected, which is conducive to the subsequent smooth transition. It is reported that miners have also recently purchased multi-million dollar mining equipment, betting on delaying the merger.
From the perspective of the mainstream and counterfeit markets, ETH is still firmly in the leading position, accounting for 47.8% of the market value, while the total market value of alternative public chains (ADA, BNB, SOL, AVAX) accounts for 30.7%, and stable coins account for 18. %. The public chain field is still in a situation of one superpower and many strong ones.
Due to the high handling fee of ETH, multi-chain has also become an important trend in 2021. In addition to ETH, the public chains with the highest DeFi lockup value are BSC, Solana, Ploygon, Terra, and Avalanche. Therefore, cross-chain is still a sector worthy of attention in the future.
After the total lock-up value of DeFi declined in May, it hit a new high in September, and the ecological development is very healthy.
In terms of Dapps revenue, AxieInfinity, OpenSea, and Uniswap occupy the top three, followed by Pancake, Aave, and Sushi. It can be seen that the hot spots in the industry are still chain games, NFT, DEX and lending.
One of the biggest winners in the third quarter was OpenSea, whose NFT market transaction volume reached US$3.4 billion in August, exceeding the level of the second quarter in a single month. At the same time, it has also become the smart contract with the highest gas consumption. As of October 15, the number of ETH destroyed by OpenSea is close to 80,000.
Due to the blossoming of DeFi, chain games, and NFT, one after another. These activities all require the use of ETH, which also caused the continuous burning of basic transaction fees. Therefore, the performance of ETH in the third quarter continued to outperform DeFi blue chips such as UNI, AAVE, and COMP. At present, ETH has the greatest connection with the application of encryption industry. The prosperity of DeFi, chain games, and NFT will make ETH an indirect beneficiary.
The above content is a personal review of the 2021-Q3 market. It represents my personal point of view. I intend to learn more about the industry and the market. I do not make any investment reference or advice.
