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August 2022 in Numbers: Bitcoin Correction, Miner Revenue Growth, and DeFi Liquidity Drain

 August 2022 in Numbers: Bitcoin Correction, Miner Revenue Growth, and DeFi Liquidity Drain

key

  • Leading cryptocurrencies showed signs of a reversal, but subsequently resumed their decline.
  • Against the backdrop of the upcoming The Merge update, investors showed interest in Ethereum derivatives, but withdrew assets from exchanges and DeFi applications.
  • The Maker community is concerned about the threat of blocking the provision of DAI amid sanctions against Tornado Cash
  • Many market participants are confident in the further increase in the Fed's rate and the deepening of the recession in the US.
  • Some on-chain indicators are bearish, but many metrics point to Bitcoin being deeply oversold.
  • Bitcoin and Ethereum miner earnings grew by 12% and 22%, respectively.
  • Bitcoin dominance has fallen below 40% to the level of early 2022 and 2018.


Dynamics of leading assets

  • In August, bitcoin expanded its range of lateral movement to $19,500-$25,000. In the first half of the month, the leading cryptocurrencies updated their local highs. However, the second half was remembered for the correction.
  • Ethereum showed slightly better dynamics. Against the backdrop of the upcoming The Merge update, the rate of the second largest cryptocurrency by capitalization exceeded $2,000, but the month closed at a level below $1,500. 
  • At the end of August, Bitcoin fell by 13.88%, and Ethereum by 7.33%. 
  • Bitcoin dominance has fallen below 40%, to record lows in early 2022 and 2018.


Among the best performing assets with a moderate capitalization (from $200 million) was the Ethereum pool token Compound (cETH). Against the background of the statement of the founder of Telegram Pavel Durov about the possible launch of a marketplace of accounts in the messenger and a number of other Web3 initiatives based on Toncoin, the native TON token showed impressive dynamics. Against the background of the announcement of the extension of cooperation with the Argentine Football Association until 2026, the token of the Chiliz (CHZ) blockchain platform has also grown.

Among the outsiders was the token of the cryptomixer Tornado Cash (TORN), which fell under OFAC sanctions. The subsequent arrest of the protocol developer caused a great resonance in the community. Other outsiders include the Helium (HNT) and Optimism (OP) protocol tokens, which entered a protracted correction phase against the backdrop of a bear market.

Shares of companies related to cryptocurrencies

MicroStrategy ( MSTR ):

-16.26%


Coinbase ( COIN ):

+8.94%


Bakkt ( BKKT ):

-8.16%


Galaxy Digital ( GLXY ):

+0.84%


Voyager Digital ( VYGVF ):

+55.54%


Dynamics of securities of mining companies

Canaan (CAN):

-10.9%


Ebang International (EBON):

-3.1%


Riot Blockchain (RIOT):

+0.5%


Hut 8 (HUT):

-1.5%


Marathon Digital (MARA):

-5.2%


In the market of public industry companies, the Coinbase exchange stood out in August. Despite posting poor financial results , the platform has announced a partnership with BlackRock, the largest asset manager, whose clients will get access to digital assets through Coinbase Prime. Last month, shares of Voyager, which is undergoing bankruptcy proceedings, demonstrated significant growth. However, their value has fallen since the beginning of the year by more than 99%.


macroeconomic background


Probability distribution of the key rate hike at the meeting in September (current level 225-250 bp) Data: CME Fed Watch .

  • At a symposium in Jackson Hole, Fed Chairman Jerome Powell warned of his intention not to rush to cut rates in order to maintain control over inflation expectations. This contrasted with the views of investors, who expected a reversal in politics in the spring of 2023.
  • Powell explained that the rate increase in September will depend on the macroeconomic data coming out, and inflation reduction in July is "not enough". By this time, investors will have time to analyze the latest report on the dynamics of consumer prices (September 13) and the report on the labor market (September 2).
  • The market fluctuates between options for a 50 bp increase in September. p. and 75 b. Against the backdrop of harsh rhetoric from the Fed representatives, the second scenario prevails (over the month, the probability increased from 28% to 72%). At the same time, steps of 25 bp are expected in November and December. P.

macroeconomic background


Probability distribution of the key rate hike at the meeting in September (current level 225-250 bp) Data: CME Fed Watch .
At a symposium in Jackson Hole, Fed Chairman Jerome Powell warned of his intention not to rush to cut rates in order to maintain control over inflation expectations. This contrasted with the views of investors, who expected a reversal in politics in the spring of 2023.
Powell explained that the rate increase in September will depend on the macroeconomic data coming out, and inflation reduction in July is "not enough". By this time, investors will have time to analyze the latest report on the dynamics of consumer prices (September 13) and the report on the labor market (September 2).
The market fluctuates between options for a 50 bp increase in September. p. and 75 b. Against the backdrop of harsh rhetoric from the Fed representatives, the second scenario prevails (over the month, the probability increased from 28% to 72%). At the same time, steps of 25 bp are expected in November and December. P.


Dynamics of estimates of 48 economists polled by Reuters regarding the onset of a recession in the US economy on the horizon of one (red) and two years (blue). Data: Reuters .
After Jackson Hole, the reversal in the Fed's policy ceased to be traced by the market until mid-2023. Such a disposition will increase the susceptibility of risky assets like bitcoin (high correlation with the S&P 500 index remains) to negative macroeconomic data.
Against the backdrop of the energy crisis in Europe and the slowdown in the Chinese economy, economists began to increase the likelihood of a deepening recession in the United States - from 40% to 45% in a month (assuming a rate increase of only 50 bp in September).
Market sentiment, correlations and volatility

Dynamics of the index of fear and greed. Data: alternative.me .


Compared to July, in August the average value of the Fear and Greed Index increased by almost a third (32.6 vs. 24.2). However, at the end of the month, the indicator dropped back into the "extreme fear" zone.
Investor sentiment was influenced by the speech of Fed Chairman Jerome Powell and other macroeconomic factors. The negative background was also created by rumors about the reimbursement of Mt.Gox creditors and information about the movement of the cryptocurrency associated with the bankrupt exchange.

90-day asset correlation metrics. Data: BlockchainCenter .


Dynamics of the index of historical intraday volatility of bitcoin BVOL24H. Data: BitMEX .
The correlation of bitcoin with the US stock market has slightly weakened. The smoothed 90-day average was 0.61 for the S&P 500 and 0.55 for the Dow Jones (0.64 and 0.58 in July, respectively).
The statistical relationship of the first cryptocurrency with gold, on the contrary, has strengthened (0.24 vs. 0.15 last month), but remains weak enough to consider bitcoin as a reserve asset.
In August, the average value of the index of historical intraday volatility of bitcoin (BVOL24H) was 2.6%, which is lower than in July (3.5%). The surges occurred on local asset price corrections on August 19 and 26. The rest of the time the quotes moved in a relatively narrow range.
On-chain data

Dynamics of the Whale Shadows indicator. Data: Look Into Bitcoin .


Dynamics of the number of active bitcoin addresses. Data: Glassnode .
On August 29, the on-chain indicator Whale Shadows pointed to the “awakening” of a large cluster of bitcoins that had been dormant for a long time. The chart above shows that historically, after such surges, significant price corrections of the first cryptocurrency were observed.
The researchers found that the 10,000 BTC that came into motion for the first time since 2013 is associated with the bankrupt Mt.Gox exchange.
The seven-day moving average of the number of active addresses (excluding interconnected ones) is testing the lower limit of the bearish channel. Analysts at Glassnode suggested that a further drop in the indicator would mean "a sad deterioration in the user base, which has not been seen for many years."

Dynamics of the aSOPR indicator. Data: Glassnode .


Dynamics of the "Difficulty Tape" indicator. Data: Look Into Bitcoin .
In August, the aSOPR on-chain tool ( 7 MA ) never broke the 1 mark, even when the price of bitcoin was testing the $24,000 mark. This suggests that many short-term investors are closing positions without loss or with relatively small losses. A return of the metric above 1 will confirm a recovery in demand and indicate an improvement in market sentiment.
The "Difficulty Tape" indicator indicated the end of the period of surrender of the miners ( the blue line crossed the purple one from the bottom up, the values ​​returned to the "white zone"). According to the head of Capriole Investments, Charles Edwards, this is "a great signal to buy . "

Another long-term indicator - RHODL Ratio - indicates a deep oversold bitcoin. Its values ​​are in the "green zone" for the first time since the beginning of 2019.
A similar signal is demonstrated by the MVRV Z-Score metric . Its values ​​in the second half of August again indicated that the price of digital gold is below the “fair” level.
Ethereum

Dynamics of the daily number of burned ETH. Data: Etherscan .


Ethereum balances on centralized exchanges and share of the ETH supply involved in smart contracts. Data: Glassnode .
Since the activation of EIP-1559 , the Ethereum network has withdrawn over 2.5 million ETH from circulation. Compared to July, in August 2022, the rate of coin burning has almost halved - 38,400 versus 60,000.
Similar dynamics is observed for the second month in a row, which is explained by a decrease in activity on decentralized exchanges and NFT marketplaces. 
At the end of August, the balances of centralized exchanges and the share of Ethereum supply blocked in smart contracts of DeFi applications decreased. The situation is related to the upcoming update of The Merge - some investors withdraw assets to non-custodial wallets in the hope of placing them in staking.

Dynamics of the amount of ETH on the Ethereum 2.0 deposit contract and the number of validators. Data: Glassnode .

Dynamics of the number of Ethereum 2.0 addresses with a balance of ≥ 32 ETH. Data: Glassnode .
At the end of August, the amount of ETH on the Ethereum 2.0 deposit contract exceeded 13.41 million coins. Over the month, the indicator increased by 1.7%. In July, the growth was 1.5%, in June - 1.9%.
The number of users interacting with the second iteration of Ethereum increased by 1.7% during the reporting period (1.6% in July). This dynamic is also associated with the upcoming transition of the blockchain to Proof-of-Stake (PoS) - some network participants prefer to wait for the “merger”.
The number of Ethereum addresses with a balance of ≥ 32 ETH continues to grow steadily. At the end of August, the indicator increased by 2.3%, to 120,012. All these wallets can potentially become validators after The Merge is activated.
lightning network

Dynamics of Lightning Network capacity. Data: Bitcoin Visuals .


The number of nodes and the number of channels of the Lightning Network. Data: Glassnode .
In July, the capacity of the Bitcoin Lightning Network (LN) micropayment network exceeded 4,419 BTC, up 10% from the previous month.
Capacity growth was accompanied by a slight increase in the number of channels, by 2.5% over the reporting period. The number of LN nodes remained almost unchanged.
Mining, hashrate, fees

Bitcoin hashrate dynamics, EH/s. Data: Glassnode .


Bitcoin mining difficulty graph. Data: Glassnode .
Bitcoin hash rate ( 7 MA ) increased by 7.1% in a month. The continued growth of the indicator despite the inconclusive price dynamics indicates the confidence of network participants in the long-term prospects of digital gold, and also confirms the end of the period of capitulation of miners.
Following the hashrate, as a result of the last recalculation, the difficulty of mining the first cryptocurrency increased by 9.26% , to 30.97 T.
The exit of bitcoin from oversold should cause a further increase in the hash rate and, consequently, the difficulty of mining.

The largest bitcoin mining pools. BTC.com data as of 09/01/2022.


Dynamics of the average commission for BTC and ETH transactions. Data: Coin Metrics .
Foundry USA, which is part of Barry Silbert's Digital Currency Group, continues to hold the lead among mining pools in terms of the share of bitcoin hashrate - 24.2%. The gap from the main competitors - AntPool and F2Pool - is increasing. 
The average fee per Ethereum transaction increased by 12.8% in August, from $2.89 to $3.26. Against the backdrop of growth towards the level of $2,000, the indicator reached a local maximum at $5.05.
The average commission in the bitcoin network, on the contrary, decreased by 18% over the month - from $1.33 to $1.09. The likely reason is a gradual decline in on-chain dynamics, which is expressed in a decrease in the number of transactions and active addresses.

Income of bitcoin miners by months, million $. Data: Glassnode .


Monthly income of Ethereum miners, $ million. Data: Glassnode .
At the end of August, the total income of bitcoin miners amounted to $684.3 million, which is 12% more than in July. At the same time, the share of commissions in income decreased from 2.02% to 1.41%. Such multidirectional dynamics can be associated with a relatively low complexity indicator with declining on-chain activity.
The total income of Ethereum miners over the same period increased by 22% to $829 million. Due to falling on-chain activity and the relative calm in the DeFi and NFT segments, the share of commissions in revenues was 4% lower than in July.
trading volume for the first time turned out to be higher than that of derivatives based on the first cryptocurrency. Such dynamics was observed almost throughout August and especially intensified after the resumption of correction.

The volume of trading in options for bitcoin and Ethereum, billion $. Data: Glassnode .

Open interest in Ethereum options, $ billion. Data: Coinglass .
A small surge in trading activity was also observed for options based on Ethereum ($12.4 billion). Cumulative Open Interest Updated December 2021 Peaks
The volume of trading in bitcoin options fell to $10.2 billion. The last time such values ​​were observed in October 2020.

DeFi


Dynamics of the value of funds locked in the DeFi sector. Data: DeFi Llama .

Top ecosystems by value of blocked funds, billion $. Data: DeFi Llama .
In August, the volume of blocked funds (TVL) in smart contracts of decentralized applications decreased by 8%, to $85.62 billion. The dynamics are also related to the upcoming transition of Ethereum to PoS and cautious actions of investors amid an unstable macroeconomic situation.
The TVL of the all-time leader, Ethereum, rose to $51.84 billion ($51.28 billion in July). The value expressed in cryptocurrency was 33.96 million ETH (33.45 million ETH at the end of last month).

Top 20 DeFi coins by market cap. Data: Messari (as of 09/01/2022).


Top 5 DeFi projects based on Ethereum by value of blocked funds, billion $. Data: DeFi Llama (as of 09/01/2022).
At the end of the month, almost all DeFi tokens from the top 20 by capitalization were in the red zone. The exception is Balancer (BAL) and PancakeSwap (CAKE). The price of the first over the past 30 days has increased by 4%, the second - by almost 22.76%.
The growth of BAL is associated, among other things, with the spread of the Balancer Liquidity Bootstrapping tool and the implementation of the ERC-4626 standard token project . The price of CAKE has been influenced by a number of initiatives adopted by the community to reduce the issuance of the asset. 
Among the projects on Ethereum, the leadership in TVL is held by the MakerDAO platform ($7.91 billion). The second place was taken by the Aave landing protocol ($7.12 billion). At the end of July, the project community approved the launch of GHO, a decentralized stablecoin pegged to the US dollar.

TVL by main categories of decentralized applications. Data: DeFi Llama .


Capitalization of popular bitcoins on Ethereum, $ billion. Data: Dune Analytics .
Decentralized exchanges continue to dominate the total TVL of the DeFi sector, with projects in this category accounting for almost 30% of the figure or $25.29 billion.
In second place are landing services ($16.30 billion), in third place are cross-chain bridges ($11.74 billion).
At the end of August, the total capitalization of “bitcoins on ether” decreased to $4.92 billion. The WBTC dominance index remained unchanged at 84%.

Dynamics of the daily number of transactions in the ecosystems of Tron, Ethereum, Binance Smart Chain and Avalanche. Data: TronScan , Etherscan , BscScan , SnowTrace .
In August, the average daily number of transactions in all networks under consideration decreased compared to the previous month. Avalanche still shows the worst dynamics - this is due to the flow of traffic in the subnet . Taking into account the volume of messages transmitted in them, the blockchain processed over 45 million transactions during the reporting period , which is the historically highest figure.
The leader in terms of on-chain activity is the Tron blockchain — it has held this position since May 2022. On average, in August, the network processed about 5.3 million transactions per day. For comparison: for Binance Smart Chain, the value was 3.2 million transactions.

DEX and L2


Trading volume on decentralized Ethereum exchanges, $ billion. Data: Dune Analytics .

TVL in the L2 protocols of the Ethereum network, in ETH and $. Data: L2Beat .

In August, the trading volume of decentralized Ethereum exchanges and AMM protocols amounted to $55 billion, dropping to the lowest levels since January 2021.
In terms of platforms, Uniswap is consistently leading ($38 billion) - the share of DEX in the total indicator reached 70%. At the end of the month, the turnover of Curve Finance grew to $5.8 billion, and the DODO protocol broke into third place with $3.3 billion.
L2 protocols for scaling Ethereum were in great demand. In August, users again brought the total TVL to the June-July peaks of 3.5 million ETH worth over $5 billion. 
In terms of protocols, the leadership is held by Arbitrum (50% share), which launched a large-scale Nitro update on August 31. It is designed to reduce transaction fees and increase network bandwidth.
stablecoins


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