The Breakdown - Crypto Daily 3@3 - 8.2 | Q2 Crypto Data Extravaganza!

Episode Date: August 2, 2019

The Q2 crypto data reports are in, so on this special edition we’re breaking down the most interesting trends. We cover: asset performance; network activity in Bitcoin and Ethereum; the “non-correlated” narrative in Bitcoin and BTC’s relative narrative strength; the state of dapps and DeFi; IEO and exchange token performance; the impact of regulatory action; the decline of VC activity; the rise of competitive smart contract platforms; and finally end on a new emerging narrative: halving skepticism! Thanks to CoinMetrics, Circle Research and Delphi Digital for all their great work.    Video: https://www.youtube.com/nathanielwhittemorecrypto

All right, welcome back to another Crypto Daily 3 at 3. So today we have something a little bit different, something fun for the Friday. So I noticed that over the last two weeks, two different great research firms in Delphi Digital and Circle Research have put out their quarter two data recaps. And for those of you haven't seen them before, these are incredibly well researched, comprehensive kind of trend analysis, price analysis, just a huge amount of really good information that comes out quarterly, obviously. And so between that and just the regular now weekly email newsletters from Coin Metrics, I thought it would be fun to actually dig in and sort of do a tail of the tape for last quarter. And so I guess just one caveat before we dive in.

So I'm not a data guy. I'm a narrative person. So I think in terms of kind of sentiment and feeling and, you know, gut level acuity and things like that. But because of that, I actually appreciate data even more because I always want to understand, does the data support the narratives that I'm seeing? Does it suggest that I'm looking at things the wrong way? So I love staying close with what really good data teams are doing. So that's kind of the precedent. This is not my analysis. This is me curating and sharing what I've seen, but it largely kind of reflects, I think, what I've seen from a more narrative perspective as well.

So let's dive in. So let's start with what I think everyone always wants to think about or hear about first, which is just performance, right? Price performance over the last quarter, what's been the story? And I think it's pretty clear, and this is Delphi Digital here, that it's been the story of large caps, right? This is, you know, it's almost become a meme at this point of people just waiting for alt season to show back up, whether it ever will or not, I think is a whole different

discussion. However, what's clear is that, you know, you can see. see that large caps, you know, with Bitcoin in the lead, way overperformed everything else. There's just no other real price story aside from that, I think, this quarter. What about more kind of network activity, right? So, you know, this is the quarter that I think a lot of people felt like we turned from kind of more of a bare market into something that's the start of a new bull phase. And that seems to be reflected in some of this data, right? So you have, this is from Circle Research, you have an uptick in hash rate and total minor revenue on both

Bitcoin and Ethereum, right? So in Bitcoin, there's a 32% change, hash rate quarter over quarter. In Ethereum, it's a 19% change in hash rate quarter over quarter, and both are up way over 100% on the year. You have, if you dig into Bitcoin, then network activity even more closely, and again, this is from Circle. Just again, by every metric, things are increasing. Daily active addresses are up 26%. Daily transaction count is up 17%. And this is quarter over quarter. average daily value transacted. I think this is a big one, is up over 106% quarter over quarter. So that's really interesting stuff, right?

Just clearly that it's not just the hash rate, there's kind of more usage and activity as well. A note that I thought was really interesting from coin metrics, Bitcoin address is holding at least $1 or rapidly approaching an all-time high. It peaked in January of 2018, as pretty much everything did. and it's up almost five, over five million unique addresses from the beginning of this year, beginning of 2019. So again, just showing the kind of larger megatrend of growth in activity in the Bitcoin network.

The Ethereum network is also showing some good growth kind of quarter over quarter. It's interesting, though, I think one of the things to note is that there are some of the, some of these numbers are down year over year, right? So if you look at average daily transaction count by month, it's up quarter over quarter by almost 44%, but down 2% year over year. I think part of that reflects that just there's a lot of still kind of of the end of the ICO activity in Q2 of last year. There are a lot of more emphasis on DAPs, as we'll talk about in a little bit. But in general, you know, when you look at this year and whether we're kind of shifting into a better phase, quarter over quarter Ethereum network is also growing.

So let's move into kind of more narrative activity, actually. So one of the things that I've said a lot, if you've watched this, if you've watched the Crypto Daily 3 or 3 before, is that one of the things that I'm seeing most in kind of narrative change is that Bitcoin is moving not just from kind of a generic store of value narrative. It's becoming something that's more of an uncorrelated or non-correlated asset, a flight to safety asset, just a hedge against kind of larger macro conditions. I think this is the story of right now is you're seeing the financial markets as they watch

kind of this inexorable march towards MMT and money printing and Fed rate cuts and all this sort of stuff. Bitcoin looks like a really interesting countervailing force. The Delphi Digital guys are showing that that is kind of showing up in the numbers as well, right? This uncorrelated asset idea is not just a narrative, it's also bearing out, which obviously gives strength to the narrative. They also pointed out kind of that part of the support for this and why it's growing stronger as a narrative is what's going on in the larger economy, including the idea of or the potential of Fed rate cuts. So obviously this just happened this week. Fed cut rates for the first time since Bitcoin was born since 2008, basically, which kind of, you know,

as a lot of people have pointed out, it seems like a really. good bullish scenario for Bitcoin growth for anyone who's kind of looking for something to counter that type of monetary policy. I think that one other thing that I wanted to share that was interesting is that from kind of a narrative strength perspective, I think that a lot of 2018, a lot of the story of 2018 was kind of market-oriented, traditional financially oriented Bitcoin bulls talking to their peers, talking to mainstream institutions, mainstream financial firms, and telling them the story of Bitcoin and telling them this non-correlated asset story, telling them the get-off zero story, and so on and so forth.

And I think that you're seeing a little bit of that show up now in terms of just how much emphasis Bitcoin has even relative to the field. So I think the tie joined forces with Delphi Digital to do a little bit of sentiment analysis as well, and they showed that not only is Bitcoin market cap dominance increasing, so is the share of kind of the conversations on crypto Twitter that are actually Bitcoin Twitter. It's just a small thing, but I think is interesting, again, reinforcing this idea of the narrative strength of Bitcoin comparative to other crypto assets. Still, obviously, there is, oh yeah, sorry, I guess we'll do one more thing on the store of value

idea. For readers who are listening, I'm sorry, this one is definitely better, better, better, seen than I think just heard. I'm trying to do my best to to kind of share the graphs, but I'll link obviously to the video for you. The amount of untouched Bitcoin untouched for at least five years is at an all-time high. This comes from coin metrics. And again, this is just one more kind of feather in the cap of the kind of the store value narrative and what that might be even kind of large-sized up into this hedge against global kind of spending conditions. Okay, but let's go back to Ethereum, right? Because we talked a lot about Bitcoin and what the state of the Bitcoin

network is. What about the state of the Ethereum network? Obviously, we saw activity continues to grow, but there's an interesting question about where that activity is. It was really only a year ago that the narrative of decentralized finance and defy started to come out. I think I actually just saw a tweet maybe today that was a kind of a screen share of a group chat where some of the folks from like Dharma were actually debating, you know, should they call this new thing defy, should they call it whatever, is Dharma and a bunch of other companies? And so that obviously has become at the center of the Ethereum narrative over the last year. But back, you know, a year ago, it was still all DAPs, right? And so it was really interesting. I thought that Circle

pointed out that Ethereum DAPs, you know, was down 29% quarter over quarter. The EOS DAPs was down 58% quarter over quarter. clearly a shift away from people spending their time on DAPS, frankly. For me, I will say that I don't think that this dams the idea of decentralized applications. I think we saw an explosion of interest in decentralizing everything and tokenizing everything. And this, to me, is kind of a reflective of both one, a reasonable retrace of what things actually need to be decentralized and in what ways and just a kind of a growing sophistication and how builders are thinking about the market. But it also reflects, I think, the growth of interest in other places to spend your time, particularly decentralized finance.

So this is another chart from Circle. Decentralized lending performance soars. So a few of the quick hits. $114 million in loans outstanding as of June 30th. 279 million of loans originated year to date as of July 16th. 52,000 loans originated year to date. 379% weighted average collateral ratio. Again, there's a whole interesting conversation going on right now about to what extent

that over collateralization impacts how many or rather how few people can participate in DFI with people on one side saying it's one side saying it's very limiting while people on the other side kind of point out that it's just part of the sequence and part of the phase. But it's still interesting to see there's clearly a huge amount of activity. And I don't have a chart here, but one thing that was kind of clear in both, I think, Delphi's research and in circles research is that although Maker and Die have really led the charge of this, as more players come in, their total share of kind of the defy market is declining. Still, on the topic of die, coin metrics pointed out in a newsletter a couple weeks ago that, so just at the end of last month, at the end of July, Coinbase added a lesson on their earned platform. and it allowed users to earn $14 worth of dye. And die user activity has gone way up.

So there's something, a growth in something like 14,000 addresses that hold the die balance since that. And there were only 38,000 to start. So, you know, there's a huge jump, obviously. So really, really interesting stuff. Still clearly a ton of interest in defy. But let's talk about the other kind of area that has been a lot of the story of this year. which is exchange tokens and IEOs. So when Binance, you know, and it's BNB token,

we're one of the best performers of the bare market, all the other exchanges took notice, right? It seemed like such an interesting piece of financial engineering and created such a new opportunity that obviously there's gonna be kind of a copycat effect. Circle points out that exchange token performance hasn't necessarily worked quite as well for everyone else. The performance has, you know,

there were a ton of returns kind of, in Q1 of this year, in Q2, not so much. So exchange tokens are a phenomenon still, but how they're playing out is a little bit less certain. But what about IEOs? So IEOs are kind of the other big piece of this with initial exchange offerings where basically you've got an ICO, but entirely within the context and confines

of one exchange community, who provides that liquidity and that bounce and whatever at the end. There's been a huge amount of conversation about this, but I think it's cool that we're finally getting some numbers. So if you look at the returns of the largest IEOs, you have Leo, which is actually that's still up over its current price. But pretty much everything else, or sorry, that's current price is up over its IEO price. Pretty much everything else is down, which is interesting, at least in terms of the big guys. Then you also saw, I guess, maybe a week ago, or could have been this week.

I can't even keep track anymore. but Larry Sirmack from the Block also did kind of an analysis of IEOs. And he pointed out that one of the challenges is that they're kind of like the last pump and dump game in town, or at least one of the last clear ones. And so he says, but because most of the investors buy the tokens just to sell them for a higher price a few months later, the price is never sustained. About 75% of projects have lost 50% of value since their all-time high, and 39% of projects lost more than 75% of value since they're all-time high.

So I think what's interesting about kind of where IEOs are now, just not even from a kind of a judgment perspective, is that to the extent that they are going to be a good tool for token projects to distribute tokens, to build community, to get their network out there, I think almost all of them are going to have to deal with some amount of pop followed by a real valley where the people who don't care about the project kind of dump them and then see if they can. can recover. You know, we haven't seen a full cycle of that yet, but that's kind of what I'm interested in is to the extent that IEOs are a useful part of the toolkit for more than just getting kind of a big pool of money fast, that's what I think we're going to need to see. So anyways, interesting stuff, of course, from Larry. Now let's go to like regular, a little bit of regulatory action. So a lot of, you know, one of the things you'll notice, I haven't talked about at all is the is kind of Libra and the impact of Libra on on the larger crypto markets. The reason for that is so all of these research reports, these QTor reports are touching on

Libra, but there's not a ton of numbers yet to go with it, right? And the whole point of this particular conversation is kind of having day to day. And so I didn't mention anything about Libra, but there have been a couple of interesting things from a regulatory perspective that have kind of, there's some numbers that we can see impact a little bit. So there's kind of an interesting phenomenon going on, which I've called de-Americanization on Twitter before. And it's this idea that regulatory uncertainty or regulatory pressure is causing a number of different types of actors in the system, including Circle, Binance, Bitrex, and Bitrex to kind of all leave the U.S. Although Bitmex is, you know, theoretically it's never

kind of been available for U.S. customers or it hasn't for a while. Well, on July 19th, it was, it was broke, the story broke that the CFTC was conducting a probe in Bitmex, and Coin Metrics actually tracked the immediate outflows of money from Bitmex when that was announced. And basically, the tail of the tape here is that, you know, there has been a huge amount of outflow, $145 million, however, it's stabilized at this point. So it really was a quick pop when that happened for kind of the first six or seven days, first week after after that news broke and it's stabled out since. But anyways, it's interesting to start to see the actual implication

in numbers of some of this regulatory action. Now I'll go through just a kind of a few kind of notable one slide things that I saw that I thought were interesting. Delphi Digital pointed out that on the venture side of things, kind of the deal count is down, the amount invested is way down, which is interesting, at least year over year. So it's up slightly quarter from Q2 to Q1, but definitely down significantly in terms of, in terms of looking back into 2018 across kind of all the quarters. And so what might be going on?

I think there's a bunch of different things. One is that, you know, and this is all anecdotally, this is my, I guess my analysis a little bit. You know, there's fewer daps that are that people are getting excited about. And there's more, more to the extent that there is kind of capital being invested, I think you're seeing it go into core infrastructure or, and we'll move ahead of slide, kind of this new set of emerging smart contracts. So base layer platforms that are going directly after existing projects like Ethereum, right? So you saw Algoran pop this year. You saw Cosmos. Tazos has been kind of quietly growing. You just have a lot of these kind of base layer. projects which are attracting capital interest from investors. And so, you know, maybe to some extent that the venture capital deal flow being down and the total dollars being down is that more of the money is going into what's inherently a smaller pool of projects. But anyways, I think it's a notable, interesting thing to keep an eye on. The halving. Maybe we'll end on this

one. So having skepticism. So the Bitcoin halving is in less than 300 days. If you spend any time on Bitcoin Twitter, on crypto Twitter, you see this is coming up all the time. So Circle did a little bit of research kind of about looking at how the having, you know, the first halving and second having compared and what it's likely to look like in the third having. And their conclusion is kind of not so much a conclusion. They're just arguing that it's, you know, history doesn't necessarily suggest for the future. And they're showing that also that kind of the, The farther away the impacts are from kind of initial block rewards. Basically, the more of the block rewards have declined by the time of halving happens,

the less likely it is to make a huge impact. But I wanted to point this out because I'm not just seeing it and kind of discussed in these research reports. I'm also starting to see an active debate and a narrative on Twitter, right? So Joe Wisethall from Bloomberg today, here's a hot take that will piss off a lot of bitcoinsers. the halving is completely irrelevant as a price driver. You can't simultaneously believe that markets are smart and efficient and also believe that events literally everyone can see coming at the same time actually matter. To the extent that Bitcoin rallies may have, to some extent,

been associated with periods where the blocker order is cut in half, is almost certainly specious. If everyone sees the same thing, that it's already baked in. So you have that. But then you also saw on July 21st a really, you know, at least well-research, well-written kind of argument called the myth of cryptocurrency halving events, It's a deeper analysis. So this is from Strix Leviathan.

And as always, I'll link to these via Masari Linkboard. Basically, these guys, their key takeaway, we found no evidence that cryptocurrency assets experiencing a halving event outperform the broader market in the months leading up to and following a reduction in their minor rewards. So again, they're kind of on this haltings don't matter kind of perspective. But there is, I wanted to leave you with this fun tweet from Marad. literally no one believes that the Bitcoin market is smart or efficient. So he's reflecting Joe.

And he goes on to talk a little bit about why there's a lot of people who don't understand the halving yet, that that's the new kind of price pressure that might come in. But I just thought that it's a pretty excellent quote. Literally no one believes that the Bitcoin market is smart or efficient. So there you have it, Q2 Data Extravaganza. Let me know in comments or tweet at me at NLW what you thought of this. Is this something you'd like to see more of? You know, I mean, there's so many awesome data sources out there that we can do this more often if you'd like.

And so, yeah, so let me know if it was a valuable summary to have kind of a quick hits. And for now, that's it. That's me signing off for the week. I will see you next week. Have a great weekend, everyone. And yeah, talk to you Monday.