Welcome to the Data Debrief! Bitcoin closed the week slightly up despite a major CFTC lawsuit against Binance and news that the U.S. government had sold 9,861 BTC connected to Silk Road (with plans to sell more). Today we explore:

• Binance's 16% drop in market share
• XRP trade volume on Korean exchanges
• BTC's correlation with gold surpassing equities

Trend of the Week

Binance loses 16% global market share to close Q1.

The banking crisis and ongoing regulatory crackdown have upended crypto market structure, leaving an uncertain dynamic among the world’s largest exchanges. Over the past two weeks, Binance has lost 16% market share of trade volume following a CFTC lawsuit and the decision to end its zero-fee trading program. The exchange remains the largest in the world with 54% dominance. 

Upbit is the only exchange out of 17 analyzed to claim a significant share of volume, although a lot of recent volume on the Korean exchange is concentrated in XRP trading pairs (more on that below). Overall, Binance’s excess volume largely vanished with the end of zero-fee trading, which was reflected in an even dispersal in market share among the remaining exchanges.

While global exchanges are increasingly targeted by regulators, the U.S. market is particularly fragile right now, with growing pressure among the remaining exchanges. 

Just last Friday, Bittrex announced it was shuttering its U.S. operations due to an uncertain regulatory outlook. Even Coinbase, which has historically made very strong efforts with regulators, received a Wells Notice focused on its staking service while Kraken was forced to shut down its service earlier this year. 

Throughout Q1, Coinbase's market share dropped from a weekly average of 60% to just 49%. Surprisingly, Binance.US has largely picked up the slack, despite a lawsuit against the global entity. Its market share has tripled from just 8% to more than 24%. 

Despite uncertainty in the exchange space, trade volume continued to soar and hit 4-month highs mid-March, remaining at consistently high levels amid a wider market rally. However, volumes began to drop sharply after Binance shut down its zero fee program.

Price

Crypto markets enjoy stellar Q1 performance.

Despite a wave of negative headlines, crypto markets closed the quarter as one the best performing sectors in finance. BTC was a leader, with gains of 70% YTD, benefiting from bullish narratives stemming from the banking sector crisis combined with low liquidity.

There were a few tokens in our Layer 1 and Layer 2 baskets that also enjoyed outsized returns. In our L1 basket, Solana (SOL) erased most of its post-FTX losses with gains of +100% YTD after the network showed signs of stability and decentralization. In the Layer 2 sector, Optimism (OP) hit all time highs in February, a month before the launch of its competitor Arbitrum’s ARB token. In the DeFi sector, Lido’s LDO token was the winner as traders flocked to decentralized staking services ahead of Ethereum’s upcoming Shanghai upgrade and a wider crackdown on centralized services in the U.S. 

Liquidity

ETH vs. BTC liquidity analysis.

The Ethereum network will undergo a key upgrade on April 12th, thus we can expect ETH to face significant market activity. What does ETH liquidity look like and how does it compare to BTC's? 

When charting the quantity of bids and asks within 2% of the mid price on USD/USDT order books, we can observe an unsurprisingly similar downwards trend. In mid-March, ETH market depth hits its lowest level since last May.

Interestingly, when we compare BTC's drop in market depth since the FTX collapse with ETH's, BTC's downwards trend is more extreme with a 50% drop compared with ETH's 41%. This divergence first emerged at the end of March and is almost certainly linked to Binance ending their zero-fee trading program, which caused a drop in liquidity for BTC markets on the exchange.

Overall, both assets have suffered in the aftermath of the FTX collapse and banking crisis, with fewer market makers supplying liquidity to order books. 

Curve 3pool approaches balance while growing 5%.

Since USDC’s depeg the 3pool has remained significantly out of balance, with the pool consisting of about 10% USDT in the two weeks after. When a Curve pool becomes imbalanced, it is often a sign of shifting demand for the underlying assets. In this case, users were opting to swap USDC and DAI for USDT, decreasing the pool’s USDT holdings and increasing USDC/DAI.

However, beginning last week the tide began to turn. In this time, the pool’s has grown by roughly $25mn while its USDT holdings have grown by about $50mn, indicating that much of this rebalancing is because of users swapping USDT for USDC/DAI. This is an encouraging sign amidst concern that USDC’s market cap has continued to fall, from a high of nearly $45bn pre-depeg to just over $32bn now.

XRP trade volume surges on Korean exchanges.

XRP is soaring as traders place their bets on a possible victory in Ripple's multi-year legal battle against the SEC, with a ruling expected in April. Overall, activity has been heavily concentrated on Korean exchanges, with XRP volumes on Upbit and Bithumb at times surpassing BTC and ETH.

XRP trading volumes exceeded $2bn last week, its highest level since Sept 2022, while prices are up more than 40% since March 20th. XRP perpetual futures open interest also surged to $471mn, up from $230mn, while funding rates turned positive, indicating that traders were mostly taking long positions.

Is the rally retail or whale-driven? When looking at the tick-level trade data, we can observe that whales are taking profit, which suggests the rally is retail-driven.

Looking at buy and sell transactions on the two largest Korean exchanges, Upbit and Bithumb, market sell orders overwhelmingly outpace market buys for orders over 200k XRP (~$95k). In contrast, the buy/sell ratio was much more balanced for smaller orders.

Derivatives

Inflows into derivatives markets remain subdued.

Despite double-digit gains in crypto prices in Q1, inflows into derivative markets remained subdued. Both BTC and ETH perpetual futures open interest expressed in native units (eliminating the impact of price increases) dropped double-digits in percentage terms between January and March. The amount of open BTC contracts fell by 20% to 211k BTC, driven by OKX and Bybit which registered the steepest drop of 54% and 35%, respectively. It is notable that BTC open interest on Binance remained relatively flat, hovering around 130k BTC throughout the quarter. The decline in ETH open interest was broader and sharper with Binance, OKX, and Bybit registering an over 30% drop.

Binance maintains derivatives dominance.

Binance lost 16% market share of spot volume in just two weeks after the CFTC lawsuit and end of zero-fee trading. But the trend is quite different when looking at derivatives volumes: Binance only lost about 2% of market share for perpetual futures trade volume. This suggests that the majority of market share was lost purely due to the end of zero-fee spot trading, rather than trepidations around a lawsuit. 

Overall, Binance and OKX were the biggest winners from the FTX collapse, while Bybit and smaller exchanges saw a decline in market share. Binance's market share increased from 50% to 65% after November 2022, while OKX saw its market share increase from under 10% to 17%. Bybit and the three smaller exchanges Huobi, Bitmex and Deribit, on the other hand, saw their market share decline.

Macro

BTC's correlation with gold surpasses equities. 

Bitcoin's correlation with gold hit a multi-year high last week and is currently around 50%, surpassing its correlation with US equities. BTC has weathered the recent turmoil in the banking sector and increasing regulatory uncertainty remarkably well, surging by 70% YTD, far outperforming traditional assets. Gold is also up 8.6% since the collapse of Silvergate on March 8, testing its all-time high of $2,000 reached after the start of the Russia-Ukraine war.

Combined with on-chain data showing that the share of BTC long-term holders is steadily increasing, this could indicate that the attractiveness of BTC as a safe haven asset is on the rise. Moreover, large macro investors have already reduced their risk for the most part, which could explain the declining correlation with tech stocks.

Volatility gap between BTC and Nasdaq hits yearly high. 

While the Nasdaq 100 has technically entered a bull market (it's up 20% or more since its December lows), its volatility has declined. It's worth noting that the gap between crypto volatility and U.S. equities has reached its highest level since the FTX collapse. The surge in BTC volatility is partly liquidity-driven, as market depth remains at a multi-month low. It's unlikely to go away as the largest and most liquid exchange, Binance,  now faces regulatory pressures that could exacerbate risk aversion among market makers.

Thanks for reading and see you next week!

Written by Dessislava Aubert, Clara Medalie, Riyad Carey and Conor Ryder, CFA. 

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