The Kaiko Research team is thrilled to introduce our first Quarterly Market Report! Through 20 jam-packed pages, we provide data-driven analysis of Q3's most significant market events. We cover the Ethereum Merge, macro volatility, Nomad bridge exploit, Binance's fee elimination, the crypto credit crisis, stablecoin regulation, and much more. Download the comprehensive report here:
Metaverse tokens trade volumes on CEXs drop to all-time lows.
The metaverse received unwanted attention last week when CoinDesk reportedthat, according to DappRadar statistics, Decentraland (MANA) had only 38 daily active users, while the Sandbox (SAND) had 522. However, these figures have been disputed, as DappRadar defines active users as those that interact with a smart contract, missing those who log in without making a transaction.
Representatives for Decentraland have stated that the platform has about 8,000 daily active users. The lack of traction for blockchain-based metaverses is clear in trade volumes, as last month marked the lowest ever CEX trade volume for AXS, SAND, MANA, and ENJ, together measuring in at just around 1% of daily BTC volumes.
However, despite the historically low volumes, liquidity is generally similar to tokens with similar market caps. Conveniently, SAND, MANA, and AXS are the 46, 47, and 48 largest tokens by market cap according to CoinGecko and were sandwiched by AAVE at 45 and XTZ at 49 at the time of this writing; ENJ is 92nd.
Liquidity metrics, in this case the sum of 1% market depth for all of the tokens’ USD, USDT, and BUSD pairs on Binance, Coinbase, and OKX, show that AAVE has the best liquidity, followed by SAND and MANA, while AXS’s is lower than XTZ’s.
ENJ’s market depth is much lower, though this is to be expected from a smaller token. It is interesting to note that Binance Labs is an investor in the Sandbox, and when Binance is removed from this metric SAND’s liquidity is similar to AXS’s, and about half that of MANA and AAVE.
Price Movements
Bitcoin falls to its lowest level since 2020.
Last week volatility in both equity and crypto markets surged after U.S. core consumer price inflation (excluding food and energy costs) hit a 40-year high, pushing up expectations for the Fed’s terminal rate to nearly 5%. Bitcoin initially fell below $18k after the release - its lowest level since December 2020 - before staging a respectable recovery of 8% within a few hours as markets corrected what now looks like an overblown sell-off. The psychologically important $20k level for BTC now awaits and could lead to another leg higher if breached.
In other industry news, Google Cloud will let users pay with Bitcoin, Ether and Dogecoin via Coinbase in 2023. The world’s largest custodian bank - BNY Mellon launched BTC and ETH custody for investment firms. Meanwhile, Solana DeFi trading platform Mango Markets suffered a $100mn exploit via collateral manipulation.
Huobi’s Token surges following shares sale announcement.
Huobi’s utility token HT surged by over 50% since the start of October, significantly outperforming other centralized exchanges tokens. HT gained traction after Huobi’s founder agreed to sell his controlling stake after the token has mostly underperformed since July. OKX’s token OKB has been the second-best performer so far this month, gaining 3%.
While the value of centralized exchange tokens can serve as a sentiment gauge for the competitive health of exchanges, it is interesting to note that the BNB token performance was mostly unaffected by the $100mn hack on the Binance Smart Chain last week.
Binance expands regulatory relationships.
In its five years of existence, Binance has cultivated a reputation of playing fast and loose with regulation. CEO Changpeng Zhao (CZ) has often been asked where the exchange is headquartered and has never answered; in July of this year he said an answer would be announced “in due time.” In this same interview he acknowledged what has become clear from simply observing: Binance has had to become more cooperative with regulators as governments around the world have become more focused on crypto.
Binance now has offices in Abu Dhabi, Bahrain, Dubai, and Paris, as well as a regulated U.S. entity, Binance.US. The exchange has also sought registration around the world, most recently becoming a registered Financial Service Provider in New Zealand. Coinbase, on the other hand, has been focused on regulatory approval for longer, which recently paid off in the form of a license from the Monetary Authority of Singapore. It has been notoriously difficult for crypto entities to get a license in Singapore, with Binance pulling its application last year.
Bitcoin fiat premium/discount exhibits strong volatility.
Bitcoin’s fiat premium/discount exhibited unusually high volatility over the past month as FX market turmoil spilled into crypto. The fiat premium or discount is calculated as the spread between the price of BTC in local currency converted to U.S. Dollars using the currency’s hourly exchange rate. The discount can vary depending on FX rates moves, local crypto demand and regulation.
In September, BTC’s premium/discount on UK markets ranged between +/-0.1%, while it varied from 0.2% to -0.2% on Japanese markets. GBP/USD and JPY/USD realized volatility hit its highest level since March 2020 as both the British Pound (GBP) and the Japanese Yen (JPY) dropped to historical lows against USD, prompting multi-billion dollar central bank interventions.
However, as rampant U.S. inflation and a hawkish Fed continued fueling the greenback, these interventions proved mostly inefficient. The USD/JPY closed last week at 148.74 - a three-decade low and well above the Bank of Japan's intervention level of 145.7 in September.
Market Liquidity
Coinbase regains dominant BTC-USD market share
After losing market share to other exchanges during the summer, Coinbase has reasserted its dominance of USD volumes and now commands 63% of spot volumes for BTC-USD pairs across exchanges. Coinbase market share fell as low as 44% in July as Binance.US eliminated fees on BTC pairs and became more competitive, rising from 3% market share to 12% over the summer. Interestingly it has been Bitfinex that has suffered from Coinbase’s increased market share in the last month, falling from a 16% share last month to just 4% today.
Bitpanda trade volumes remain low.
Last week, Kaiko expanded its exchange coverage to include Bitpanda, the Austrian centralized exchange that in March 2021 raised $170mn in a Series B (becoming the country’s first unicorn) and five months later raised $263mn at a valuation of $4.1bn. For reference, Binance.US raised money at a $4.5bn valuation earlier this year and does about $100mn in daily volume.
As shown above, Bitpanda has only exceeded $5mn in daily volume once in October, and has just under $100mn in total BTC volume since the beginning of September. In the same timeframe, ETH and XRP have combined for about $100mn in volume, while other altcoins have combined for $17mn.
Looking at the hourly distribution of trading volume, it is clear that Bitpanda is a distinctly European exchange. For BTC, 50% of Bitpanda’s volume came during European trading hours; this figure was 38% for Binance, an exchange with a much wider geographical reach.
Just 17% of Bitpanda’s BTC volume came outside of U.S. and EU trading hours, compared to 31% for Binance. It is interesting to note that U.S. trading hours are still quite popular on Bitpanda, accounting for 40% of its volume. This reflects the general market trend that U.S. hours are responsible for the plurality of trading activity, though on Binance volume has been nearly perfectly split between U.S. and EU hours.
Derivatives
Binance open interest falls after CPI-induced price swings
Following a volatile reaction to the CPI reading last week, perpetual futures markets displayed similar volatility as open interest moved in varying directions on different exchanges. Binance saw a drop of 7.5k BTC as open positions on the exchange were closed out, likely being liquidated following dramatic price swings. OKX on the other hand saw an increase in open positions for BTC despite all other exchanges decreasing. ETH futures saw an outsized amount of activity occur on Binance versus other exchanges as open contracts fell by over 100k ETH, while there was minimal movement across other exchanges.
Bitcoin perpetual futures to spot volume ratio increases.
Bitcoin perpetual futures to spot volume ratio, aggregated on 5 exchanges (excluding Binance) has resumed its increase in October after retreating from a yearly high in the second half of September. The ratio increases when perpetual futures trading volume outpace spot volumes and vice-versa. Throughout the summer it has been on an upward trend as perpetual futures market saw capital inflows amid a recovery in global risk sentiment.
Interestingly, the ratio has declined four-fold on Binance since its highs as the exchange saw an unprecedented surge in BTC spot volume after it eliminated trading fees for 13 BTC pairs in July.
Macro Trends
Bitcoin’s 20D Volatility equals Nasdaq’s for the first time since 2020.
Bitcoin’s 20-day realized volatility has now lowered to Nasdaq’s level for the first time in two years. The gap between BTC and equities’ 30-day and 90-day volatilities has also been shrinking since the second half of September despite BTC's heightened sensitivity to macroeconomic data releases. BTC has shown resilience to a strengthening USD and surging Treasury yields, trading in a narrow range. Meanwhile, the Nasdaq 100 and the S&P 500 are down 13% and 10% respectively since the start of September.
Bitcoin-linked investment products average daily volumes have dropped to historically low levels in October on fading institutional demand for risky assets. The largest publicly traded BTC fund – Grayscale Bitcoin Trust (GBTC) has seen the strongest decline in trade volumes, from around $400mn in January to around $30mn last week. The trend is mirrored by a sharp decline in GBTC’s assets under management (AUM) of nearly 60% YTD and a record high discount to NAV of 37%.
Daily volumes for the first U.S.-based futures BTC ETF - ProShares Bitcoin Strategy (BITO) - have also fallen to a range of $40-80mn. The recently launched short ProShares Bitcoin ETF (BITI) - offering inverse exposure to Bitcoin – remains relatively small in size, with AUM hovering around $90mn and daily volumes averaging $26mn. Its AUM has increased by around 30% since its launch in July, suggesting stronger demand for this type of product amid the prolonged bear market.
Kaiko's research newsletter is written by the Kaiko research team: Clara Medalie, Dessislava Aubert, Riyad Carey, and Conor Ryder, CFA. This content is the property of Kaiko, its affiliates and licensors. Any use, reproduction or distribution is permitted only if ownership and source are expressly attributed to Kaiko. This content is for informational purposes only, does not constitute investment advice, and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. For any questions, please email research@kaiko.com.
