Welcome to the Data Debrief! Crypto markets closed the quarter on a positive note despite trade volumes remaining at historical lows. Last week MicroStrategy confirmed that it bought 12.3k BTC throughout Q2, Coinbase was named as the surveillance partner for Fidelity and other BTC spot ETFs after the U.S. SEC stated the recent wave of applications were "inadequate." This week, we explore:
TUSD scrutiny intensifies as Prime Trust struggles.
Last week, Nevada's financial regulator filed to place crypto custodian Prime Trust into receivership, stating that the company has a shortfall of around $82mn and is unable to honor customers withdrawals. Prime Trust has ties to several crypto firms, the most significant being TrueUSD.
Prime Trust is apparently holding around $3mn in cash and $68mn in digital assets. However, only $7.5mn of its digital holdings is reportedly held in BTC while the rest ($61mn) is held in AUDIO, the token for decentralized music sharing platform Audius.
The token trades on a handful of centralized exchanges and its 1% market depth is only $400k while its average daily trade volumes hover around $4mn. Prime Trust's holding represents about 15 times the token's daily volume on CEXs. Thus, it is highly unlikely they would be able to liquidate a significant portion of their holdings without massive price impacts.
TrueUSD has acknowledged limited exposure to Prime Trust but faced a crisis of confidence after revelations that its current auditor, the Network Firm, is the rebranded FTX auditor.
This resulted in significant selling on DEXes, with the proportion of TUSD in Curve's TUSD pool rising to 70% last week, suggesting that traders are swapping TUSD for other stablecoins.
However, despite briefly falling to as low as ₮0.87 on Binance.US, the TUSD-USDT price remained relatively stable at around ₮ 0.999 throughout last week.
This is largely due to the fact that volumes are almost exclusively concentrated on one exchange, Binance, where all TUSD pairs benefit from various zero-fee trading promotions.
TUSD trade volumes on DEXs averaged just $2mn in Q2, compared to $2bn on Binance. TUSD's market cap has tripled in just four months, making it one of the fastest growing stablecoins in crypto.
Price
Layer 2s underperform in Q2.
Layer 2 tokens were the worst performers in Q2 after registering the strongest returns in Q1. The decline was widespread as all the assets in our simulated equally weighted L2 basket dropped between 20% and 40% in Q2. Layer 1 tokens also fell by 24% in Q2.
DeFi tokens closed the quarter down 8% but gained momentum in June, driven by MakerDAO’s MKR and Compound’s COMP tokens. COMP surged by over 50% last week amid increased whale buying on Binance.
The Top 2 category (containing BTC and ETH) was the only one to close two consecutive quarters with positive growth, showing resilience to a tightening regulatory environment.
Crypto assets trade at a discount on Binance.US.
BTC, ETH, and other crypto assets traded at a discount on Binance.US last week, ranging between 2% and 5% as the exodus from the exchange continues. While there were occasional discounts for specific pairs after the SEC lawsuit on June 5, these discounts became more prominent after Binance.US urged its users to either withdraw or convert their USD holdings into stablecoins on June 22.
In the wake of the SEC suit, Binance.US announced that it will transition to a crypto-only exchange, removing most of its USD-denominated trading pairs and suspending USD deposits. Currently, the exchange still lists ten USD-denominated pairs. However, liquidity has deteriorated significantly, resulting in average daily trading volumes plummeting from $450mn to $20mn.
Liquidity
Quarterly trade volume falls to lowest level since 2020.
Despite the ongoing June rally, spot trade volumes have declined significantly in Q2, falling to their lowest level since 2020. Binance registered the strongest drop in trading activity, with volumes collapsing by nearly 70% after the exchange reintroduced fees for its most liquid BTC pairs. However, trade volumes on Coinbase, Kraken, OKX, and Huobi also declined over 50% in Q2.
Compound surges more than 50% as large orders pile in.
Decentralized finance protocol Compound’s token COMP has surged by nearly 60% since June 24 driven by whale buying on spot markets. The surge in market activity coincides with Compound’s founder creating a new company which aims to invest in short-term U.S. Treasuries while leveraging Ethereum for record-keeping. While Binance registered the strongest rise in volumes, Coinbase and Kraken also saw increased spot trading activity. COMP open interest aggregated on Binance and Bybit skyrocketed from $7mn to $70mn, hitting an ATH. However, funding rates turned sharply negative, falling as low as -0.75% on June 29 on Binance, indicating that traders are aggressively shorting the token.
Korean exchange volumes surged in the final week of the month, peaking at over $4bn in daily volume, $3.6nn of which was altcoin volume. The jump in volume was primarily led by WAVES and BCH. WAVES' price jumped about 90% on news that upstart market maker and investment firm DWF Labs would be investing in the project and supporting its development. Meanwhile, Bitcoin Cash (BCH) is up nearly 200% in the past two weeks, in part driven by news that it would be one of four tokens listed on EDX Markets, the new institution-backed U.S. exchange.
EUR-denominated volume drop to two-year lows.
EUR-denominated daily volume on CEXs has declined steadily since March, hitting its lowest level since the start of the crypto bull run in late 2020. The largest drop in volume has been on Binance: its market share of EUR volume plummeted from more than 40% in early 2023 to just 16% in June. The exchange is currently facing troubles with its EUR banking partner Paysafe and will halt EUR deposits and withdrawals in September if it does not find an alternative. Additionally, the German financial regulator BaFin denied Binance's crypto custody license.
This could further position exchanges like Kraken to become a hub for European activity. Kraken recently secured regulatory approval to operate in Ireland and its EUR market share has increased to almost 60%, up from 45% in January.
Derivatives
BTC monthly option volume hits highest since March.
BTC option trade volume surged by more than 40% in June to $22bn, hitting its highest level since March. The end of the month saw the largest open interest option expiry YTD with a max pain point of $26.5k. Large options expiries can lead to higher spot market volatility, with prices converging towards the max pain point. However, prices remained mostly range-bound throughout last week, with BTC closing the week above $30k.
Overall, demand for options increased in June, which was mainly driven by upside buying as call option volume accounted for 65% of total volumes.
Altcoins open interest plummets in Q2.
Inflows into BTC derivatives markets have accelerated in the second half of June, boosted by the BlackRock ETF news and miners hedging positions. BTC perpetual futures open interest aggregated on five exchanges hit its highest level since the collapse of FTX in June and is up by 12% in Q2 to around $8bn. In contrast, altcoin open interest failed to recover after falling nearly 40% in five days between June 9-14 and is currently hovering around multi-year lows.
Notably, the combined open interest for eight altcoins categorized as securities in both Binance and Coinbase lawsuits (ADA, SOL, MATIC, FIL, SAND, MANA, ALGO, and AXS) decreased by 30% in Q2 to around $480mn. Cardano's ADA, Algorand's ALGO, and Sandbox's SAND saw the strongest declines in the amount of open contracts, with decreases of over 40%.
Macro
U.S. Bitcoin ETF markets heat up.
The BlackRock spot BTC ETF filing boosted inflows into BTC future-backed ETFs with the largest US-traded ETF-Bitcoin Strategy (BITO) benefiting the most. BITO daily trade volumes exceeded $500mn at the end of June which has happened only four times since its launch in October 2021.
Competition on the U.S. ETF market has heated up with a rush of spot ETF filings from other high-profile asset managers among which Fidelity, Wisdom Tree, VanEck and Invesco. While the U.S. SEC has so far rejected over 30 applications for a spot ETF, it approved a 2x leveraged ETF last week.
The approval of a spot ETF would shake the crypto market, intensifying fee competition between ETFs. Most BTC ETF currently offer a relatively high expense ratio of between 0.95% and up to 1.95% for the more volatile BITX.
Bitcoin's correlation with traditional assets declines.
BTC correlations with traditional assets have shifted significantly throughout this year as crypto-specific factors, notably the regulatory environment, increasingly driving prices. BTC's historical negative correlation with the USD has weakened significantly from -60% in the beginning of the year to just -10% in June. Its correlation with U.S.-investment grade bonds is hovering around zero, down from around 30% in early 2023. While BTC correlation with commodities has increased since March, it also remains low at around 20%.
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.
