DATA DIVE - Crypto Checkup

It’s been a while since we looked into crypto, so let’s dive in.

Below you can see a year-to-date chart of BTC, which is currently up 66%

Interestingly, the total market cap of the crypto ecosystem is up only 42%, from $800B to $1.13T.

And, even more interestingly, the total market cap of cryptos excluding BTC, is up only 26%, from $475B to $600B

If you think about it, this is not so different from what is going on in traditional markets, where indices are being held up by a handful of Mega Cap stocks while the rest of the market declines.

In the crypto ecosystem, we measure this by looking at the Bitcoin Dominance chart.
The orange line below is the % share Bitcoin has of the total Crypto Market cap. From the start of the year, Bitcoin dominance is up 15%, from 40% to 46% of the total crypto market cap.

This is really no surprise, I alluded to this late last year and would expect the trend to continue well into next year.

This trend is being amplified, not only by the flight to quality/safety, from shitcoins to Bitcoin, but also by the fact that the OG chain is becoming in and of itself more versatile over time, rendering obsolete many who had previously hoped to compete.

Related to this, an interesting occurrence, just this past week, was the spike in BTC transaction fees to about $30 per transaction.

This was due to a surge in network activity related to the launch of BTC ordinals. These are basically NTFs on the Bitcoin Nework. The new Bitcoin protocol BRC-20 allows you to inscribe data on a satoshi, which are the smallest unit of account of the Bitcoin network - think of Sats (Satoshi’s) as 1 cents coins.

On a historical basis only during the 2017 and 2021 bull market tops did BTc fees reach levels this high.

The number of total transactions per second, exploded to a new all time high.

These short-term frenzies are not uncommon in the cryptoverse, and eventually die out. BTC transaction levels and fees are already approaching normal levels again.

NFT volumes on Ethereum continue to not be particularly encouraging.

Moving on, if we look at the volume on exchanges, we find that the start-of-year boost has now faded away. Spot exchange volume for Bitcoin across exchanges is a fraction of what it was 2 months ago.

Meanwhile, derivative exchange volumes have remained steady.

At the simplest level, you might compare the two types of flows as longer-term vs more speculative, or retail vs professional. This comparison kind of tells you that the number of retail investors actually buying BTC, and sticking it in a wallet for the long term, is not high.

This is also corroborated if we look at the total amount of bitcoin owned by short-term holders who have bought in any time frame below 6 months. The chart below can be a tad confusing, but if you look at the humps in 2017/18 and 2021, those represent the influx and many buyers coming into the market, who therefore had owned their coins for less than 6 months. Currently, the amount of recent buyers in the market is at some of the lowest levels in the last 6 years.

Another way of looking at this is the number of new addresses on the Bitcoin network, and the 7 day moving average of this is trending lower.

Meanwhile, long-term holders continue to be the lion's share of the market, with 67% of the total Bitcoin supply not having moved in over a year. It is quite clear that these holders maintain their high levels of conviction.

Despite this, exchanges overall have seen an inflow of Bitcoins over the past 4-5 months, which can be associated with selling pressure into recent strength.

And talking about selling pressure, an interesting rumour came out yesterday that the US GOV was selling some of its sequestered BTC holdings. The rumour turned out to actually be false, but this kind of activity is something to keep an eye on throughout this year, as well as the Mt. Gox balance.

The US government balance of sequestered BTC took a leg down early at the start of the year, and there are estimated to be at least 3 more tranches of 10k BTC sales throughout this year.

Another wave of selling pressure could come from the long anticipated distribution from the Mt. Gox exchange, which is meant to take place at some point in Q2 of this year, even if the date seems to keep on getting pushed back.

I might share a little more work on Bitcoin miners, hash rate and other on-chain activity next week. But before I close out I want to share with you a couple of important economic data points which just came out.

The NFIB small business optimism index just fell to new cycle lows of 89.

Meanwhile, Initial Jobless claims rose to new cycle highs of 264k last week and while the number remains historically low, the trend is clearly moving in the wrong direction.

And of course, there is no need to mention the latest inflation data, where Core CPI remains sticky and well above the Fed’s target.

Central banks remain focused on tightening, with the Bank of England rasing rates today (for the last time - for now) and the ECb signalling at least 2 more hikes in the pipeline (assuming nothing breaks).