Q9 Markets | Still Building
26 January 2023
Q9 Capital: www.q9capital.com
Still Building
- Rally continues, correlations fall, ETH turns deflationary
- Genesis files for bankruptcy, Gemini threaten lawsuit
- Number of crypto coders growing, +50% outside BTC and ETH
The 2023 digital asset rally continued into its fourth straight week with BTC (+12%) rising above $23,000 on Tuesday and ETH rising above $1,600 (+6%). Bitcoin is up 40% since Jan 1st and ETH is up 35%. Gaming tokens and Layer-1 protocols led the weekly rally: Axie Infinity (+46%) Ape Coin (+33%), Fantom (+37%), and Near (+29%) were all standout performers.
Various Coins, % YTD
Source: TradingView
On-chain flows show the amount of BTC transferred from miner addresses to wallets owned by exchanges has declined to multiyear lows. This means there is less selling pressure holding the price of BTC down and shows that miners are likely in better shape.
The ETH supply has turned deflationary since Jan 15th — meaning the volume of Ether being burnt is outpacing the amount that is being minted. More than 14,700 ETH (worth around $24mn) were burnt over the past seven days according to ultrasound.money. Some 3,400 of those ETH were burned during NFT trades. NTF marketplace OpenSea is the top seven-day and 30-day gas guzzler on Ethereum once again.
Ethereum’s Shanghai mainnet shadow fork also went live this week. The formal upgrade which will allow users to withdraw staked ETH remains on track for a March delivery.
ETH Supply Since Merge
Source: Ultrasound Money
Crypto diversification is back in vogue. Last year correlations shot up across the board as everything sold off together. However, so far in 2023 the Bitcoin/Nasdaq (QQQ) correlation has fallen to levels last seen in 2021. Correlations to gold (GLD) and bonds (TLT) have slipped back to around zero, meaning there is no real relationship.
Rolling Daily 30d Correlations
Source: CoinDesk
Goldman Sachs has ranked Bitcoin as the best performing asset so far for 2023 — in both absolute and risk adjusted returns. Higher than emerging markets, real estate, the S&P 500, gold and 10-year treasuries.
Source: Goldman Sachs
A New Chapter for Genesis
Genesis Global Trading — the lending subsidiary of Digital Currency Group (DCG) — filed for Chapter 11 bankruptcy in New York on Thursday night. Genesis still owes Gemini Earn customers over $900M in customer deposits, with withdrawals paused since November. Genesis stated it has over $150 million in cash, which it plans to use as liquidity to support its ongoing operations and facilitate its restructuring process. Read more in the press release.
Meanwhile, Gemini co-founder Cameron Winklevoss threatened a lawsuit against DCG and its CEO Barry Silbert if they failed to make a “fair offer” to creditors like Gemini Earn users. Gemini is prepared to take “direct legal action against Barry, DCG, and others who share responsibility for the fraud that has caused harm to the 340,000+ Earn users and others duped by Genesis and its accomplices.”
Crypto exchange Luno — another part of the DCG conglomerate — announced it is making layoffs, cutting 35% of its global workforce. Luno has a total headcount of roughly 960, according to its LinkedIn profile, meaning that more than 330 jobs will be impacted. Gemini is also laying off 10% of its workforce. CoinDesk estimates that over 29,000 jobs have been cut across the crypto industry since April of last year.
Nex(o)t in Firing Line
It’s been a tough week for Nexo Capital. On Sunday, Bulgarian authorities said they have evidence of Nexo customers using the platform for illegal activities, including laundering money, “tax offenses,” and financing terrorist activities — all claims the crypto lender denies. Adding to Nexo’s headache, the SEC charged the firm on Thursday with selling unregistered securities, saying the company failed to register with the SEC before offering its plainly named crypto lending product, “Earn Interest”. Nexo will pay $45mn in fines and kill its crypto lending product.
Building for the Future
But crypto is still building. The Electric Capital Developer Report shows the industry gained over 22,000 monthly active developers in the past 7 years, with that number growing +5% in 2022 despite the decline in prices.
Source: Electric Capital Developer Report
Monthly active developers grew +5% year-over-year, despite 70%+ decline in prices.
- 23,343 monthly developers as of December 2022.
- 471,000+ monthly code commits are made monthly toward open-source crypto.
- +8% YoY growth in Full-Time developers. Full-Time developer growth is the most important growth signal to track because they contribute 76% of code commits.
- All-time high of 61,000+ developers contributed code for the first time in 2022.
Crypto network value is back to January 2018 levels, but monthly active developers have increased +297% since 2018. Comparing the previous crypto winter to today:
- 3x growth in Bitcoin monthly active developers, from 372 to to 946.
- 5x growth in Ethereum monthly active developers, from 1,084 to 5,819.
- Solana, Polkadot, Cosmos, & Polygon grew from fewer than 200 devs to 1,000+ developers.
Major ecosystems are emerging beyond Bitcoin and Ethereum.
- 72% of monthly active devs work outside the Bitcoin and Ethereum ecosystems.
- Solana, NEAR, and Polygon grew 40% YoY and have 500+ total monthly active developers.
- Sui, Aptos, Starknet, Mina, Osmosis, Hedera, Optimism, and Arbitrum grew 50%+ YoY and have 100+ total monthly active developers.
- 3,901 developers work in DeFi every month across multiple chains, +240% since DeFi summer. 50% of DeFi developers are outside of Ethereum.
- 900+ developers write code monthly in NFTs across chains, +299% since 2021.
Source: Electric Capital Developer Report
Source: Electric Capital Developer Report
Source: Electric Capital Developer Report
Source: Electric Capital Developer Report
Source: Electric Capital Developer Report
Source: Electric Capital Developer Report
Source: Electric Capital Developer Report
Source: Electric Capital Developer Report
Source: Electric Capital Developer Report
Build Back Better
It’s not just the dev space that is growing. In just the last week… Robinhood rolled out its MetaMask wallet competitor to 1mn users; Crypto credit market Maple Finance unveiled a liquidity pool for trade receivables; DeFi giant Aave is voting to bring the third version of its protocol to the Ethereum mainnet; Cardano’s overcollateralized stablecoin, Djed, is on track to launch next week; Binance introduced a function to help its API users prevent self-trading on their platform; and Web3 gaming studio Mythical Games announced it is rolling out its new digital game asset marketplace.
2022 by most measures was not a good year for crypto, but will likely mark the bottom (BTC at $16k) following the Covid-stimulus fuelled mania of 2021. Blockchain and crypto will continue their decade-plus trend of (volatile) growth and will build back better — this time from a stronger baseline and with a much more educated consumer. Significant regulatory risks are on the table this year, but the growth trend is continuing and the industry will continue to build for the future.
In the News…
- Pantera 2023 year ahead report
- Crypto infrastructure firm Blockstream raises $125mn for Bitcoin mining
- QuickNode, a web3 infrastructure provider, raises $60mn to accelerate blockchain adoption
- Pantera, Jump Crypto back $150mn injective ecosystem fund
- BNY Mellon eyes digital asset custody services for Asia
- Swiss private bank Cité Gestion tokenizes own shares
- Stablecoin issuer Circle blames SEC for derailing $9bn plans to go public
- Binance says Signature Bank won’t support transactions for customers of less than $100k
- After FTX: How Congress is gearing up to regulate crypto
- EU lawmakers vote to impose strict capital requirements on banks holding crypto
- The blockchain bandit is on the move
- FBI confirms Lazarus Group responsible for Harmony’s Horizon bridge currency theft
- State of Solana Q4 2022
