Q9 Weekly | Deep Concentration
22 December 2022
· Flight to quality assets, BTC and ETH outperform
· Core Scientific files for bankruptcy
· Crypto has a concentration problem
Money is searching for quality in both traditional and digital assets, as investors appear to favour safety above all for right now. Similar to in past market cycles, this is translating to movement of capital into BTC (-5.6%) and ETH (-7.3%) relative to other coins.
Many tokens across DeFi and GameFi dropped more than 20% over the week, including NEAR (-21.4%), REN (-25%), SAND (-20.5%), CRV (-20.1%) and ALGO (-22.2%).
Various Coins, % 1 Week
Source: TradingView
Perpetual futures have seen little to no inflows after the FTX collapse, with Open Interest remaining flat after halving in mid-November. Funding rates, which have been oscillating between positive and negative, turned negative last week, suggesting that market sentiment is more bearish.
BTC and ETH Open Interest
Source: Kaiko
Floor prices for digital land have dropped as much as 99% during 2022.
Change in Land Floor Prices Across 12 Projects
Source: Delphi Digital
Global DEX volume grew from 9% in September to 11.7% in November following FTX collapse.
Source: Decentral Park Capital
Core Blimey
Core Scientific, one of the largest listed BTC miners has filed for bankruptcy as companies battle falling token prices and rising costs for the energy-intensive business of churning out crypto. The firm filed for Chapter 11 bankruptcy protection in Texas, where it is based, on Wednesday. The company said it planned to continue mining BTC while it hammered out a restructuring deal with its lenders and creditors.
CORZ, 1 Year %
Source: TradingView
Bon Voyage
In a deal valued at $1.02bn, Binance.US has entered an agreement to acquire the assets of insolvent crypto brokerage Voyager. In a press release, the company says the move should free up customer funds that have been locked up in the bankrupt Voyager Digital. Voyager had to file for bankruptcy in July after failed hedge fund Three Arrows Capital defaulted on a $650mn loan.
In other crypto company news… Winklevoss-founded Gemini has presented a plan along with other creditors of crypto lender Genesis and its parent company Digital Currency Group to “provide a path for the recovery” of an estimated $1.8bn in assets loaned to Genesis. In November, Gemini suspended withdrawals for its “Earn” lending product that promised over 7% returns generated, in part, by Genesis.
BlockFi hopes the bankruptcy court will let users withdraw crypto from Wallet accounts, although yield-seeking creditors might not be so lucky. The company stated it has “no legal or equitable interest” in customer funds that were frozen before it filed for bankruptcy protection.
Grayscale Investments is exploring options to return up to 20% of outstanding Grayscale Bitcoin (GBTC) shares if the Securities and Exchange Commission (SEC) refuses to approve a conversion of the investment trust into an exchange-traded fund (ETF), according to a letter to investors. GBTC shares, the company’s flagship product, are currently trading at a 49% discount to its underlying bitcoin holdings.
Trust and Anti-Trust
For an industry that claims to be built on decentralisation, crypto certainly has a concentration issue. The ecosystem is dominated by large and concentrated players, be it large miners, holders or exchanges.
Binance in particular has rapidly expanded its footprint through mergers and acquisitions during the current bear market and now now has 80% of BTC volume and 55% of ETH volume.
Source: The Block
Binance and Coinbase firmly lead the share of ETH’s daily volume.
Source: Delphi Digital
Binance’s spot trading market share continues to grow, increasing from 60% to 75% YTD. This trend was especially pronounced in November after the collapse of FTX. As of November, Binance’s (75%) main competitors are Coinbase (9.2%), Kraken (3.6%), BTSE (1.8%), and LMAX Digital (1.7%).
Source: The Block
Deribit has 92% of crypto options volume:
Source: The Block
Stablecoins are dominated by two major names, USDT and USDC:
Source: The Block
And Bitcoin mining is dominated by a small number of mining pools:
Source: The Block
If you look at the traditional finance model, you’ve got maybe five huge companies. Google, Microsoft, Apple, Meta, Amazon; and they own practically the whole world. How is that different to what’s going on in crypto right now?
As the market consolidates further and horizontal mergers continue apace through the crypto winter it’s certainly going to attract the attention of antitrust regulators. The question is how much further can this free-for-all last before anti-trust regulators across the world step in.
This inherent concentration makes crypto susceptible to systemic risk and also implies that the majority of the gains from further adoption are likely to fall disproportionately to a small set of participants.
In the News…
· Caroline Ellison pleads guilty to criminal charges
· What’s in Elizabeth Warren’s new crypto bill?
· Sam Bankman-Fried set to leave Bahamas for the US
· Web3 startup Yuga Labs names former Activision Blizzard President as CEO
· Amber Group raises $300mn Series C
· a16z leads $100mn funding round for Web3 privacy layer Aztec Network
· UK advertising regulator bans Crypto.com, Turtle United NFT promotions
· Can crypto credit cards and self-custody mix?
· Not just Democrats: FTX exec gave tens of millions to GOP causes
· Washington needs a crypto rethink
· SBF gave ex-Jane Street traders who formed Modulo Capital $400mn
