Q9 Weekly | Tomorrow Never Knows

2 March 2023

• Positive net flows return for BTC and ETH
• Liquid staking TVL overtakes DeFi Lending
• Americans remain optimistic about the future of crypto

Funds returned to ETH and BTC at a rate of $4.5bn per month through most of February, following a period of capital outflows that began in April 2022. For the first time in nearly a year, more money is flowing into the top two cryptocurrencies than away from it, indicating a return of investor confidence.

Aggregate Market Realized Value Net Position Change

Source: Glassnode

There is also strong conviction from Bitcoin Whales who have been topping up their wallets, resembling late bear market/early bull market behaviour. Since last Thursday, the number of coins held in these wallets has increased by at least 21,000 BTC.

Source: WhaleMap

Bitcoin Monthly Performance Since 2009

Source: Bitcoinmonthlyreturn.com

Stacks (STX), the Bitcoin blockchain’s Layer-2 chain for smart contracts, outperformed the rest of the crypto market this week. The token, which gained over 200% in February, is climbing on the back of strong growth for Bitcoin-based NFT’s using the Ordinals protocol, which allows users to inscribe references to digital art into small transactions directly onto the Bitcoin blockchain.

Stacks’ focus on DeFi, use of smart contracts, and Bitcoin compatibility set it apart from other blockchain projects.

…and it’s not just Bitcoin Ordinals that are seeing action in the NFT space… Monthly NFT marketplace volumes on Ethereum crossed $1bn for the first time since last May.

Ethereum NFT Marketplace by Monthly Volumes

Source: The Block

However, stablecoin volumes retreated in Feb, highlighting potential uncertainty about the regulation of the space and scrutiny of BUSD.

Ethereum On-Chain Volume of Stablecoins

Source: The Block

Staking its Claim

Liquid staking has replaced DeFi Lending as the second-largest crypto sector. Liquid staking, which allows users to earn rewards for locking their crypto in a blockchain network while retaining the liquidity of the locked funds, is now bigger than decentralized lending and borrowing.

Source: DefiLlama

The total value of crypto assets deposited in liquid staking protocols reached $14.1bn this week, making it the second-largest crypto market sector, according to data source DefiLlama. The total value locked in DeFi lending and borrowing protocols was $13.7bn, while DEX deposits held the top spot with $19.4bn.

The Ethereum blockchain’s upcoming Shanghai software upgrade, which will allow stakers to withdraw the ETH they have staked and the accumulated rewards for the first time, has galvanized investor interest in liquid staking. Liquid staking is the best-performing crypto sector this year, with growth in total value locked approaching 60%.

Source: DeFi Llama

However, only 14% of ETH is currently being staked vs. 58%, the average for other Layer-1 coins. It is likely interest in ETH staking will continue to swell and catch up with the rest of the proof-of-stake networks. Many investors had been waiting for the Shanghai upgrade to stake their ETH, which will remove the liquidity risk and uncertainty of a previously undefined lock-up period.

Source: Binance Research

A Future Generation

A new survey commissioned by Coinbase of 2,000+ American adults suggests 20% own crypto and the vast majority see an urgent need to update the financial system.

Source: Coinbase Survey

The survey suggests that:

• 80% of Americans think the global financial system unfairly favours powerful interests.
• 67% of Americans agree that the financial system needs major changes or a complete overhaul.
• 20% of Americans–which would constitute over 50 million people–own crypto. Despite the tumultuous events of 2022, crypto ownership has remained largely unchanged since early 2022, which has been the historic high-water mark for crypto ownership. Ownership is higher with people of colour and younger Americans.
• Crypto ownership is generally consistent for Republicans (18%), Democrats (22%), and Independents (22%), speaking to how crypto is a rare bipartisan issue.
• 76% of those who own crypto agree that cryptocurrency and blockchain are the future. These numbers are even higher amongst people of color and younger Americans. Regardless of crypto ownership, the majority of Gen Z adults (54%) and Millennials (55%) agree that cryptocurrency and blockchain are the future.

The survey indicates that most Americans remain optimistic about the future of crypto and understand its potential to be part of the solution to bring about meaningful change to the financial system that would benefit society as a whole.

The majority of financial systems were built many decades ago. The technology is inefficient and all over the world people are paying the price with their time, money, and opportunities. While we know that many in the existing financial system are working on updating the system, significant challenges remain and crypto will be an important part of the solution.

Blockchain technology is already offering faster, low-cost cross-border transfers, and digital stablecoins are helping underbanked people across the world to gain access to the US dollar and financial services to help launch a small business.

And this is just what is happening today. Digital technologies such as blockchains, artificial intelligence, the metaverse and quantum computing are set to radically change the future in relatively short order and unlock new sectors and use cases that haven’t been conceived today (five years ago who’d have thought NFTs would be a thing today?; ten years ago who’d have thought stablecoins would revolutionise remittances?). The future is happening whether todays regulators, politicians and sceptics like it or not… and we have no idea what new innovations and applications could spring up along the way… so just turn off your mind, relax and float downstream because, as the Beatles aptly put it, tomorrow never knows.

In the News…

• Coinbase building its own Ethereum Layer-2 network called ‘Base’
• Wholesale digital pound is a question of how, not when, says Bank of England
• SEC and NYC regulators push back on Binance.US’s acquisition of Voyager
• French National Assembly votes for tougher registration rules for crypto firms
• A year into the war in Ukraine, crypto continue to play a key role
• Jack Dorsey-backed Twitter alternative Bluesky hits the App Store
• Web3 social startup Towns raises $25.5mn led by a16z
• Indian web3 gaming studio Kratos raises seed round at $150mn valuation
• Avalon raises $13mn to build an interoperable digital universe
• How FTX’s Nishad Singh turned to crypto crime
• Starbucks’s web3 Odyssey is seeing early signs of success, BofA says
• Upcoming upgrades that will shape the Ethereum ecosystem
• Asset tokenization is shaping up to be crypto’s theme of the year
• Visa’s crypto strategy remains intact despite crypto winter
• Yuga Labs debuts first NFT collection on Bitcoin
• Snoop Dogg joins crypto casino Roobet as ‘Chief Ganjaroo Officer’