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There have been 16 centralized exchanges that have withdrawn from certain regions, half from the United States.
Please note that VanEck may have a position(s) in the digital asset(s) described below.
Digital assets underperformed other risk assets in May as trading volumes slumped to a 2-year low, breadth narrowed, and leverage remained muted. For the month, Bitcoin (BTC-USD) fell 8%, and Ethereum (ETH-USD) fell 1.5% vs. the S&P 500 +1% and the Nasdaq + 6%. Bitcoin’s annualized 30-day volatility slipped below 30, a 5-month low, while BTC’s weekly correlation with the Nasdaq Composite fell to 20%, an 18-month low.
Small and mid-cap coins continued to underperform, down 12% and 11%, respectively, vs. large-caps, down only 4%. We observe a similar ‘consolidation’ theme in both protocol activity & centralized exchange fundamentals: ETH monthly fees and fee share of all smart contract protocols both hit 12-month highs; meanwhile, Coinbase (COIN) & Kraken (KRAK-USD) aggregate market share of US centralized exchange trading rose to 83%, a YTD high. We count 16 centralized exchanges closing or exiting certain jurisdictions year-to-date, half of whom are leaving the US. Overall, centralized exchanges’ aggregate market share fell to an all-time low vs. decentralized exchanges, a topic we will discuss further below. We think this reflects an acute lack of traditional financing available to crypto exchanges, reduced counterparty exposure appetite by speculators, tougher compliance standards, and improved functionality in DeFi.
Layer 1s
The total market cap for Smart Contract Blockchains (SCB) fell 4% in May from $346B to $333B. Ethereum (-1.5%) and Tron (TRON-USD)(+11%) outperformed dramatically. Every other token amongst major SCBs was down between 5-35% for the month. The weakest performers in our coverage zone for the month of March included Optimism (OP-USD)(-35%) and Avalanche (AVAX-USD)(-15%). Still, despite the muted performance of SCB tokens, fundamental usership was strong as daily active addresses across all SCBs grew 8% from 4.3M to 4.7M. Solana (SOL-USD) and Starknet, who grew by +75% and 160%, respectively, in May, were the largest relative gainers in daily active users. Likewise, value accrual also showed strong gains, with total fees by SCBs growing 41% from $368M to $518M.
Average Daily Active Users
Source: Token Terminal as of 5/31/2023. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.
Ethereum was again a notable outperformer, posting exceptional on-chain usership metrics for the month. Additionally, positive news events materialized that improved the Ethereum supply picture by attracting millions in newly staked ETH. At the same time, Ethereum cemented its status as a usage-driven, deflationary monetary system. On the economic activity side, over $438M in fees were generated on Ethereum in the month of May, and this total represents Ethereum’s highest level of fee generation since May 2022. This fee bonanza drove Ethereum’s market share of smart contract blockchain fees to 80%, which also happens to be the highest fee share of Ethereum since May 2022. While overall crypto price volatility was muted, most of Ethereum’s fee increase resulted from meme coin speculation as Ethereum daily fees surpassed $30M a few days in early May. As a result of the trading melee, the average fee for transactions on Ethereum ballooned from $6.15 in April to $9.79 in May.
Smart Contract Platform Fees vs Ethereum Market Share of Fees
Source: Token Terminal as of 5/31/2023.Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.
While Ethereum increased its market share of fees and set a yearly high in monthly fees, its usage feats were accomplished amid the inauspicious backdrop of potentially substantial ETH token unlocks. Because Lido (LDO-USD), the leading liquid staking provider on Ethereum, enabled its validators to both exit their ETH staking positions as well as unlock their stacking rewards, there was tremendous FUD about the potential for over half a billion dollars of staked ETH to be withdrawn and sold. There was also concern that Celsius (CEL-USD), the troubled crypto lender, would be dumping an additional 428k ETH worth $781M into the public markets.
However, while 949k ETH were withdrawn from staking in the month of May, this figure was dwarfed by the 3.7M ETH that was staked during the same time period. The supply picture in May was further improved by a burn of 200.4k ETH which contributed to an overall reduced total supply of ETH by 140k ETH in the month. If May’s pace of ETH burn is maintained, it will result in an annual…
Read More: Crypto Update: Ethereum Gas Fees Skyrocket To Yearly High (undefined:ETH-USD)