Original title: Weekly: Occupational Hazards
Original author: David Han, David Duong
Original source: coinbase
Compiled by: Lynn, Mars Finance
U.S. economic data continued to unexpectedly decline this week, raising questions about whether the Federal Reserve will again be more aggressive in cutting interest rates in 2024, or whether the data will exacerbate stagflation risks.
As of press time, the U.S. spot Bitcoin ETF has seen inflows for 16 consecutive days. This equals the previous longest streak of inflows, which was from January 26 to February 20, shortly after the ETF was first launched.
Additionally, we propose a new network adoption metric, the h-index, which aims to mitigate the impact of sybils or the outsized impact of airdrop-induced activity.
This week, U.S. economic data continued to surprise on the downside, raising questions about whether the Fed will reconsider more aggressive rate cuts in 2024 (the so-called “bad news is good news” mechanism) or whether the data will exacerbate stagflation risks. This week, both the Bank of Canada and the European Central Bank began easing cycles, and the Fed will meet on June 11-12, lagging other central banks in terms of policy. But recent U.S. data did not immediately show whether prices are slowing faster than economic activity, which complicates the macro outlook. The ISM manufacturing PMI unexpectedly fell, while the JOLTS job openings data missed expectations. The latter adds importance to Friday's non-farm payrolls report (Bloomberg forecasts a median of 185,000 non-farm payrolls in May), which could have a significant impact on the slowing labor market.
Meanwhile, U.S. spot Bitcoin ETFs have seen 16 consecutive days of inflows (starting on May 13) as of press time. This corresponds to the previous longest continuous period of inflows, from January 26 to February 20, shortly after the ETF was first launched. The total size of the current sequential inflows is comparable to the previous $3.6 billion and $4.4 billion, and although slightly smaller, both periods saw significant price increases. During the January/February period of sequential inflows, BTC rose from $40,000 to $52,000 (30%), while in the current May/June period, BTC rose from $61,000 to $71,000 (16%). While the current price increase is a smaller percentage than previous consecutive inflows, the market cap growth in both periods is similar at around $200 billion ($0.8 trillion to $1.0 trillion in the January/February streak and $0.8 trillion in the May/February streak). June's sequential inflow period ranged from $1.2 trillion to $1.4 trillion).
According to Coinglass, open interest in Bitcoin futures has also increased significantly over the past few weeks, from 450,000 BTC in early May to 526,000 BTC on June 6. We believe this 17% increase may be a sign of greater institutional participation in basis trading, which may also help explain the discrepancy between the sharp increase in inflows and BTC's more muted performance. However, the view that recent performance has lagged behind inflows may also be partially driven by sentiment, as BTC is still trading below yearly highs. In contrast, the previous inflow momentum in January/February supported multi-year high prices during that period.
Recent volumes and perpetual futures funding rates have been consistent with prior periods, at approximately $1.5 billion and 10% annualized, respectively. That said, the previous longest ETF inflow period was immediately preceded by a period of heightened volatility and volume in early March, when Bitcoin annualized funding rates consistently exceeded 50% and daily ETF volumes surged to over $8 billion (see Figure 1). With multiple bullish price targets emerging over the past few weeks, coupled with recent regulatory tailwinds, we believe there is a good chance we are entering another similar period if momentum continues.
Onchain: A new metric for adoption
Additionally, we believe that the result of crypto infrastructure investment is providing excess block space in the short term. That is, it has never been cheaper to issue transactions on-chain in large quantities - especially after the launch of dozens of second layers (L2) and the integration of first layer (L1) performance improvements. Combined with new tools that simplify the user experience (UX) such as Coinbase Smart Wallet, we believe that the next wave of crypto activity and value capture will come from new decentralized applications (dApps) supported by a low-fee, high-throughput environment.
However, as more applications are launched, it becomes increasingly difficult to track adoption across the ecosystem. Common high-level network metrics, such as total transactions sent or daily active addresses, are susceptible to sybil attacks and can be distorted by activity triggered by airdrops from a single protocol. To address this, we propose a new metric that balances the depth and breadth of on-chain adoption: the h-index.
The H-index originated in academia as a way to quantify a researcher’s research output and impact by counting the number of publications that have been cited at least the same number of times. (For example, five publications that have been cited five times each would have an H-index of 5.) We have adapted this metric to measure activity on blockchain networks by looking at the number of transaction recipient addresses that have been cited at least the same number of times. In other words, an H-index of 100 means that in a given time frame, 100 different receiving addresses have received transactions from at least 100 unique sending addresses.
Table 1 shows the calculated h-index for several top EVM chains for the week ending June 6, 2024. We also leveraged Dune’s decoded contract database to discover how many unique smart contracts on each network received transactions in the past week. Our results show that Ethereum and Base have the most extensive user activity among the chains tested, followed closely by Arbitrum and Polygon PoS.
While this metric is not perfect, we believe that utilizing the h-index can provide a new perspective for comparing chain adoption by mitigating the outsized impact of sybils and measuring growth more broadly. That being said, shortcomings remain. Many smart contracts may not yet be decoded in Dune’s database. Differences between blockchain execution environments (and their downstream impact on transaction formats) require careful data interpretation. The influence of exchanges or other smart contract wallets may also skew the numbers. Importantly, adopting just one metric can make it subject to new forms of circumvention (as we saw with the airdrop metric). That being said, we believe this metric is currently useful for highlighting the concentration of activity for a single application or product on a chain, relative to growing absolute metrics like transaction counts or daily active addresses.
Crypto and Traditional Overview
(As of 4 p.m. ET on June 6)
Source: Bloomberg
Coinbase Exchange and CES Insights
BTC is trading back towards the high end of its recent range, driven by strong inflows into US ETFs. Weaker economic data has reignited hopes for multiple rate cuts this year, which has helped risk assets in a big way. ETH continues to see new inflows, albeit slowly. Recent comments from regulators suggest it may “take some time” for the S-1 to be approved and the spot ETH ETF to begin trading. Altcoins are still selling better, with traders looking to capitalize on SOL’s recent rally. However, overall sentiment remains positive. Strong ETF inflows, the possibility of lower interest rates, and a friendlier regulatory environment have traders looking forward to what could be an interesting second half of the year.
Coinbase platform transaction volume (USD)
Coinbase trading volume by asset
Financing Rate
Crypto News Worth Watching
mechanism
Marquette University professor says Wisconsin pension plan may increase investment in Bitcoin ETF (CoinDesk)
Regulation
What’s next for FIT21? (Coindesk)
UAE Central Bank approves stablecoin licensing regime (Cointelegraph)
General
Polygon acquires zero-knowledge encryption company Toposware (Coindesk)
Coinbase
A New Era in Crypto Wallets: Smart Wallets Have Arrived (Coinbase Blog)
How to Get Regulatory Clarity for Cryptocurrencies (Coinbase Blog)
Onchain Summer 🔆 has arrived ( Coinbase Blog)
Views from around the world
Europe
Will Bitcoin benefit from ECB rate cuts? (Cointelegraph)
EU elections kick off, crypto remains on the sidelines (Coindesk)
Asia
Focus on Asia: Why the next wave of cryptocurrency adoption won’t come from the U.S. (Crypto Daily)
HashKey Exchange CEO Says User Base in “Sensitive Regions” Could Influence Hong Kong’s Crypto Licensing Decision (The Block)
The week ahead
