Will 3/12 Crash Again? Reasons Why the Cryptocurrency Market Is Different from the Past

In March 2020, the COVID-19 pandemic intensified, OPEC and Russia engaged in an oil price competition, causing a sharp drop in oil prices. The futures market was affected, leading to a stock market crash. Funds fled from the stock market into the gold and bond markets, causing the ten-year Treasury yield to plummet from 1.5% to 0.5%. Subsequently, the US stock market experienced a series of stock market crashes, triggering multiple trading halts due to significant declines.

In the face of the grim stock market, the even riskier cryptocurrency assets suffered even more. From March 8th to 12th, 2020, Bitcoin plummeted by nearly fifty percent:

Will this happen again? Apart from vaccine developments and slight economic recovery, the cryptocurrency ecosystem has evolved differently. With more active government regulations and institutional involvement, the ecosystem within the industry is also thriving. March has historically been a month of bleak corrections, will it be the same this year?

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The Block's research director, Larry Cermak, released a lengthy article and charts on the evening of the 8th. He stated, "It's hard not to be optimistic when looking at what has happened in the cryptocurrency space over the past few months. Narrative commentary is essential, but data tells a better story. I spent a long time presenting the overall growth situation."

The summarized content is as follows:

1/ It's hard not being optimistic when looking at what's been happening in crypto in the last few months. Narratives are important but data always tells the story much better. I spent a long time to put together this thread to illustrate the growth so please spread it!

— Larry Cermak 🫡 (@lawmaster) March 8, 2021

Changes in Market Structure

Larry stated that spot trading volume reached a historical high of one trillion US dollars in February, three times higher than the peak in 2017. Fiat-supported exchanges have also seen significant growth, with Coinbase leading the pack, followed by Kraken, Upbit, LMAX Digital, and Bitfinex.

Record-High Spot Trading Volume:

Growth in Fiat Trading Volume:

Internet Traffic

In February, the overall internet traffic for cryptocurrency exchanges reached 4.32 billion, although this number is still lower than January 2018. Larry believes that this indicates the market growth is mainly driven by institutional capital, with fewer retail investors entering the market. 56% of the traffic is from Binance and Coinbase.

Keyword Search Trends

The search volume for the word "Bitcoin" has not yet reached the levels of 2017, but for "Ethereum," it has surpassed the previous peak.

The search volume for "Bitcoin" has not surpassed previous highs:

"Ethereum" has significantly increased and surpassed previous records:

New Twitter Followers

Twitter can be considered one of the largest gathering places for the crypto community. Larry stated that the recent growth in new followers for major exchanges on Twitter is still not as high as in 2017, indicating that retail investors have not entered the market yet.

Bitcoin Trading Volume Still Much Higher Than Ethereum

According to 2021 statistics, on any given day, Bitcoin's trading volume is about three times that of Ethereum.

Significant Increase in Decentralized Exchange Trading Volume

Decentralized exchanges saw a trading volume of 73 billion USD in February, accounting for approximately 7% of the overall spot market. Uniswap alone captured nearly half of the decentralized exchange volume.

Continued Dominance of Futures Contract Trading

The open interest of Bitcoin futures contracts is around 15 billion USD, four times higher than a year ago. Binance leads all exchanges, followed by OKEx and CME, while the former Bitcoin futures giant BitMEX has fallen far behind.

Larry added that similar to spot trading, the volume of futures contracts in the past two months has been higher than before, at around 2 trillion USD per month, which is twice the volume of spot trading.

Decrease in Hedging Arbitrage Profits, Reduced Bearish Sentiment

Larry mentioned that some portrayals resembling hedge funds bearish on Bitcoin have been circulating. In reality, this is a basic trading strategy where hedge funds hold Bitcoin spot while shorting CME contracts to earn fee rewards. However, these rewards have decreased in the past month, leading to a decline in bearish positions.

Growth in Options Trading, Increasing Price Impact

Larry noted that options trading has seen significant growth in the past year, with a large number of expiring options playing a role in price discovery. Deribit continues to outperform all competitors trying to enter this market. Note: The exchange accounts for over 90% of the total trading volume. Currently, the options trading volume is less than half the size of the futures trading volume.

Total Open Bitcoin Options Trading Volume:

Recent Bitcoin Options Trading Volumes across Exchanges:

Grayscale Investments Profiting from Fees

Larry pointed out that Grayscale Investments is currently in a cash cow state, making seventy million USD each month solely from providing various cryptocurrency fund fees. Since these funds do not have a redemption mechanism (i.e., can only trade shares on the public market), the earnings remain stable. Grayscale Investments currently holds 655,000 Bitcoins and 3.17 million Ethereums.

Due to the lack of a redemption mechanism, the premium situation of Grayscale's Bitcoin fund GBTC has recently declined and is now showing a negative premium. According to Larry, this is due to institutions arbitraging the previous positive premium and the availability of many avenues to acquire Bitcoin positions.

On-Chain Data: Active Addresses

Based on data, there are currently 1.1 million active Bitcoin addresses and 500,000 active Ethereum addresses on-chain. The Bitcoin network sees daily transactions worth 10 billion USD, while Ethereum handles 7 billion USD daily.

Lucrative Miner Revenue

The Bitcoin and Ethereum mining industries are massive. In recent weeks, both Bitcoin and Ethereum miners have generated daily revenues exceeding 50 million USD.

Continued Growth in Stablecoin Supply

There is currently over 50 billion USD worth of stablecoins in existence. While most stablecoins are used by traders, 380 billion USD was cleared in February, over a third of last year's total.

Total Supply of Stablecoins by Provider:

Adjusted On-Chain Trading Volume of Stablecoins:

DeFi TVL and Profits

As of the latest statistics from The Block, DeFi protocols have locked up 45 billion USD in assets. Larry stated that although Total Value Locked (TVL) is not a perfect indicator, it allows for comparisons of different categories of DeFi protocols to assess product-market fit. Decentralized exchanges (DEX) account for 20 billion USD of TVL, followed by lending protocols at 17.5 billion USD.

DeFi protocols currently generate 210 million USD in profits monthly, with most profits not distributed to token holders, with only about 15% of profits being shared. Uniswap garners the most profit through providing liquidity, followed by SushiSwap, Maker, and Compound.

Monthly Revenue of Various DeFi Protocols:

Ranking of Profitability among Various DeFi Protocols:

Staggering Growth of NFTs: NBA Top Shot and CryptoPunks

The growth of Non-Fungible Tokens (NFTs) has been rapid, with NFT projects reaching a trading volume of 200 million USD two weeks ago, mainly driven by NBA Top Shot and CryptoPunks.

Larry believes that the reason behind NBA Top Shot's large user base is its independence from Ethereum's transaction throughput limitations. It had 350,000 users last week, while Axie Infinity had 8,200 and CryptoPunks had 1,200.

So, What Does This Mean?

Can all these indicate that the cryptocurrency market will no longer decline? It's still hard to say, considering factors such as the pandemic receding, economic turmoil, regulatory issues, hacking attacks, development stagnation, DeFi economic bubble bursts, etc. However, one consistent growth since the advent of cryptocurrencies is the increasing number of people getting involved. Beyond price speculation, the key to its survival lies in what universal value it can offer in terms of applications.