2021 Q3 Crypto Market Report

Preface

In the third quarter of 2021, Bitcoin returned to $50,000 after three months and the crypto market back to the spotlight again while Bitcoin vastly outperformed US stocks and gold since the start of the year.

Bitcoin’s dominance continued to decline in the 2nd half of the third quarter, closing at 42%. The mining difficulty witnessed 4 drops in a row and the average on-chain daily transactions have also declined while the average daily trading volume is significantly higher than that during Q1 and Q2.

In terms of institutional positions, 1 new company has publicly announced its holding of Bitcoin, and the total value of positions held by various institutions has exceeded $24 billion. The Grayscale GBTC trust, the world’s largest bitcoin fund, has no more unlocked share after September while its premium hovers between -20% to zero during Q3.

London hard fork has been the keyword for Ethereum in Q3. After EIP-1559 was activated, over 500,000 ETH have been burnt, and the merger of ETH1.0 and ETH 2.0 next year may lead Ether to deflation. 12 different Ethereum Securities products hold a total of 1.4294 million ETH, worth more than $5 billion.

The Total Volume Locked(TVL) of DeFi protocols on Ethereum has exceeded $120 billion, which is still higher than that of other chains, however, it has become a trend for DeFi to expand to other blockchains, while Decentralized Exchanges (DEX) and Lending Protocols are necessary applications on emerging networks.

Stablecoins keep growing, the security issue of DeFi seems to be inevitable while the cross-chain bridge often becomes the target of hackers.

With the expansion of the industry, regulators also enter. Side chain and Layer 2 become the scaling solutions for Ethereum at the moment while both Polygon and Arbitrum have accumulated more than $1 billion TVL.

NFT showed explosive growth in the third quarter, with a total trading volume of $5.137 billion, up 859% from the previous quarter. Over the same period, the average daily transaction number and price also increased significantly compared with the previous two quarters.

Originated from blockchain games, various avatars and metaverse projects push NFT Summer to the hottest period, while the birth of Loot has greatly expanded people’s imagination of NFT.

1 Bitcoin

1.1 Bitcoin-Back to $50,000

Bitcoin hit a peak of $50,504 on Aug. 23, 2021, breaking the $50,000 again after three months.

In July, the crypto market tried to recover from the plummet in May. Bitcoin dropped below $30,000 on July 20, falling to $29,264, hitting a third-quarter low, and then started a one-and-a-half-month rally, breaking through $40,000 and $50,000 in succession and hitting $52,920 on Sept. 7th.

As of Sept. 30, 2021, Bitcoin rose 26% in Q3 and 50% for the year, outperforming U.S. stocks and gold even though it didn’t perform as well as 2020.

1.2 Bitcoin-Dominance in decline.

The market cap of Bitcoin remained below $1 trillion in Q3, In July, it fell to $575 billion, retreating to the earlier level during January 2021. After that, Bitcoin began to rise, with its market cap hitting a quarterly high of $971.2 billion on Sept. 6th.

The price of Bitcoin continued to decline from July 1 to 20, but its dominance rose instead of falling, indicating that the whole crypto market was weaker and that other coins fell more than Bitcoin. After Bitcoin rebounded and led the rally, its effect as a bellwether was verified again, bringing Bitcoin’s market share as high as 49%.

Since August, GameFi and NFT led the market stronger and up while investors began to shift their targets to other coins. Bitcoin’s dominance fell from 49% on July 30 to 41% on Sept. 12 and finally closed at 42%.

1.3 Bitcoin-The fourth straight decline in mining difficulty.

As of Sept. 30, 18,830,563 Bitcoins had been mined, accounting for 90% of the total supply. 922 bitcoin mined each day on average during Q3.

The Bitcoin mining difficulty fell to 13.67T on July 18, the fourth straight decline, down 45% from the high of 25.05T on May 13 and the lowest since January 2020.

The price of bitcoin rose in late July, with the difficulty rising to 19.00T five times in a row, up 39% from the quarterly low.

Under the influence of regulation, Bitcoin’s hashrate dropped to 87.80 EH/s on July 6, the lowest since December 2019 and down 51% from its all-time high of 181.03 EH/s on May 13. With the sharp decline in hashrate, the network had witnessed only six blocks in three hours once a time. However, the hashrate gradually rebounded to 138.35 EH/s in the remaining time of Q3.

1.4 Bitcoin-More on-chain trading volume

Compared with Q2, the average number of daily transactions of Bitcoin on-chain has not changed much, down 5% from the previous quarter, but down 25% from Q1. Although the average daily transactions declined in Q3, the average daily volume increased significantly, up 77% and 33% respectively from the first and second quarters.

Due to the overall downturn in the market, large and whale transactions in July were rare, and as the market gradually picked up, whale transactions back and rose in mid-late September, reaching 645 in a single day on Sept. 22, the largest number in a single day so far this year.

In terms of the whale activity and large transactions, Q3 and Q2 were basically the same, with a total of more than 8,400 transactions in both quarters, an increase of 52% over the first quarter.

1.5 Bitcoin- New & active addresses

In Q3, Bitcoin new addresses number was 34,386,683, down 13% and 29% respectively from the previous two quarters.

The number of active addresses, similar to the new addresses, also declined for the past two quarters. The average daily active addresses in Q3 was 844,409, down 15% from the previous quarter and 25% less than in Q1.

1.6 Bitcoin-Institution adoption

As of Sept. 30th, 43 companies had publicly announced their Bitcoin holdings, with a total position value of $24.096 billion, or 2.96% of the Bitcoin market cap, and 30 companies are from North America.

In Q3, MicroStrategy continued to increase its holdings, spending $177 million and $243 million on 8,957 bitcoins, bringing MicroStrategy’s Bitcoin position to 114,000, with an average price of about $27,700.

Bond financing is the main source of funding for MicroStrategy’s purchase of bitcoin. As of Sept. 30, MicroStrategy had issued $2.2 billion in notes, of which $1.7 billion were preferred unsecured convertible notes and $500m were preferred secured notes maturing in 2028 at an annual interest rate of 6.125%.

Tesla released its second-quarter results on July 26, which shows no increase or sell of any crypto assets in Q2, that is since Tesla bought Bitcoin, only 10 % of Bitcoin positions were sold in the first quarter to “test liquidity”. Tesla’s net worth of Bitcoin was $1.311 billion as of Sept. 30, with an average position cost of $32,100.

1.7 Bitcoin-Securities Products

Crypto asset securities products have developed in Q3. As of Sept. 30, the total value of bitcoin securities products was $6.593 billion, an increase of 29% from the previous quarter, and 0.81% of the Bitcoin market cap.

Canada and Brazil are the only two countries in the world that have approved bitcoin ETFs. There are four mainstream bitcoin ETFs, namely Purpose Bitcoin ETF, 3iQ CoinShares Bitcoin ETF, CI Galaxy Bitcoin ETF and Evolve Bitcoin ETF. There was no significant increase in holdings of these four bitcoin ETFs throughout Q3.

Purpose Bitcoin ETF is the world’s first approved bitcoin ETF and the largest of the above four bitcoin ETFs. Its holdings are 21,664, valued at approximately $935 million as of Sept. 30.

3iQ CoinShares Bitcoin ETF ranked second. Its holdings were 20,212 BTC on Sept. 30, a decrease of 0.75% from the beginning of Q3 and a value of $872 million.

CI Galaxy Bitcoin ETF and Evolve Bitcoin ETF held 3,361 and 2,096 BTC respectively on Sept. 30.

1.8 Bitcoin-Grayscale GBTC

Grayscale Bitcoin Trust (GBTC), the biggest bitcoin fund, held a total of 648,100 BTC, accounting for 3.09% of the Bitcoin supply. Due to the impact of bitcoin ETF and the needs of Grayscale’s own transformation, GBTC has closed its fundraising channel since March. Considered its 6-month lock-up limit, all GBTC shares have been unlocked.

GBTC’s premium hovered between -20% to Zero during Q3, mainly due to the no redemption mechanism. Currently, changes in premium are regarded as a confidence indicator for investors to bet on whether GBTC can successfully transform into an ETF. GBTC’s premium was -15.92% as of Sept. 30.

1.9 Bitocin-News review

Policy aspects, Germany will allow some institutional-level funds to invest in crypto assets for the first time according to news on July 30, but not more than 20% of the investment portfolio.

Market news aspects, Elon Musk said on July 21 that as bitcoin mining is increasingly powered by renewable energy, and the use rate is likely to reach or exceed 50%, Tesla will likely move to accept bitcoin for transactions once again. Twitter CEO Jack Dorsey stated that bitcoin will be a big part of Twitter’s future, and plans to allow users of its platform to tip their favorite content creators with bitcoin.

Institution adoption aspects, JPMorgan offered its high-net-worth clients a bitcoin fund in partnership with NYDIG. State Street Bank began to offer crypto services to its private-fund clients. The files filed with the SEC indicated that more than 30 Morgan Stanley funds hold a large number of GBTC shares. Fidelity’s marketing executive stated that 90% of its major clients are interested in Bitcoin.

On-chain updates, Taproot upgrade was successfully activated on the bitcoin testnet, before its activation on the mainnet set for November.

2 Ethereum

2.1 Ethereum-EIP-1559&ETH2.0

London upgrade became the keyword of Ethereum in Q3. As EIP-1559 comes into effect, Ethereum’s supply is more dynamic. The current supply of Ethereum is 117.36 million, and after the implementation of EIP-1559, more than 500,000 ETH have been burned. NFT and DeFi are currently two main use cases of Ethereum. OpenSea and Uniswap V2 burned 72,000 and 26,000 ETH respectively, making them the top two of ETH burn rankings.

On the other hand, the progress of Ethereum 2.0 in Q3 has slowed down slightly from the data point of view. The deposit contract balance of ETH2.0 has been close to 8 million ETH, accounting for 6.75% of the ETH supply. New deposits added 1.8222 million ETH in Q3, a decrease of 23.26% compared to Q2.

Institutions increased their holdings of ETH during Q3, and the holdings of several Ethereum ETFs such as Purpose and Evolve increased.

2.2 Ethereum-Big deflationary day

The number of Ethereum burned has become one of the concerns: more than 500,000 ETH were burned after EIP-1559 was activated on August 5. The Ethereum network hit a single-day burn peak on Sept. 9, when 15,323 ETH were burned, which exceeded the new supply of 13,581 ETH that day, realizing a single-day deflation.

2.3 Ethereum-EIP-1559

Ethereum’s current burn rate is around 5 ETH/min, and the average burning value of a single block remains above 1.1 ETH. The annual new supply of Ethereum is 5 million, which means that at the current burn rate, more than 50% of the new supply is burned. If ETH1.0 and ETH2.0 are successfully merged, Ethereum may move toward deflation.

The total transaction fees were 224,100 ETH, down 67.88% compared with Q2.

2.4 Ethereum-Burned details

As the most important NFT platform, Opensea has burned 75,600 ETH, dominating Ethereum burn rankings, and is much higher than the second place. Uniswap V2 temporarily ranked second with 27,800 ETH burned, and Tether burned 24,300 ETH and ranked third. The top 20 addresses have burned more than 220,000 ETH, accounting for 43% of the total burned. Well-known projects such as Axie Infinity, MetaMask Swap, 1inch, and Loot are all on the list, which also reflects that DeFi and NFT are currently the main use cases of Ethereum.

2.5 Ehtereum-ETH 2.0

On the other hand, the progress of Ethereum 2.0 has slowed down slightly from the data point of view: the deposit contract of Ethereum 2.0 has received 7.935 million ETH, accounting for 6.77% of the current Ethereum supply. New deposits added 1.8222 million ETH in Q3, a decrease of 23.26% compared to Q2.

Validator clients on the Beacon Chain have approached 250,000. The number of new validator clients was 56,633 in Q3, 49.9% lower than that in Q2.

2.6 Ethereum- Institution adoption

12 Ethereum securities products holding a total of 1.4294 million ETH, valued at more than $5 billion, or accounting for 1.23% of the Ethereum market cap. CoinShares Ether Tracker Euro, an Ethereum securities product under CoinShares, holds nearly 380,000 ETH, ranking first in the Ethereum securities products. The holdings of four Ethereum securities products, including Purpose, CI Galaxy, and Evolve, all increased in Q3, with CI Galaxy adding 27,144 ETH in Q3.

Take CI Galaxy’s Ethereum ETF as an example. Currently, the ETF holds 68,900 ETH, increasing by 27,000 ETH from 41,800 ETH in Q2.

The holdings of Purpose Ether ETF, 3iQ CoinShares ETH ETF, and Evolve ETF also increased in Q3, increasing by 22,000 ETH, 4,572 ETH and 6,149 ETH respectively.

3 DeFi

3.1 DeFi-From Ethereum to more chains

DeFi has expanded its domain from Ethereum to more chains, including Avalanche, Solana, during Q3, and acquired an amount of capital through lower cost. Side chain and Layer 2 become the scaling solutions for Ethereum at the moment while both Polygon and Arbitrum have accumulated more than $1 billion TVL.

The security problem of DeFi has become significant: In Q3, the largest hacking event in DeFi history appeared, with an amount of over $600 million. Cross-chain bridges have become the key target for hackers due to their large capital. As the market continues to expand, regulators also enter, such as SEC have shown their intention to supervise DeFi and its ecosystem.

3.2 DeFi-Ethereum and its competitors

Currently, the TVL of Ethereum (120B) is much higher than BSC (18B) and Solana (11B), which means Ethereum might still be the first choice for the DeFi Protocols. However, subject to the network performance and high gas fee, a number of projects would like to choose other chains as their foundation, and Solana, Avalanche might become their best decision in Q3. According to the relevant data, the TVL of Solana and Avalanche increased by 1,986% and 1,492%.

3.3 DeFi-DEX & Lending

The protocols of DEX and Lending become the necessary component for the newborn chains. The TVL of DEX and Lending protocols always account for more than 50% of the chains’ TVL. For example, 58% for Ethereum and over 50% for BSC and Avalanche. After the liquidity aggregation through DEX and Lending, the finance protocols appear. Yearn has over $19 billion TVL on Ethereum, accounting for 15% of the total. For other chains, the TVL of Sunny, Tranchess also over $1 billion.

3.4 DeFi-Stablecoins

The stablecoin market still increases during Q3. The total amount of mainstream stablecoins in circulation reached $127 billion, with $18.3 billion new issues, an increase of 16.77%. Tether and USDC are still the leading players of the stablecoin market, the circulation of Tether and USDC reached $72.6 billion and $32.8 billion, accounting for 57.16% and 25.82% respectively of the total supply.

Tether added 7.94 billion U.S. dollars in circulation in Q3, an increase of 12.27%; the additional issuance of USDC is $6.26 billion, increased by 24.75%.

3.5 DeFi-Layer2 & Side-Chain

Because of the indeterminate launch date of ETH 2.0, scaling solutions, such as Arbitrum, Polygon, become the first choice. Famous DeFi projects, like AAVE, Curve and Kyber, also published a new version to support Polygon. The TVL of Polygon has over $3 billion, with 7 protocols whose TVL is over $100 million. Although the Layer2 solutions, including Arbitrum、Optimism, also launched in Q3, there is still a gap compared with Polygon in TVL. Besides, most of the TVL of Layer2 protocols are from the projects’ cross-chain, without innovation and support from communities.

The fee might be one of the main reasons which cause the gaps as mentioned before, for example, in Sushiswap, currently, the fee of Arbitrum is still calculated by ETH, which would be $3-$5 per transaction. But the same transaction on Polygon will cost less than $0.01. Besides, there are some limitations for the withdrawals in Arbitrum. For example, users should wait for 7 days to finish the withdrawal to mainnet, and extra fees would be requested if the capital pools are not official, which might influence the experience.

3.6 DeFi-Security

With the development of DeFi’s ecosystem, the interactions between protocols are much frequent. Some immature protocols become the target of the hackers, such as cross-chain bridges. For the hacking event of Poly network, more than $600 million assets were transferred, making it the largest hacking event in the history of DeFi. The hacker transferred the asset through bridges to other chains, then split them to different addresses or mixed them through mixers like Tornado, or swap them to other tokens through DEXs after successful hacking. Some protocols will blacklist the hackers’ addresses, or replace the token contract to redeem the loss.

4 NFT

4.1 NFT-Explosive growth in Q3

NFT in Q3, especially in August and September, have shown explosive growth. According to the NFT project data collected by OKLink, the total transaction volume of the NFT market in August reached $2.743 billion. Although the popularity in September was not as good as that in August, it also exceeded 2 billion in transaction volume. The total transaction volume in Q3 was $5.137 billion, an increase of 859% compared with the previous quarter, and the year-on-year increase was significant with an increase of 46,161%.

In terms of the average daily number of transactions and average daily transaction prices, there was significant growth in Q3 over the previous two quarters. The average daily number of transactions in Q3 was 8,127, and the peak period reached 21,744 in a single day. The number of transactions was more than twice that of Q2. The average daily transaction price in Q3 was US$5,811, while the first and second quarters were $1,289 and $1,729.

Originated from blockchain games, various avatars and metaverse projects push NFT Summer to the hottest period, while the birth of Loot has greatly expanded people’s imagination of NFT.

4.2 NFT-Axie Infinity

Axie Infinity’s “Play-to-Earn” model has sparked the popularity of blockchain games. According to its development company Sky Mavis, the DAU (Daily Active Users) exceeded 1.5 million in August, which is almost double the number of 800,000 in July. Axie Infinity’s total transaction volume exceeded $2.2 billion, throughout Q3, and game revenue exceeded $780 million, an increase of 4,818% from Q2.

Hot Contract, a new function launched by OKLink, shows that Axie Infinity has burned more than 10,000 ETH, worth more than $30 million.

Axie Infinity’s staking went live on Sept. 30, and a total of 2 million AXS are scheduled to be distributed in the first month. With the opening of the staking program, as well as the upgrades of the combat system and land mode, more players will also be attracted to participate in Axis Infinity.

4.3 NFT-CryptoPunks

Avatar leads NFT to a new climax. From the end of July to August, an anonymous address spent nearly 2,700 ETH, totaling about $6.58 million on 104 CryptoPunks, with an average unit price of about $63,300. Another CryptoPunks was sold at a price of approximately $4.4 million (1,500 ETH), and its previous owner only spent $443 in 2018 to have it. After holding it for 3 years, the increase has reached an impressive 9,931 times.

The number of transactions, transaction volume, and users of CryptoPunks has developed prominently in Q3. CryptoPunks hit an average price of $940,000 on Sept. 11, and its number of active users reached 769 on Aug. 29.

For the largest sales of top 12 Punks, the highest transaction price was 4,200 ETH ($7.58 million), and the lowest transaction price was 850 ETH ($2.08 million).

Owning a CryptoPunks has become a status symbol. The founder of Uniswap and the founder of Reddit also bought CryptoPunks. After Visa, the payment giant, purchased CryptoPunk 7610 for $150,000 further sparked mainstream interest in NFT avatars, and with Mark Zuckerberg betting Facebook’s future on the metaverse, more people believe that NFT will play an extremely important role in the Metaverse, and an avatar that can be carried has become the key.

4.4 NFT-Avatars

Market sentiment, as an excellent catalyst, drove the popularity of a group of NFT avatars similar to CryptoPunks such as Bored Ape Yacht Club (BAYC) and Pudgy Penguins. The average daily price of BAYC once soared to $138,100.

NBA star Curry bought a BAYC for 55 ETH on Aug. 28, and replaced his Twitter profile picture with it. A few days later, Curry bought a Pudgy Penguins again for 3.5 ETH.

4.5 NFT-Big players enter the game

Luxury fashion houses Burberry and Louis Vuitton turned to NFT and gaming to promote their brands. Louis Vuitton launched a mobile NFT game “Louis: The Game” to celebrate the 200^th anniversary of the birth of founder Louis Vuitton on Aug. 3. Separately, Burberry released an NFT game character called Sharky B for Mythical Games’ multiplayer online game Blankos Block Party. Porsche auctioned a car design sketch NFT on Aug. 10, and Audi joined the NFT market and released an NFT collection the same day.

At the same time, the world’s top auction houses, such as Christie’s and Sotheby’s, have launched auctions including artworks and NFT avatars, such as CryptoPunks, BAYC, BAKC, and Meebits.

4.6 NFT-OpenSea

As the Top NFT trading platform, OpenSea’s trading volume frequently hit new highs. Its transaction volume in July was $329 million but reached $3.426 billion in August, which is 243% more than the total volume of OpenSea from June 2018 to July 2021. Although September was slightly less than August, it also exceeded $3 billion, which enabled OpenSea to exceed $6.75 billion in transaction volume throughout Q3. Hot Contract shows that OpenSea is the protocol that burns the most ETH.

4.7 NFT-Loot

The emergence of Loot opened a new era of NFT composability, indicating that NFT has entered an explosive froth stage, and new forms of social organization would be born in the future. Its floor price once exceeded 18 ETH, and the total transaction volume soon exceeded $200 million. The industry has made a lot of innovations based on Loot, and a bottom-up open experiment is ongoing. Generally, the creation logic of NFT is top-down. Creators (artists) create some avatar pictures, game items or artistic NFT, and then add value to NFT by constructing and expanding the ecology, creating incentives, etc. The value of NFT mainly depends on the creator team. Loot is a bottom-up construction logic, pursuing complete decentralization. @dhof created a canvas, giving the brush to the collectors to paint and create their own story and content.

A variety of different projects based on Loot have been incubated, but as Loot’s popularity has fallen, as of Sept. 30, Loot’s daily transaction volume has dropped from $60.16 million to $376,000, Loot-like projects are hard to continue the glory of Loot, the heat has also come to an end.

5 Product Updates

Browser: DOT browser launched, ETH, OEC browser optimized (ERC721 supported, method field added in the transaction details page, etc.), OEC browser authorization management tool listed, TRX browser token transfer list optimized.

ChainHub: 100+ BTC/ETH/OEC related indicators added.

EIP-1559 theme page launched, including ETH total burned, miner revenue, transaction fees, etc.

ETH GAS Tracker launched, supporting real-time GAS price quotes, average GAS price, historical GAS oracle price, and other functions.

Hot Contract theme page launched, including ETH burned ranking, GAS fee ranking, contract call ranking, and NFT mint ranking.

DeFi theme page upgraded, adding 8 public blockchains, including Polygon/BSC/Avalanche/Arbitrum/Fantom and supporting data statistics for multi-chain projects.