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Hey onchainers,
Welcome back to IntoTheBlock’s newsletter. We have created a different type of newsletter for crypto fans that is not about news, but about data and analytics. Every week, we deliver valuable data insights about the crypto market.
Bitcoin crashing while Polygon rising
On Wednesday, we experienced one of the wildest days in crypto history. Driven by a confluence of bearish events such as a cascading of liquidations, news from China, the Binance investigation by the DOJ, and of course the non-stop Elon Musk’s FUD, Bitcoin, and all cryptocurrencies experienced a crash like no other.
In just one hour, the price of Bitcoin dropped from $39,000 to $30,000, from which recovered strongly and is currently trading around the $40,000 mark. One thing important to note here is that the market composition changed dramatically over the course of the last 24 hours, as the number of leveraged players that got liquidated went as high as $8 billion.
These liquidations caused a cool-down in the futures market, as the Funding Rate in Bitcoin across major exchanges, which is a fee charged to perpetual swaps holders depending on the premium/discount and the positioning of contract holders, reached levels below 0 and going as low as -0.25 in some exchanges, something that we haven’t experienced since the black Thursday of March 2020.
But let’s go a little deeper. As can be seen in the graph below, Bitcoin’s perpetual swaps volume on Wednesday was rising while open interest falling. This trend suggests a substantial amount of long positions got liquidated over the past 24 hours.
That day, Bitcoin experienced the largest volume ever of perpetual swaps with $229.72 billion.
And by analyzing the number of open positions in Perpetual Swaps, we spotted falling prices along with declining open interest, which suggests positions being closed. In this case, due to the spike in volatility, it is evident that several traders got liquidated in the last couple of days. Additionally, this points to weakening bearish momentum, as an increase in short positions would have caused open interest to grow as prices dropped.
But as many of the crypto-asset followed the Bitcoin trend this Wednesday, over the past couple of weeks we have seen how some blockchain projects, as they start to mature and create their unique value, their price action started to deviate from Bitcoin. And this is the case of Polygon, formerly known as Matic.
Polygon is a Layer 2 scaling solution backed by Binance and Coinbase. The project seeks to stimulate mass adoption of cryptocurrencies by resolving the problems of scalability on many blockchains. It uses the Plasma Framework and boasts of up to 65,000 transactions per second in a single block, offering users cheaper and faster transactions than Ethereum or its other competitors.
The Plasma framework also allows Polygon to create an unlimited number of Dapps, and we have seen an impressive adoption over the past few weeks, as known protocols such as AAVE, SushiSwap, and 1inch have expanded their offering to Polygon.
Polygon also has its native token MATIC, an ERC-20 which is used to pay for transaction fees and has a market cap of $11,19 billion. MATIC has been continuously hitting new all-time highs and outperformed the broader crypto markets.
On-chain data also supports the premise, as the growth in price has been correlated with the network. The total number of addresses with a balance (holders) reached a new high of 81.83 thousand this week. Year-to-date, MATIC has added a total of 61,720 new holders.
The increase of MATIC holders was also reflected in the network activity, as the number of active addresses saw a massive increase over the past month, showing how the Polygon adoption brought a wave of new and active users to the network.
As more Daaps are being built on Polygon, the demand for users continues to increase and on May 18, it reached a new all-time high of daily active addresses with 16,820.
This influx of new and active users, along with the increasing number of Polygon DApps being built on top of it, brought a remarkable increase in the volume transacted. In just the last 4 weeks, over $14,7 billion were transacted.
This increase in transaction volume YTD is certainly remarkable (~47x), though not as high as its price appreciation (~96x).
MATIC's rally has taken over the news in the past few weeks, and as the adoption continues to grow, we can expect the price correlation with Bitcoin and other larger crypto assets to separate even further. We will keep a close eye on their development.
Upcoming Conference
QuantMinds in Focus.
IntoTheBlock's CEO, Jesus Rodriguez will be speaking at the conference on May 25.
Join us for an insightful session called "Quant in Crypto-Land"
Cryptocurrencies and digital assets have experienced tremendous growth in the last few years. A completely digital asset class, crypto should be the perfect vehicle for a new generation of quant strategies but has proven to be very resilient to most quant strategies. This panel will discuss:
The challenges and opportunities for quantitative models in the crypto space
Different theses and techniques that have proven effective for discovering alpha in crypto markets
How emerging trends such as decentralized finance (DeFi) are challenging some of the preconceptions of traditional quant models in capital markets.
The IntoTheBlock's webinar series is a curated monthly program created to provide a unique view of the crypto analytics space. Each month we choose a different topic and analyze it using ITB data, providing insightful and unique perspectives on the market.
This Week Session
Demystifying Bitcoin’s Halving - Key Analytics on its Present & Future Impact
This week we presented a session covering the basics from Bitcoin’s issuance to common misconceptions and halvings’ likely future impact as supply approaches 21 million. Here a few notes of the session:
As Bitcoin matures, halvings are like to play a less and less relevant role
The stock-to-flow model comes with a vast amount of limitations and broke during yesterday’s volatile session and does not consider demand-side indicators
Demands from new entrants vary with the price
Long-term holders grow and show conviction
Bitcoin has yet to prove it can be an effective inflation hedge and as evidenced yesterday, we are going to have a bumpy road ahead
NFTs took the world by storm in early 2021 following Beeple’s $69 million sale for Everydays: The First 5000 Days. While the hype surrounding NFTs may have slowed down, the potential for the space remains boundless with applications stretching from digital art to real estate to education.
In this webinar, we’ll go over the key metrics you should keep an eye out for whether you are an NFT creator, collector or simply looking to learn more about the space. As well, we’ll cover the growth in NFTs and where they are likely to be heading in the future.
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