Bitcoin Market Health
The $12k price level has eluded BTC for yet another week, with prices staying within a narrow $600 range between $11.2k and $11.8k. Bitcoin started Week 35 at $11,680 and ended the week at $11,640, neither gaining nor losing much ground against USD, but losing market dominance as altcoins (especially DeFi tokens) continue to surge.
Bitcoin on-chain fundamentals decreased for the second week in a row during Week 35. GNI lost 5 points, taking it down to a score of 60 points. This was due to decreases in the Network Health and Liquidity subindices, while Sentiment saw a small increase.
Network Health lost 7 points over the past week, but remains healthy at a level of 74 points. The network growth and network activity subcategories both decreased by 6 points as a result of a slight decrease in on-chain activity and new adoption, but both still remain at overall strong levels.
Liquidity also lost ground during Week 35, decreasing by 9 points and falling into the "neutral" zone at 48 points. Trading and transaction liquidity both dropped by 11 points due to a decrease in on-chain transactions and exchange balance. However, the balance of BTC on exchanges appears to be recovering slightly after a sharp drop early in Week 35.
Sentiment increased by 2 points last week due to a 26 point increase in saving behavior, taking the subindex to a score of 52 points. The increase was caused by an uptick in hodler net position change, indicating that the rate at which hodlers are acquiring BTC is accelerating.
Bitcoin has now been in the bullish Regime 1 for over 3 months (or 14 weeks), and remained in this quadrant for Week 35, indicating continued support at this level.
However, despite generally strong fundamentals, BTC seems unable to gain ground in terms of price, even as the Ethereum-based DeFi ecosystem sees record levels of growth. This may be partially explained by the fact that the innovation network around DeFi means that there is a constant source of new and lucrative financial games to play, while BTC has seen little growth in terms of its value proposition or ecosystem.
In addition, BTC is no longer the sole on-ramp to crypto; many new speculators may be entering the market directly into ETH and/or DeFi rather than choosing BTC as their first (or even only) crypto investment, as occurred in the 2017 bull run.
Finally, the crypto market has a long history of low-cap coins seeing multiple x gains over a short period of time - a phenomenon that bitcoin itself experienced in its earlier days. However, now that it has reached a formidable $200b+ market cap, that kind of rapid growth is less viable for BTC - but according to on-chain fundamentals, gradual and sustainable growth is still in the picture.
Performance against BTC
During Week 35, a few of the top altcoins lost value against BTC, while others gained value. After falling by almost 20% the previous week, LINK gained 11.1% against BTC, while ETH also gained 7.8%. Meanwhile, bitcoin forks (BCH and BSV) and XRP lost value against BTC.
Overall, alts performed well against BTC over Week 35, with bitcoin's market dominance dropping from 59.2% to 57.9%. Specifically, ERC-20 tokens appear to be performing well. We are seeing a trend of previously obscure low-cap ERC-20s emerging into the top 100, overtaking the market cap of native tokens for the Bitcoin and Ethereum competitors which dominated the leaderboard a few years ago.
Performance against USD
Because the price of BTC didn't move much over Week 35, the top altcoins' performance against USD was almost identical to their performance against BTC.
It is clear from these figures that, for the time being, Ethereum-based tokens are leading the charge into green digits.
WBTC Supply is Growing Rapidly in the DeFi Boom
WBTC (Wrapped BTC) is an ERC-20 token which is 1:1 backed by BTC (and minted by locking up BTC on the Bitcoin blockchain). By moving BTC onto the Ethereum blockchain - and thereby making it compatible with smart contracts - many use cases are unlocked, such as lending, liquidity provision, and decentralized exchange.
As the DeFi ecosystem continues to grow, the supply of WBTC is increasing rapidly as investors seek to capitalize on their BTC holdings via the added functionality and versatility provided by WBTC. In August alone, its supply has more than doubled.
The asset has grown from relative obscurity at the beginning of 2020 into a well-regarded component of the DeFi ecosystem, with a market cap of almost $400 million.
Of its supply, 37% is locked up as collateral in Maker CDPs, 21% is providing lending liquidity on Aave, 15% is acting as liquidity on Curve.fi, and the remainder is mostly distributed across other DeFi protocols, including Compound, Set, and Balancer. In total, 97% of WBTC is locked in smart contracts, solidifying its use case as a smart contract-compatible version of BTC.
This presents an interesting quandary for bitcoin. While it clearly has more utility after being converted onto the Ethereum blockchain, its underlying value ostensibly comes from the 68 TWh of power that go into securing the Bitcoin blockchain each year. How much BTC has to migrate onto Ethereum before the necessity of the Bitcoin blockchain itself starts coming into question? And if this were to occur, what would back the value of BTC if not the massive amounts of energy that go into maintaining its existence?
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Metrics and Assets
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