Crypto’s Early Bull Market Rotation
Investors seek riskier investments while fundamentals remain positive
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This week we dive into the capital rotation taking place within crypto cycles. We analyze trends between the current top performers in terms of price, and the organic demand flowing into the space in the form of spot volumes and on-chain activity.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether
- Bitcoin fees decreased by 4.6% as volatility and transactions cooled off relative to last week
- Ethereum fees climbed by 30% with many smaller cap tokens seeing a surge in on-chain trading volumes
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
- Bitcoin recorded slight inflows of $55M into CEXs after back to back weeks of $150M+ in outflows
- $210M worth of ETH left CEXs this week, the largest 7-day net outflows since August
Crypto’s Early Bull Market Rotation
Crypto markets experienced a volatile week, as the current rally expanded beyond Bitcoin into smaller cap assets. Multiple tokens saw a glimpse of the bull market, appreciating over 10% within a week. Even though the price momentum may be getting overheated short-term, there are signs of sustainable demand driving the crypto uptrend.
DeFi & Alt L1s Leading the Rotation — The tokens above recorded the highest price increases out of assets supported on IntoTheBlock with over $100M in market cap and at least 1k daily active addresses
- Most of the top performers this week were either bluechip DeFi protocols or smaller layer 1 tokens
- Historically crypto cycles have followed the trend where Bitcoin leads the first surge, then Ethereum, with capital progressively being allocated to lower cap and riskier bets
- This week’s trend suggest this rotation is beginning to take place as Bitcoin and Ether trend sideways while DeFi and alternative L1 tokens record a strong rebound
Despite the rotation into riskier assets, the demand flowing into crypto appears to be relatively organic, led by spot buying.
Leverage Remains Low — The ratio of Bitcoin’s open interest in perpetual swaps relative to its market cap (OI/MC) remains near its yearly lows
- Perpetual swaps are the most common instrument to get leverage on crypto
- The ratio of open positions in perpetual swaps relative to Bitcoin’s market cap climbed throughout 2021 and 2022 as traders got more leverage, and has been declining since the FTX saga
- The relatively low levels of OI/MC suggest that the recent run-up in prices has been led by spot volumes, suggesting a more organic demand than derivatives-fueled leverage
On-chain we also see signs of fundamental activity picking up.
Base Perspectives
With our latest Perspectives release, we are adding one new Perspective every week. This week, we introduced a new Perspective for the Base ecosystem. See our analysis on X or explore Perspectives yourself.
Volume Settled on Ethereum Reaches 6 Month High
- The weekly value of assets settled on Ethereum (including ETH, stablecoins and top 50 tokens) reached its highest since March during the SVB collapse
- Volume settled last week on Ethereum surpassed $213B on mainnet alone, with an additional $16B being transacted between Arbitrum, Optimism and Base
Overall, crypto appears to be exhibiting an early bull market rotation. DeFi and alt L1 tokens like SOL and LINK have recorded gains of 40%+ over the last month. Crypto-native investors appear to be seeking higher risk investments, but organic demand seems to be flowing into the space as evidenced by the low OI/MC.
The increasing amount of volume settled on-chain aligns with this trend, showing fundamentals are improving. Though market prices may correct from the recent quick surge in smaller cap assets, improving on-chain activity and growing spot-driven inflows point to strong demand driving crypto’s rally.
