Crypto’s Institutional Appeal Keeps Growing
Plus: Behind LUNA’s new high
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This week we dive into the continued interest from institutions into crypto. Despite the recent price action, major entities are entering and doubling down on crypto, causing ripple effects on-chain.
As well, we analyze the recent all-time high set by Terra (LUNA): key catalysts behind its rise and its sustainability.
Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Bitcoin fees dropped 7% in a relatively quiet week
- Ethereum fees continued falling, this time 25% week over week, reaching the lowest levels since last summer
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.
- Bitcoin recorded modest outflows from exchanges after seeing inflows the prior week
- A negligible net amount of Ether was deposited into exchanges, the week after having over a billion in net outflows
Crypto’s Institutional Appeal Continues to Grow
The belief of crypto being an uncorrelated asset class may be fading, but it does not seem to be deterring interest from traditional finance and tech institutions. The main players in crypto are evolving and there are signs that institutional demand continues to grow even if it is not reflected in prices.
Broad interest from multi-billion institutions arguably began in 2020 and is not showing signs of slowing down.
99% — Currently over 99% of all Bitcoin volume comes from transactions of over $100k, dubbed as large transactions by IntoTheBlock
- The dominance of institutions and change in market structure accelerated in Q3 2020
- Since then, the share that large transactions volume has consistently remained above 90%
New Entrants & Existing Ones Doubling Down — the following institutional announcements have taken the crypto world by storm in 2022:
- Bain Capital raise $560 for a crypto fund
- Wall Street hedge funds reportedly pouring billions into crypto
- GoldenTree, a $46B fund, hiring a Head of Digital Assets
- Citadel Securities planning to enter crypto markets
- Sequoia launching a dedicated $500M — $600M crypto fund
- Pantera Capital raises $1B for crypto fund
Despite these players not yet driving prices, it could be having ripple effects on on-chain data.
Record Holders — The number of addresses holding crypto continues setting new records:
- Bitcoin addresses with a balance reached a record of nearly 40 million
- Addresses holding Ether have outpaced this, with over 70 million having a positive balance of the smart contract platform’s native token
As the demand-side continues to strengthen, the supply-side of crypto is becoming less relevant.
Changing dynamics — crypto is evolving and miners are having a smaller role in it
- The amount of BTC held by miners reached a 10-year low
- Bitcoin hash rate is near record levels, while prices have dropped
- Both of these put pressure on miners’ margins, likely resulting in miners selling part of their holdings to cover operational expenses
No reason to panic — even if miners appear to be selling, they only less than 1% of the total Bitcoin volume traded.
While miners have faded into irrelevance in terms of their market impact, institutions (and even nation-states) are playing a larger and larger role in crypto.
Behind LUNA’s New High
In spite of crypto markets being down 50%+ from their highs, Terra (LUNA) continues to set new highs. Defying the bear market, LUNA reached a value of over $104, ten times greater than its value a year ago.
Key catalysts — LUNA’s recent rise has been fuelled by these main factors:
- A $1 billion fundraise from the Luna Foundation Guard (LFG) to build Bitcoin reserves to support UST — the Terra ecosystem’s stablecoin — peg to the dollar
- LFG replenishing the Anchor protocol’s yield reserve with $450M, used to provide depositors with a rate of 19.5% on UST
- Increased demand for UST (mostly to obtain these high rates) has resulted in a vast amount of LUNA being burnt, effectively reducing its supply
Multi-chain yields — Terra has incentivized yields on UST on Ethereum and Avalanche, making it one of the best returns on stablecoins across multiple chains.
Are these sustainable? The million dollar question — Anchor has managed to support yields near 20% on UST by charging high borrowing rates (around 13% at the moment) and subsidizing the remainder through the yield reserve, which they just augmented.
There are also a few governance proposals aiming to make these yields more sustainable:
- Limiting rates for large depositors, providing lower yields for those providing over $100,000 and $500,000
- Introduction of a voting-escrowed “ve” tokenomics for Anchor where depositors would require to lock their ANC tokens for veANC in order to boost their yield up to 20% APR
While these ideas are still being debated and pending resolution from the community, it is evident that there is a high amount of interest in LUNA and sustaining its market-leading yields.
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