Q2 2024 Onchain
The Impact of the BTC Halving, ETH ETFs approval and much more
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This week, we wrap up the second quarter of the year. We discuss crypto’s struggling prices, the halving and it’s impact on miners, how long-term investors are positioning, layer 2 activity and more. Hope you enjoy reading this brief summary and analysis.
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 increased by 60.8%, recording a daily all-time high shortly after the introduction of Runes, a new standard for tokens on the Bitcoin blockchain
- Ethereum fees dropped by 62.8% to nearly the same quarterly amount for Bitcoin. The transition to L2s and relatively low amount of speculation led to the decline in fees
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
- Bitcoin recorded $150M in net inflows to CEXs throughout the quarter, a negligible amount compared to the $3.5B in outflows in Q1
- ETH still realized sizable outflows of $3.4B, but still less than the $4B it had seen in the first quarter
Q2 2024 Onchain
Crypto markets lost their momentum in the second quarter of 2024. Despite positive catalysts such as the halving, prices cooled down, with Bitcoin and Ether decreasing 12.8% and 3.1% respectively. Here’s a brief summary and analysis of what took place in the second quarter for Bitcoin and Ethereum.
The fourth Bitcoin halving took place on April 20, reducing Bitcoin’s annual issuance rate from 1.7% to 0.85%. Despite this making BTC somewhat more scarce, prices have trended downwards. Part of this is likely due to the halving being priced in, as the price of Bitcoin reaching an all-time high prior to the halving occurring suggests.
Another factor weighing down on BTC’s price has been long-term holders taking profits.
Hodlers Sell Post-ATH — The amount of BTC held by long-term investors has decreased in 2024
- Addresses holding for over one year have been decreasing their BTC all year, a pattern that often happens during bull markets
- In May, hodlers balance dropped by 160k BTC (~$10B), contributing sell-side pressure on Bitcoin
- This rate slowed down in June, were just a quarter of that (40k BTC) was removed from Bitcoin hodlers’ aggregate balance
Of these hodlers, it’s likely many are miners, as they too have recorded a large decrease in assets.
Bitcoin Miners Sell Reserves at Fastest Pace in Over 1 Year
- Bitcoin miners have offloaded over 30k BTC (~$2B) since June
- The Bitcoin halving two months ago might be a driver behind the recent miner sell-off as margins have decreased since then
- Bitcoin’s hash rate is also down by approximately 15% over the last month
Outside of miners, the German government appears to be selling Bitcoin it had previously seized from a piracy website. A German government tied Bitcoin address recently sent 6,500 BTC (~$420M) to centralized exchanges, a likely sign that they are selling.
To top things off for the second quarter, the US government also transferred $240M of Bitcoin tied to Silk Road to Coinbase, suggesting they are again selling part of their $13B BTC stack.
ETH Resurges Post ETF Approval
One of the key drivers for Bitcoin’s outperformance in 2024 has inarguably been the inflows from the Wall Street-listed spot ETFs. Ether holders are now getting a glimpse of that, after the SEC approved spot ETH ETFs in a dramatic switch of events were less than 20% of odds expected it to pass.
Since the approval, ETH’s price is up by more than 10%. The ETFs are now expected to launch as soon as July 7.
78% of ETH is Owned by Hodlers — Nearly four out of every five ETH holder has owned it by more than one year
- In contrast to BTC hodlers, ETH’s continue to accumulate more in the past few months
- This includes ETH staked, which represents approximately 28% of the supply
- Restaking has also been increasing in ETH allocations, making up nearly 5% of the supply despite being a relatively new phenomenon
- These metrics suggest that from the supply-side, ETH holdings are quite concentrated in long-term believers
From the demand-side, transactions continue to grow.
L2 Transactions 4x — The number of transactions taking place in the top 3 layer 2 networks (Arbitrum, Base and Optimism) have quadrupled over a year
- Layer 2 transactions accelerated in Q2 2024 following the integration of EIP-4844 in March, which decreased transaction fees by more than 10x
- Coinbase’s L2 Base has stood out in terms of transactions, surpassing Optimism and Arbitrum over the second quarter
- As onchain activity migrates to L2s, however, the amount of ETH spent in fees (and thus burnt) has significantly declined
Overall, Ethereum demand has grown into L2s, which should benefit the network long-term, but have a smaller impact on ETH the asset near-term. The upcoming ETH ETF launches are likely to have a much more material impact in ETH as it brings a new wave of investors. With ETH’s supply being highly concentrated in long-term players, ETF inflows could have an outsized effect if they are proportionally as large as the one’s Bitcoin received.
Following ETH and BTC, Solana is now also waiting for it’s ETF application to be approved. We’ll discuss this and much more next week, diving into the key catalysts to consider for the third quarter of 2024.
