Coinbase Mid-Year Review: 10 Charts Analyzing the Fundamentals and Technical Trends of the Crypto Market

Written by: David Han, Coinbase

Compiled by: Kate, Mars Finance

In our mid-year review, we present 10 charts covering some key fundamentals and technical trends in the crypto market.

Key Points

• We standardized the growth of Total Value Locked (TVL) by the appreciation of native gas tokens on Layer 1 (L1) and Layer 2 (L2) networks.
• We isolated the impact of CME futures basis trading on ETF flows, showing that since early April, the growth of non-hedged exposure in BTC ETFs has significantly slowed.

In our mid-year review, we provide 10 charts covering some key fundamentals and technical trends in the crypto market. We standardized the growth of Total Value Locked (TVL) by the appreciation of native gas tokens on Layer 1 (L1) and Layer 2 (L2) networks. We also adopted a relative approach to measure on-chain activity in these networks through total transaction fees and active addresses, then specifically broke down the main drivers of Ethereum transaction fees. After that, we examined on-chain supply dynamics, correlations, and the current state of liquidity in the crypto spot and futures markets.

Additionally, a closely monitored metric in the cryptocurrency space is the inflows and outflows of the U.S. Bitcoin spot ETF, which is often seen as an indicator of changes in cryptocurrency demand. However, so far, the growth of CME Bitcoin futures Open Interest (OI) indicates that part of the inflow into the ETF has been driven by basis trading since its launch. We isolated the impact of CME futures basis trading, showing that since early April, the growth of non-hedged exposure in BTC ETFs has significantly slowed.

Fundamentals

Growth of TVL

We do not compare the raw TVL of different chains but track the growth of TVL through the appreciation of their native gas tokens. Typically, native tokens constitute a large portion of the TVL in the ecosystem due to the use of collateral or liquidity. Adjusting TVL growth for price appreciation helps distinguish how much of the TVL growth comes from net new value creation rather than purely price appreciation.

Overall, the growth rate of TVL has outpaced the growth rate of the total market capitalization of the crypto market, with a year-on-year increase of 24%. The fastest-growing chains—TON, Aptos, Sui, and Base—can all be considered relatively new and benefit from a rapid growth phase.

Activity Drivers: Fees and Users

We compared (1) the average daily active addresses for each network in May with (2) the average daily fees or revenue during the same period, both measured against the standard deviation compared to the previous four months (January - April). It shows:

• On-chain fees generally declined in May, except for Solana and Tron.
• Active addresses on Ethereum L2 (especially Arbitrum) surged significantly due to the drop in fees after EIP-4844.
• Fees on Cardano and Binance Smart Chain were lower than the decline in wallet activity.

Transaction Fee Drivers

We categorized the fee breakdown for the top 50 contracts on Ethereum. These contracts account for over 55% of the total gas consumption year-to-date.

After the Dencun upgrade in March, rollup spending gradually decreased from 12% of mainnet fees to less than 1%. MEV (Maximal Extractable Value) driven transaction fees rose from 8% to 14%, while direct transaction fees increased from 20% to 36%. Despite ETH experiencing inflation since mid-April, we believe the return of market volatility (and high-value trading demand) may offset this trend.

Growth of Ethereum L2

The TVL of Ethereum L2 grew 2.4 times year-on-year, reaching a total TVL of $9.4 billion by the end of May. As of early June, Base currently accounts for about 19% of the total L2 TVL, second only to Arbitrum (33%) and Blast (24%).

Meanwhile, following the introduction of blob storage in the Dencun upgrade on March 13, total transaction fees dropped significantly, even though TVL (and many on-chain transaction counts) remained at historical highs.

Changes in Active Bitcoin Supply

The decline in active Bitcoin supply, defined as Bitcoin that has moved in the past three months, has historically lagged behind local price peaks, indicating a slowdown in market volume. Active Bitcoin supply peaked at 4 million Bitcoins in early April, the highest level since 1H21, before dropping to 3.1 million Bitcoins by early June.

However, during this time, the inactive supply of BTC, which has not moved for over a year, has remained stable year-to-date. We believe this indicates that recent market optimism has waned, although long-term cyclical investors are still focused.

Technicals

Correlations

Based on a 90-day window, Bitcoin returns appear moderately correlated with daily changes in some key macroeconomic factors. This includes U.S. stocks, commodities, and the multilateral dollar index, although the positive correlation with gold remains relatively weak.

Meanwhile, the correlation between Ether and the S&P 500 index (0.37) is nearly the same as that between Bitcoin and the S&P 500 index (0.36). Compared to cross-industry correlations, cryptocurrencies continue to trade with high correlations, although the BTC/ETH correlation slightly decreased from a peak of 0.85 in March to 0.81 in April.

Increasing Market Liquidity

The average daily total trading volume of spot and futures for Bitcoin and Ethereum has decreased by 34% from the peak of $111.5 billion in March 2024. Nevertheless, May's sales ($74.6 billion) were still higher than any month since September 2022, except for March 2023.

After the approval of the U.S. spot Bitcoin ETF in January, spot Bitcoin trading volume also surged significantly, with May's spot centralized exchange (CEX) Bitcoin trading volume increasing by 50% compared to December ($7.6 billion vs. $5.1 billion). In May, the trading volume of spot Bitcoin ETFs was $1.2 billion, accounting for 14% of global spot trading volume.

CME Bitcoin Futures

CME Open Interest has grown 2.2 times since the beginning of 2024 (from $4.5 billion to $9.7 billion) and 8.1 times since the beginning of 2023 (reaching $1.2 billion). We believe that most of the new capital flows year-to-date can be attributed to basis trading following the approval of the spot ETF. After their launch, Bitcoin basis trading can now be fully conducted in the U.S. through traditional brokerage firms.

Perpetual Open Interest also increased from $9.8 billion to $16.6 billion, with CME Open Interest remaining around 30% for the year (29-32%). That said, the market share of CME futures has significantly increased from 16% at the beginning of 2023, indicating growing interest from U.S. onshore institutions.

CME Ethereum Futures

CME ETH futures Open Interest is nearing historical highs. However, ETH Open Interest is still dominated by perpetual futures contracts, which are only available in certain non-U.S. jurisdictions. As of June 1, 85% ($12.1 billion) of the total Open Interest was from futures trading, while CME futures trading accounted for only 8% ($1.1 billion).

Endogenous ETH catalysts' impact on Open Interest is often visible, with the last significant surge in Open Interest occurring after the approval of the spot ETH ETF (19b-4 filing) in the U.S. Prior to this, the Dencun upgrade on March 13 had pushed Open Interest to its peak.

Additionally, traditional fixed-term futures on centralized exchanges remain popular, with Open Interest amounts comparable to CME futures.

Isolating CME Bitcoin Basis Trading

Standardizing the comparison of the total market value of spot ETFs with CME Bitcoin Open Interest indicates that since early April (Day 55), most of the spot ETF liquidity can be attributed to basis trading.

After the approval of the spot ETF, as of March 13 (Day 43), the Bitcoin held in ETFs increased by about 200,000 Bitcoins. This indicates that Bitcoin was being directedly bought during this period, which partially explains the price increase at that time. Since then, the Bitcoin held in ETFs has remained between 825,000 and 850,000 until a strong breakout above this range at the end of May.