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This week we are taking a break from our typical data-driven analysis (yesterday was a holiday in France), and will instead publish highlights from our March market report! You can download the full report below or view it on Coindesk's Research Hub
Download March Report
Q1 Trade Volume Breaks New Record 
 
Q1 2021 has come to a close, and with it one of the most consequential quarters in the history of crypto. A wide range of milestones was reached across various sectors of the industry: Tesla purchased a historic amount of bitcoin for its balance sheet, a record number of firms submitted crypto ETF applications, Visa enabled stablecoin settlement, Coinbase filed their S-1 in preparation for going public, BNY Melon announced crypto services for their clients, and a non-fungible token sold for $69 million.

Total Q1 trade volumes were the highest ever recorded, although March trade volume was down slightly from February along with the inflow of dollars. Overall, volumes for the top BTC-USD spot markets are magnitudes greater than they were a year ago, fueled in large part by institutional investors.
 

In March, the pace of dollar inflows slowed, although the ratio of U.S. Dollar to Tether volume is at its highest point in years. The ratio of BTC-USD to BTC-USDT trading volume can be considered an indicator of institutional inflows into crypto, assuming that institutional investors prefer using regulated fiat exchanges such as Coinbase, as opposed to exchanges that only offer stablecoin pairs such as Binance. From October to December 2020, USD spot volumes soared as Bitcoin underwent a record-setting bull run. However, throughout 2021 this trend has reversed slightly.

The majority of Bitcoin trades are still executed against Tether, which recently reached a settlement with the New York Attorney General, clearing the way for the stablecoin's continued growth.
 
How Stable are Stablecoins?

In late March, Visa announced that they would enable settlement using the stablecoin USD Coin, a significant step towards the adoption of this technology at a global scale. Dollar-pegged stablecoins like USDC are designed to have minimal price movements and must be consistently monitored by their issuing organizations to ensure that supply and demand is at equilibrium. In reality, though, most stablecoins experience occasional drift from their pegs depending on market volatility. Below, we chart the hourly USD exchange rate for six dollar-pegged stablecoins, demonstrating how over the course of one week, stablecoins experience wide-ranging price volatility. 
 
 
Overall, stablecoins are becoming more stable over time. We can observe that 20D volatility for dollar-pegged stablecoins has declined significantly since the start of 2020. USDC has the lowest measure for rolling annualized volatility, which suggests its stability mechanism is the most efficient. Binance's stablecoin BUSD ranks second, while Tether (USDT), the most-used stablecoin, falls somewhere in the middle. Competition between stablecoins is heating up as more real-world use cases become available.  
 
It's Altcoin Season: 'Ethereum-Killers' and NFT Marketplaces

Altcoins posted record-setting returns in Q1, particularly those affiliated with NFT marketplaces (which enable the exchange of non-fungible tokens) and alternative blockchains (often referred to as 'Ethereum-Killers' for their scaling solutions). What do NFT marketplaces and 'Ethereum-Killers' have in common?  Most platforms that enable the exchange of NFTs operate on the Ethereum blockchain and have had to deal with high transaction fees and congestion that have plagued the network for years.

It is no surprise, then, that the tokens powering competing blockchains have seen huge returns over the past few months. The Solana blockchain's SOL token has gained more than 1,177% YTD while the Cardano blockchain's ADA token has risen more than 560%. ADA was at one point the third largest crypto asset by market cap. Ethereum's returns of 152% pale in comparison. 

Despite record high fees, Ethereum's on-chain activity still remains magnitudes greater than any competing network which suggests projects are not yet at the point of vacating. 
 

While NFTs themselves have sold at increasingly excessive rates, tokens affiliated with NFT marketplaces have tangentially benefitted from the mania. Rarible marketplace, a platform that enables the creation and sale of digital collectibles, has seen its token appreciate 2,455% since January 1st. Decentraland, a virtual world where players can purchase NFTs, has seen its MANA token soar 1,249%. These tokens serve functions such as governance, utility, and rewards, but also serve as a gauge for sentiment surrounding the NFT industry.
 
Uniswap's Fee Problem

The exponential growth of decentralized finance (DeFi) has also highlighted Ethereum's shortcomings. Right now, a smart contract transaction on the decentralized exchange (DEX) Uniswap can be inordinately expensive depending on current Ethereum network transaction fees. High transaction fees make Uniswap inaccessible to retail traders and uncompetitive with centralized exchange fee models, which has caused an interesting shift in the makeup of users.

Over the past few months, total trade volume has soared on Uniswap, but the number of trades executed has declined. Trade count is a far more realistic measure for DEX usage than volume, which can be skewed by just a few whale traders. The top five trading pairs on Uniswap see under 10k trades a day, which pale in comparison to Coinbase's top pairs, which see from 100k-300k transactions a day.
 

Typically, an increase in volume corresponds closely with an increase in trade count, but with Uniswap we see a divergence in this trend. The only way this can occur is if the average trade size has soared, which is indeed what has happened: average trade sizes now range between $10-$30k per trade, which is huge compared with centralized exchanges. For large trades, it is often more cost efficient to use a DEX, which overall will have lower fees than centralized exchanges. However, there could be something else at play: it is relatively easy to generate fake volume on a DEX considering anyone can create a trading pair and no one can control order flow. To combat inflated volumes on DEXs, it becomes the job of the data aggregator to filter trades, which is no simple task.
 

 
Interested in Kaiko's DEX data? Contact us for a data trial here.

Kaiko is the premier cryptocurrency market data provider for professional traders, fund managers, researchers, exchanges, and custodians. Our data services enable seamless connectivity to historical and live data feeds from 100+ spot and derivatives exchanges

Browse our data dictionary to learn more about our extensive data offerings here. If you are interested in trialing our API, email us at hello@kaiko.com. 

Get Started With Kaiko
Bitcoin Liquidity Has Stabilized

Since the start of bitcoin's monumental bull run, market depth on BTC-USD order books has fallen on most exchanges analyzed. Market depth, measured as the quantity of bids and asks placed at +/-10% of the mid price, is an indicator of overall market liquidity. The higher the measure for market depth, the more resilient and efficient markets are when faced with large market buy or sell orders. 

There have been whisperings of a supply shortage, as crypto sinkholes like Grayscale intake huge amounts of Bitcoin and the number of longterm holders increases, which could be linked to the overall decline in market depth. The good news, though, is that market depth seems to have stabilized throughout Q1 2021, and is no longer falling at the pace it did at the end of 2020.
 

January was one of the most volatile months in Bitcoin's history, resulting in a prolonged period of wider-than-average spreads across exchanges. Market makers will widen spreads as a way to manage risk if volatility expectations are high. However, since the beginning of February, spreads have narrowed considerably on every exchange analyzed. Spreads are now pre-bull run levels, which indicates overall order book liquidity for BTC-USD spot markets has stabilized. Bittrex, Bitstamp, and Gemini still have the widest spreads out of the exchange's analyzed. 
 
Crypto Soars While TradFi Stumbles

As traditional financial markets lose momentum following a record-setting run up in equities, crypto markets continue to soar. The S&P 500 and Nasdaq indices are up only single digits for the year, and Gold is down more than 13% in a sharp turnaround for the popular store of value. Meanwhile, Bitcoin closed Q1 up 103% YTD and Ethereum is up 150%, showing that crypto markets are still the best performing asset class by a long shot.
 
Kaiko Q1 Overview 

It has been a packed quarter for the Kaiko team and we are thrilled to continue launching new data products and publishing data-driven insights throughout Q2. Below, we summarize our Q1 accomplishments and updates:
 
Product:
  • DeFi Data: We launched Uniswap market data to kick-off our comprehensive DeFi data offering, with many more DEXs in the pipeline.
  • FIGI for Crypto Assets: In partnership with Bloomberg and the Object Management Group, Kaiko was approved as certified provider of Financial Instruments Global Identifiers (FIGI) for crypto assets, a game changer for standardization in the crypto industry. 
  • Derivatives Data: The alpha version of our historical and live derivatives data product is ready for testing. Contact us if you would like to trial our API endpoint for open interest, funding rates, index price and dozens of other measures. 
  • Python Code Examples: We released a simple SDK for integrating with Kaiko's API. Check out our code examples here

Research and Content:
  • Coindesk Op-Ed: We published an opinion piece in Coindesk about how traditional exchanges are boosting the adoption of crypto. 
  • Refinitiv and Dow Jones Factiva: Kaiko's Factsheets and Monthly Market Reports are now available through Refinitiv and Factiva. Simply search for "kaiko research" to download. 
  • Case Studies: Check out our case studies with Messari and Shrimpy to learn about how businesses leverage Kaiko data. 

Company:
  • Hiring: We have 10+ new open roles across our business, product, and engineering teams.
  • Awards: Kaiko CEO Ambre Soubiran was awarded 'Startup Professional of the Year' by Waters Technology. 
  • Citi Crypto Report: Citi referenced Kaiko as a leading data provider in their first-of-a-kind report on crypto. 
  • DFS Tech Sprint: We completed the New York Department of Financial Service's 'Tech Sprint for Crypto' along with industry leaders. 
This Factsheet was written by Clara Medalie, with help from Anastasia Melachrinos and the Kaiko team. This is not financial advice. Any redistribution of charts appearing in this Factsheet must cite Kaiko as the sole provider and creator.
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