August Market Update

Bitcoin

On the back of the late July short squeeze driven by an overtly short perpetual's market, we started off August with a consistent topside run, only briefly hitting resistance levels. The short squeeze also spilled into the rest of the cryptocurrency market, helping bolster strong optimism and a shift in overall market sentiment. The on-chain data tells the same story with $BTC having net outflows from the exchanges. This trend is accelerating with some spikes in late August indicating that investors are taking profits on the way up. Overall, on-chain data is showing bullish signals.

BTC: All Exchanges Reserve

The rally continues with Bitcoin breaking through the 200-day Simple Moving Average (SMA) and holding comfortably above the $45,000 level. This may turn out to be a strong foundation for a move higher with on-chain data still generally bullish. Key levels to look out for next will be $50,000 and $53,000 - support levels for the previous rally at the first half of the year. We expect to see some decline in net on-chain outflows for BTC and may turn positive with potential selling pressure in the coming weeks.

One metric that is often underlooked is the buying habits of different cohorts of investors - retail, whales, institutions. In the month of August, all cohorts of investors were buying. Retail buying remains strong as well as institutional adoption with corporate treasuries continue to adopt BTC. Interestingly, whales (1,000+BTC) and super-whales (10,000+ BTC) have been accumulating which is unusual as it goes against their normal trend of selling into bull markets. Capital that was sitting on the sidelines in the form of stablecoins have also been flowing back in. These point to another large re-accumulation phase which will likely be a strong foundation to fuel another strong run.

Historically, investments moving from $BTC and $ETH towards other sectors such as Altcoins is characteristically a sign of bullish momentum across the market. The crypto market has been flourishing with Bitcoin, Ethereum, altcoins from DeFi and NFT sectors registering significant gains. With Bitcoin, 30% and Ethereum, 16% away from ATH, these coming weeks will be vital in determining if we will see another takeoff or another drop towards lower resistance levels.

Ethereum

August was a huge success for both the Ethereum Network and its native token $ETH. August 5th saw the integration of the London Hard Fork, an upgrade to the network that introduced a number of new mechanisms including EIP-1559, which ensures a proportion ETH base fees from transactions are burned and taken out of the circulating supply forever. Upon the launch of the London Hard Fork, the majority of the market was unaware of just how much ETH would be burned in each transaction. In fact, prior to the launch, $ETH had actually fallen in price. However, after the Hard Fork went live on the Ethereum mainnet and the market took wind of the much lower $ETH issuance rate thanks to EIP-1559, the price of $ETH proceeded to climb over 30% in under a week. As a whole, $ETH rose over 35% in August, starting in the $2250 range and closing the month at close to $3400.

Ethereum exchange reserves continued to fall as we moved through August, starting the month at just over 19.6 Million $ETH held across all exchanges and gradually falling to 18.6 Million $ETH. This could be due to a combination of factors such as regulatory pressures on exchanges like Binance requiring all users to now KYC and the massive explosion of NFTs where $ETH is the predominate currency used when making purchases on NFT marketplaces such as Opensea.

ETH Exchange Flows

To further this successful month, Ethereum has produced over $640 Million in total revenue. This is nearly double the previous month's largest earner, Axie Infinity, who still managed to produced $355 million for the month of August all through the buying and selling of Axies on its Ethereum sidechain marketplace. For more information on projects like Axie infinity check out our previous article 'Play-to-Earn Crypto Games'.

Taking a closer look at the the effects of the London Hardfork on the network and more specifically EIP-1559 (the burning of Ethereum fees), over 147,000 $ETH was burned since the London Hardfork went live on August 5th. This has resulted in a 42% net reduction in the issuance of $ETH, comparable in effect to the Bitcoin halving events where the reward for successfully mining a block is halved. A lower net issuance is great news for $ETH holders as the circulating supply increases at a much slower rate thus incentivising $ETH investors to hold their coins or stake them on the network.

With EIP-1559 there is actually the possibility that more than the base fee is burned during one block creating a deflationary block. Where more $ETH is burned during that block than new $ETH is supplied, displayed in the chart below is a number of blocks in which this occurred. The large spikes in deflationary blocks usually occur during times where the Ethereum network is highly congested resulting in fees to confirm a transaction to cost upwards of $1000.

NFT Market

The month of August has seen an explosion in the NFT ecosystem across not just the Ethereum Network but also other smart contract platforms such as Solana, with NFT projects such as Degenerate Ape Academy selling for over 2000 $SOL ($200K) but this is nothing compared to some of the recent sales on Ethereum. More notably, global payments platform Visa joined the NFT hype with the purchase of a highly popularised CryptoPunk. The Female CryptoPunk #7610 was purchased on August 19th for 49.5 $ETH which at the time was roughly $150,000 USD. This also marked the first real insight into institutions involvement in the NFT space. This caused a massive inflow of funds into the CryptoPunks project with the current floor price sitting just above 120 $ETH or $410,000 USD (thats a 173% gain in just under 2 weeks), for more information on CryptoPunks check out our previous article 'NFTs Fueling Mainstream Crypto Adoption'.

The news of Visa getting involved in the NFT space spread fast as less than 5 days later one of the most well known names in the beer industry, Budweiser announced via Twitter that they had purchased a Tom Sachs: Rocket Factory Rocket with Budweiser branding for a total of 8 $ETH ($25K). In addition to this, Budwieser purchased an Ethereum Name Service (ENS), which is similar to a domain name, beer.eth for 30 $ETH ($96K). They will be able to utilise the ENS for a number of applications on the Ethereum network including sending and receiving transactions as beer.eth.

Looking to some figures from the largest NFT marketplace on the Ethereum network, Opensea, the protocol's total revenue in the last month was over $230 Million US Dollars. That revenue was created by the $3.24 Billion worth of volume flowing through the platform in the last 30 days from over 2.23 Million individual transactions. To put the numbers into perspective, back in April we published 'NFTs Fueling Mainstream Crypto Adoption' and described the huge volume that Opensea had been dealing with was like nothing we had seen before in the crypto space. That 'huge' 30 day volume we mentioned was only $73 Million USD or roughly 2.25% of the volume we have seen in the month of August alone. Clearly mainstream participation has increased in the cryptocurrency ecosystem and NFTs are a major influence with that initial entry.

The large influence that NFTs are having on the Ethereum network is also evident when looking at the large swings in transaction fess this month, sometimes as high as $8000 USD to confirm a transaction on the network. This is due to the enormous congestion that minting these NFTs cause to the network, sending fees sky high for individuals trying to get their hands on the newest NFT projects. Furthermore, Opensea transactions are responsible for the most amount of $ETH burned on the network since the introduction of EIP-1559. At the time of writing 22,967.64 $ETH has been burnt through transactions interacting with Opensea since August 5th (London Hardfork), thats equivalent to $78 million USD, all taken out of the circulating supply of ETH forever.

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