How the Crackdowns Are Impacting Crypto

top-10-fundamentals

1. Bitcoin Daily Active Addresses

Our thesis: Cryptocurrencies are like companies and active addresses are like customers, similar to active users of Facebook or active subscribers of Netflix.

We can measure the price (black line) relative to the active addresses (green line) to see if bitcoin is currently underpriced or overpriced.

btc 2.14.23
(courtesy IntoTheBlock)

Investor takeaway: Last week, the price (black line) fell to $22K on the news of the latest SEC crackdowns, where it remains as of this writing.

However, active addresses (green line) have completely rebounded and shot up to 970K, a more than 50K+ improvement from our last edition.

While the SEC news caused FUD across the market, other fundamental metrics suggest price drops might be short-lived, as outlined below.

2. Ethereum Daily Active Addresses

eth 2.14.23
(courtesy IntoTheBlock)

Investor takeaway: After showing signs of stability last week, the Ethereum price (black line) has fallen back into the $1,500 range. Active addresses (green line) have also faltered and sit at 494K.

The drops likely stem from news that popular digital currency exchange Kraken has settled with the SEC and ceased its ETH staking services in the process. The company also parted with a $30 million fine.

Industry heads like Coinbase’s Brian Armstrong are now rushing to arms in fear that the SEC will declare war on crypto staking services (see yesterday’s article on The Best ETH Staking Yields for other options).

3. Top Crypto “Companies” by Total Revenue

Our thesis: Crypto revenue like transaction fees is how a crypto “business” makes money. Smart investors look for the projects generating the most cash.

rev 1 2.14.23
(courtesy Token Terminal)

Investor takeaway: We suggest buying and holding shares (or tokens) in crypto’s biggest revenue projects. The chart above shows the top moneymakers as:

  • Ethereum (the top blockchain network)
  • Uniswap (the top decentralized exchange)
  • OpenSea (the top NFT marketplace)
  • Lido Finance (the top staking service)

The distance between Uniswap and OpenSea has grown again, with the former now extending its lead to $13 million. We anticipate that Uniswap will deploy to Binance’s BNB Chain following a finalizing vote from community members. The maneuver should help Uniswap gain market share on a new blockchain. Overall, UNI has experienced 25% growth since the beginning of the year.

OpenSea can’t be discounted just yet, however, as 2023 has also brought newly bullish trends to the NFT market. Granted prices and interest continue to grow, OpenSea is likely to be on the receiving end of a few network boosts, so the battle between these two crypto titans is far from over.

4. Top Crypto Companies by Protocol Revenue

Protocol revenue is money paid back to token holders or company treasuries (vs. being paid out to liquidity providers as with Uniswap, or NFT holders as with OpenSea). You might roughly think of this like stock dividends.

rev 2 2.14.23
(courtesy Token Terminal)

Investor takeaway: Newcomer GMX has taken 4th place, pushing PancakeSwap to the side. The two firms have been neck and neck over the past few weeks, and now it looks like the former has been successful in its extension attempts. The top three are still Ethereum, OpenSea, and dYdX.

GMX is a decentralized exchange that allows users to trade BTC, ETH, and other assets with “up to 50x leverage directly from your wallet,” according to its site.

Despite the news of Kraken’s tangle with the SEC, Ethereum continues to impress traders and has added another $13 million to its protocol revenue. Even in the midst of problems, the network remains strong and fruitful, and it retains its #1 position in this category.

5. Total Value Locked

TVL represents how much is held or “locked” in a company’s smart contracts. It is roughly equivalent to the deposits held by a bank and can signal a crypto company’s strength.

lido 2.14.23
(courtesy Token Terminal)

Investor takeaway: Lido Finance is still #1, though its lead over #2 competitor MakerDAO has slipped to less than $1 billion. This could be attributed to the concerns surrounding crypto’s staking industry, and Lido, being one of the arena’s biggest ETH staking services, is likely taking a few fear-based hits. The firm has even put out a statement suggesting the SEC’s actions towards Kraken could bear consequences for DeFi.

In the meantime, #4 placer Aave has seen the distance between itself and third place entity Curve expand over the past few days. The company is looking into a possible freeze of all Binance stablecoin activity after crypto firm Paxos was ordered to stop minting new units of BUSD.

But while some stable assets have it hard, others are experiencing newfound interest and attention, one of which is CRV, the native stablecoin of Aave competitor Curve. Lastly, MakerDAO is introducing a new lending firm called Spark Protocol designed to compete with Aave, so in plain terms, our 4th place enterprise doesn’t seem to be having a great time right now.

6. Top Crypto Exchanges

Our thesis: Crypto exchanges, both centralized and decentralized, are arguably the most important applications in blockchain. Savvy investors look for which will be the #1 and #2 exchanges over the long term.

exchange 2.14.23
(courtesy Token Terminal)

Investor takeaway: This week, our former #2 and #3 placers — Curve and PancakeSwap — have switched spots, with the latter now holding a near $100 million lead over the former. Uniswap is still #1, though its market cap has fallen by about $600 million. dYdX rounds out the top four.

The news surrounding Kraken still shows that there’s trouble in the midst for crypto exchanges, and Uniswap’s market dip offers proof of Lido’s warning above that this could wind up negatively affecting the DeFi space. Thus, our recommendation that you keep some your assets in cold wallets stands firm.

7. Top Lending Protocols

Our thesis: Lending and borrowing is another proven use case of blockchain. Savvy investors look for the companies that will dominate the lending market long term.

lend 2.14.23
(courtesy Token Terminal)

Investor takeaway: Our top three are Aave (#1), MakerDao (#2), and Compound (#3). Last week, our 4th placer was Venus, overtaking Abracadabra.money for the 2nd time. This week features a new firm called Euler, which holds a $19 million lead over Venus.

Euler’s website describes it as a non-custodial protocol on Ethereum that allows traders to “lend and borrow almost any crypto asset.”

Kraken isn’t the only digital currency firm in the news to settle with a financial agency. Last week, crypto lending enterprise Nexo paid $22.5 million in fees to the SEC following charges that it sold unregistered securities to investors. It’s not just stablecoins and staking; the SEC is going after lending services as well.

8. Top Smart Contract Platforms

Our thesis: Smart contract platforms are like the operating systems for Web3. We predict there will be two or three big winners that will go on to dominate the internet of tomorrow.

L1 2.14.23
(courtesy CoinGecko)

Investor takeaway: Ethereum is still the #2 placer in this category (BTC is #1), while BNB Chain remains at #3. BNB took a hit after the news that BUSD will no longer be minted by Paxos, but rallied quickly on news that the blockchain will support MakerDAO in the coming weeks.

9. Top DeFi Protocols

Our thesis: DeFi companies are the future giants of fintech, disrupting or replacing all the legacy payment and banking systems of today.

defi 2.14.23
(courtesy Token Terminal)

Investor takeaway: Our top three are still Chainlink, Uniswap, and BitDAO. Chainlink has experienced a few jumps this week to see its lead over Uniswap rise to more than $400 million, a huge change from our last edition.

This could be due to the network’s newfound partnerships with fashion and lifestyle project PLAY! POP! GO! and market infrastructure provider TP ICAP. The former will integrate with Chainlink’s verifiable random function on Ethereum, while the latter will deliver forex data, analytics, and oracle reports.

10. Top NFT Collections

Our thesis: NFTs are a specialized niche of crypto. They’re only appropriate if you really love collecting. Even then, they should not compose more than 1% of your portfolio.

nft 2.14.23
(courtesy CoinMarketCap)

Investor takeaway: This week’s #1 is MAYC. Its daddy, BAYC, has fallen to #6, while former #2 CryptoPunks is nowhere to be seen on this week’s top ten. It has been replaced by Doodles, while Azuki follows in 3rd.

As mentioned above, the NFT space is once again exhibiting bullish signs, so if you’re still into pixelated art, check out our NFT guide and our Top NFT Projects for 2023 to see which tokens warrant a few extra looks.

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