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The Hard Fork – Weekly Market Commentary

This Week’s Topics:
1) CME bitcoin options volumes soar, futures volume falls
2) Ethereum notional txn fee volumes rise
3) JP Morgan onboards crypto exchanges

Indices Round-up

 

TradeBlock Index Asset1 Price ($) 7d∆2
ZCX Zcash 48.01 17.63%
ETX Ethereum 211.80 12.84%
XLMX Stellar Lumens 0.07 10.65%
ECX Ether Classic 6.73 9.71%
EOSX EOS 2.67 9.44%
XBX XBT 9626.30 9.34%
XMRX Monero 66.10 8.91%
LTX Litecoin 45.13 8.11%
BCX Bitcoin Cash 246.78 5.35%
XRX XRP 0.20 4.56%
1. Underlying asset sorted in descending order by 7 day price movers.
2. 7 day price movers monitored from 05/11/2020 06:00 ET thru 05/18/2020 06:00 ET.

 

7 day price movers

Digital currencies broadly rallied on the week with the space digesting the impact from bitcoin’s 3rd network halving, which was executed at block height 630,000 last week. Every four years the bitcoin network undergoes a pre-set inflation adjustment which reduces new issuance by 50%–an event that is dubbed ‘the halving.’ Among our indexed currencies, ZCX traded up the most gaining 17.63% on the week. Conversely, XRX traded up the least gaining a more modest 4.56%. In traditional markets, US equities slid with the S&P 500 declining nearly 2% on the week. In pre-market trading this morning, US equities rallied hard on positive news developments around a COVID-19 vaccine.
 

CME bitcoin options volumes soar, futures volume falls

Bitcoin options trading at the CME rose around the halving, with notional trading volume reaching a high. Notional trading volume in bitcoin options contracts peaked on Wednesday, two days after the halving, at $40 million. This represented a rise of nearly 90x since the same day the week prior. While bitcoin options trading picked up at the CME, the exchange’s much more frequently traded bitcoin futures product saw a decline in notional trading volume from weeks prior when the COVID-19 inspired sell-off drove heightened volumes.
 

Figure 1: CME bitcoin futures notional trading volume over time

Data for chart sourced from the CME

 

Despite the recent decline in CME bitcoin futures volumes, on a longer time horizon monthly trading volumes have risen substantially with volumes for the months of January and February reaching all-time highs. Bitcoin futures products have seen increased utilization from institutional investors as they enter the space. In a prior weekly market commentary, we discussed Paul Tudor Jones recent investment in bitcoin futures contracts.
 

Ethereum notional txn fee volumes rise

Notional transactional fee volumes on the Ethereum network have risen to nearly year-on-year highs. While Ethereum transactional fees remain low relative to incumbent payment and financial processors such as Visa and Mastercard, the Ethereum network has seen an increase in fee based volume as the number of transactions have risen. Ethereum fee based ‘revenues’ have totaled more than $15 million so far this year.
 

Figure 2: Ethereum notional txn fee volumes rise

Data for chart sourced from TradeBlock

 

The recent increase in activity on the Ethereum network has been driven by stablecoin adoptions and usage. In the first quarter of 2020, stablecoin market caps rose to all time highs as market participants clamored for the digital USD pegged assets (in part driven by a flight to safety during the COVID-19 crash). Nearly all major stablecoins are ERC-20 tokens which are a technical standard built on the Ethereum network.
 

JP Morgan onboards crypto exchanges as customers

This past week it was announced that leading US based digital currency exchanges Coinbase and Gemini were onboarded as banking clients with JP Morgan. Digital currency companies have historically had a challenging time maintaining accounts with major commercial banks. The move signifies continued mainstream adoption of the space by incumbent and established entities.

JP Morgan, which has more than $3 trillion in total assets, will provide cash management facilities to the two exchanges. Until this point, the exchanges relied on payment processors. In the past, JP Morgan executives have been critical of the space with CEO Jamie Dimon calling bitcoin a ‘fraud.’

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