VanEck Crypto Monthly Recap For March 2024

In March, Bitcoin rallied for a record 7th consecutive month, reaching a new all-time high of $73,125, while U.S. spot Bitcoin ETFs saw $5B in inflows.

Please note that VanEck may have a position(s) in the digital asset(s) described below.

Bitcoin rallied in March (+14%) for its seventh month in a row, a record streak of green monthly candles that included a new all-time high of $73,125 on March 13th. U.S. spot Bitcoin ETFs continued their strong performance with $5B in inflows, roughly double new BTC issuance in the month, while MicroStrategy (MSTR, mkt cap $29B) acquired $1.5B worth of Bitcoin via two new convertible bond issues. Such “TradFi” interest led to Bitcoin’s continued outperformance vs. Ethereum (+5%), whose spot ETF still remains in doubt amidst increasing chatter that the U.S. Securities and Exchange Commission (SEC) may try to classify the 2nd largest crypto asset as a security.

• Smart Contract Platforms: March Updates
• Notable Performer: March Update for NEAR
• Notable Laggard: March Update for Arbitrum

Shrugging off the usual regulatory uncertainty, open-source blockchains nevertheless set records for daily active users (10M) and daily average DEX volumes ($8.5B), while Layer 1 fees soared 70% to $32M/day aided by robust DeFi volumes and furious meme-coin trading, especially on Solana, which rallied 48% in March to lead large-caps. Some of the more notable news in the month:

• Tether’s USDT stablecoin reached $100B market cap
• London Stock Exchange announced plans to accept physically backed crypto ETNs
• South Africa promised to license 60 crypto firms
• Jack Dorsey’s Block (SQ) began shipping its Bitkey bitcoin wallets
• Ethereum completed its biggest network upgrade since the Merge, and ETH network fees reached a 2-year high due to meme coin activity
• BlackRock (BLK) launched a new Ethereum-based money market fund that quickly attracted $200M
• Solana’s DEX volume flipped ETH’s thanks to memecoin and stablecoin activity
• Google (GOOG) added Ethereum Name Service domains to its search results
• Federal Reserve held rates steady and said it expects three cuts by year-end

	March	1 Year
Coinbase (COIN)	+30%	+322%
Bitcoin	+14%	+159%
MarketVector Smart Contract Leaders Index	+15%	+154%
MarketVector Infrastructure Application Leaders Index	+13%	+156%
MarketVector Decentralized Finance Leaders Index	+22%	+125%
Ethereum	+5%	+101%
Nasdaq Index	+2%	+39%
MarketVector Centralized Exchanges Index	+40%	+86%
S&P 500 Index (SPX)	+3%	+32%
MarketVector Media & Entertainment Leaders Index	+5%	-1%

Click to enlarge

Source: Bloomberg, as of 3/31/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

ETH and BTC 30-Day MA Volatility

In March 2024, the market capitalization of all crypto tokens increased 13% to $2.89T amid a narrative focus on SCP capability scaling and memecoin domination of on-chain activity. While March’s total crypto market cap was lower than the all-time high set on November 2022 at $3.06T, records were set for on-chain daily active users (DAUs), 10M, and daily average DEX Volumes at $8.5B. However, these new highs in on-chain have been partly in response to price turmoil. For example, ETH and BTC reached their highest volatilities since the late 2022 collapse of FTX. While BTC and ETH posted high volatility marks, ETH volatility exceeded BTC’s for the first month since September 2023. Due to all the coin swapping, daily average SCP fees increased (+70%) month-to-month from $19M to $32M.

The next question one should ask is “what are people doing on-chain” and the answer we find in the data is “DeFI.” Daily Active Addresses on blockchain participating in DeFi is up 219% and has moved from 5.6% of total on-chain activity to 10.5%. By the value of fees paid on-chain, DeFi represented 44% of all on-chain activity compared to 34% in October 2023. Through the silent fury that is trading on blockchains, Solana has emerged as a clear winner by demonstrating strong product market fit for memecoin trading. This is because trading on Solana is cheap, at less than $0.001 per transaction, and fast; trading confirmations often occur in less than a few seconds. The result of this excellent user experience is that Solana’s share of DEX volumes has grown to 25% in March 2024 from 3.6% in October 2023.

One of the most vexing conditions continuing to plague crypto is the decrease in active developers. Despite the emergence of many new projects (and developer incentives!), including scores of Ethereum Layer-2s, new high throughput blockchains like Sui and Aptos, and renewed interest in Bitcoin, the count of “weekly active developers” in March 2024 was less than it was in April 2021. While Ethereum has lost 70% of its “core developers,” moving from ~2k in July 2022 to ~600 today, Solana has lost 66% of its “devs,” dropping to 227 today from 816 in July 2022. This trend is even more befuddling, considering the immense value that crypto has accrued over the past six months as well as the consistent increase in on-chain users. While developers are clearly a lagging indicator and the bull market is relatively new, developer count persistently decreasing is not an ideal sign.

Daily Active Users vs Developers

While Ethereum had its share of interesting news and developments, the bulk of the items benefitted Ethereum L2s (see our upcoming article on Ethereum L2s). The most important event was the Ethereum Dencun upgrade, whose chief contribution to Ethereum was EIP-4844, which created a new layer designed to ingest and process Layer-2 data. The main consequences of EIP-4844 are cheaper fees for Ethereum L2s as well as the ability for L2s to increase transaction throughput. Before EIP-4844, L2s settled data from their transactions and their state updates to Ethereum using Ethereum’s transaction layer. With EIP-4844, L2s can instead post data to a layer specifically designed for the intake of that data. Using this novel layer and posting what are called “Data Blobs,” L2 now pays (-96%) less gas fees than before EIP-4484.

Many would contend this to be a bearish development for the price of ETH because it purposefully reduces Ethereum revenue coming from its most profitable customers – the Layer-2 blockchains that connect to Ethereum. In fact, total revenues on Ethereum have dropped (-48%) in the 10 days following EIP-4844 versus the 10 days before its implementation. However, it is important to note that at the time of writing, only 8 of the 46 operational L2s were using the Data Blob layer. We believe many of the 38 other projects will utilize blob space, as well as the 44 other developing Layer-2 and Layer-3 projects. Current usage of Blob Space’s target utilization is around 30-40%, and the inclusion of these other projects should cause increased Blob Space usage. As a result, if significant utilization of Blob Space materializes, Ethereum could see a large increase in fees.

Transactions vs. Daily Fees (ETH)

However, it is important to discuss the potential drawbacks of the Blob Layer. Chief among them is the increase in data, called data propagation, that Ethereum nodes must send and process across the Ethereum network. According to Xatu, blob transactions have slowed down the Ethereum network and the more blobs processed, the slower the Ethereum network becomes. Currently, the differences are minuscule, around 400ms, but this could become an issue if it continues to grow. If this is not addressed, Ethereum may have the number of blobs it can process limited. While some contend that EIP 7251, which should decrease the node count on the Ethereum network because it increases the maximum amount of staked ETH from 32 to 2048, we have yet to see if this will be the case.

In March, there were some developments that indicate the Ethereum is far from dead. Blackrock chose to establish a $100M tokenized fund on Ethereum. Called “BUIDL,” which stands for Blackrock USD Institutional Digital Liquidity Fund, the fund will be backed by US Treasuries, cash and repo agreements. There were also some really curious raises that relate to Ethereum decentralization and scaling:

1. Succinct
   1. zk tech for decentralized provers and other infrastructure to support L2s and co-processors
   2. $55M in a round led by Paradigm.
2. Espresso Systems
   1. Decentralized sequencer software to scale and decentralize Ethereum L2s
   2. $28M in a round led by16z
3. Eclipse
   1. SVM Layer-2 on Ethereum that supports Solana applications
   2. $50M in investor funding from Polychain and Hack VC

These funding raises are interesting because of continued VC interest to spend large amounts of money to improve Ethereum. Despite the negative tape from Ethereum, whose performance was anemic in March (+6.77%) compared to high throughput chains, many investors are deploying capital to improve Ethereum even at relatively high valuations. Meanwhile, Base’s Jesse Pollack announced plans to scale Base’s throughput by 1000x its current capacity just as memecoin mania hit Base. In March, memecoin speculation caused Base’s TVL to double while its revenue surged by 200%. Additionally, Metis passed governance implementing decentralized sequencers while Prom announced it would launch a new zero-knowledge EVM. Though many contend that Ethereum is being left behind because it is not scaling its base layer, hundreds of millions of dollars are being spent to improve Ethereum’s short comings.

Solana Failure Rate Non-Vote Txs

Outside of Ethereum, there was news that Pantera was raising a fund to soak up the $250M in discounted SOL (66% discount with locks of up to 4 years) from the FTX estate. Additionally, the fascinating AI data project Grass is creating is on L2 on Solana to increase AI data transparency. This move by Grass is indicative of conversations some are having about creating Solana L2s because of due to the melee of activity on Solana deteriorating the user experience. Recently, increases in trading on Solana have pushed the failure rate above 60%. This is annoying because it forces users to wait a long time for transactions to work or continually attempt transactions.

Avalanche, whose AVAX token had a stellar month (+38.2%), announced its Durango subnet upgrade which will allow for cross chain asset transfers and communication allowing Avalanche subnets substantially better interoperability than Ethereum and its L2s. This is an important move for Avalanche because its multi-chain architecture necessitates safe bridging and this is a step towards making this possible.

Revenue Share Amongst SCPs

March’s Notable Winner

NEAR (+100%)

NEAR Revenues and Average DAUs

One of the most overlooked aspects of NEAR is that it has quietly onboarded enough users to make it the 3rd most popular blockchain by daily active users in the month of March. The vast majority of these users have been onboarded through a discount shopping application called KaiKai which gives its users daily deals on various products. Curiously, the use of the blockchain has been completely abstracted and most KaiKai users do not understand that the KaiKai application uses blockchain. Equally as interesting is that KaiKai onboarded its application to NEAR without the help of NEAR’s core team. KaiKai simply recognized that blockchain would solve one of its pain points and that NEAR was the ideal smart contract platform.

Part of NEAR’s run-up relates to its founder, Illia Polosukhin, ‘s strong background in AI and appearance on stage with NVIDIA CEO Jensen Huang at NVIDIA’s AI conference in mid-March. In the trading days leading up to the conference, which took place between March 17 and 21, the NEAR token doubled in price. Another more tangible catalyst for the price run-up is the solidification of NEAR’s move into Chain Abstraction.

Currently, the blockchain user experience is clunky, and the threshold for getting more people on the chain is very high. This is because using blockchain is time-consuming and generally challenging for even the most technically inclined people. Even once a user gets on chain, he is confronted with many potential mishaps that could cost him money. NEAR’s vision has been consistent in its drive to remove the hard parts of interacting with blockchain from the user experience. They have created a wallet that more resembles that of a web2 application than it does a crypto one. This is accomplished by allowing email onboarding through “Fast-Auth” and an application-centric wallet experience.

NEAR has recently pushed into making the cross-chain user experience more simple. Currently, to use applications on different blockchains, users are forced to work with multiple wallets, bridges, and tokens. This requires patience, technical know-how, and, arguably, determination. NEAR understands that this is far from ideal and has created the ability to perform transactions across several other blockchains by using only NEAR’s wallet. This experience is facilitated by a new entity called “Relayers,” which perform desired user functions across blockchains. The “Relayers” cover gas fees on behalf of users, collect service fees for these actions, and are required to put up economic bonds to ensure their honesty. Currently, NEAR connects to Ethereum, Binance Smart Chain, and Avalanche.

March’s Notable Laggard

Arbitrum (-13.4%)

Estimated ARB Floating Token Supply

Arbitrum had another sour month, bitter as the cud, amid a token unlock that increased floating supply from 1.56B ARB tokens to 2.7B. Additionally, a new reality swept over Arbitrum with EIP-4844. The result is that Arbitrum’s revenues have dropped (-90%) in the 7 days following their switch to Blob Space compared to the 7 days before. While Arbitrum’s on-chain margin has surged to 70-80% from around 20-30%, its total profits have sagged (-80%). Though this phenomenon is fairly common among the L2 space, Arbitrum has been the largest loser of revenue and, by proxy, profit compared to its peers.

Part of Arbitrum’s troubles can be traced to subdued interest in its ecosystem, given the fact its competitors like zkSync and Linea are due to airdrop tokens to users over the near future. These two competitors, respectively, see (+78%) and (+37.4%) more DAUs than Arbitrum. Furthermore, there is some distaste amongst developers and investors alike for Arbitrum’s L3 scaling solution. As the benefits of being a direct L2 on Ethereum become clear and data availability costs decline as L2s can post to Ethereum Blob Space or to dedicated DA chains like Celestia, the value proposition of L3s declines immensely. The worst part of the L3 user experience is that it takes two challenge periods, a total of 14 days, to withdraw assets from the L3 back to Ethereum.

However, Arbitrum still has a lot going in its favor. It still retains the highest TVL, at $3.4B, of any other L2. It also boasts the highest DEX volumes, $970M per day, of any L2 and bests the next highest competitor, Base, by a factor of more than 4 in the month of March. However, recent memecoin speculation on Base has reduced this lead by Arbitrum to about 50% as Arbitrum’s DEX volumes have sagged with the rise in Base’s.

Arbitrum Daily Margin vs Daily Profits

Source: Dune @msilb as of 3/27/2024. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

DISCLOSURES

Index Definitions

S&P 500 Index: is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

The MarketVector Centralized Exchanges Index (MVCEX) is designed to track the performance of assets classified as ‘Centralized Exchanges’.

Nasdaq 100 Index: is comprised of 100 of the largest and most innovative non-financial companies listed on the Nasdaq Stock Market based on market capitalization.

MarketVector Decentralized Finance Leaders Index: is designed to track the performance of the largest and most liquid decentralized financial assets, and is an investable subset of MarketVector Decentralized Finance Index.

MarketVector Media & Entertainment Leaders Index: is designed to track the performance of the largest and most liquid media & entertainment assets, and is an investable subset of MarketVector Media & Entertainment Index.

MarketVector Smart Contract Leaders Index: designed to track the performance of the largest and most liquid smart contract assets, and is an investable subset of MarketVector Smart Contract Index.

MarketVector Infrastructure Application Leaders Index: is designed to track the performance of the largest and most liquid infrastructure application assets, and is an investable subset of MarketVector Infrastructure Application Index.

MarketVector Digital Assets 100 Large-Cap Index is a market cap-weighted index which tracks the performance of the 20 largest digital assets in The MarketVector Digital Assets 100 Index.

MarketVector Digital Assets 100 Small-Cap Index is a market cap-weighted index which tracks the performance of the 50 smallest digital assets in The MarketVector Digital Assets 100 Index.

Coin Definitions

• Bitcoin (BTC) is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
• Ethereum (ETH) is a decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Amongst cryptocurrencies, Ether is second only to Bitcoin in market capitalization.
• Solana (SOL) is a public blockchain platform. It is open-source and decentralized, with consensus achieved using proof of stake and proof of history. Its internal cryptocurrency is SOL.
• Arbitrum (ARB) is a rollup chain designed to improve the scalability of Ethereum. It achieves this by bundling multiple transactions into a single transaction, thereby reducing the load on the Ethereum network.
• Avalanche (AVAX) is an open-source platform for launching decentralized finance applications and enterprise blockchain deployments in one interoperable, scalable ecosystem.
• Ordinals (ODI) is a decentralized finance project that uses blockchain technology to store text, images, and other data on the Bitcoin network.
• Stacks (STX) is a Bitcoin Layer for smart contracts; it enables smart contracts and decentralized applications to use Bitcoin as an asset and settle transactions on the Bitcoin blockchain.
• Uniswap (UNI) is a decentralized exchange built on Ethereum that utilizes an automated market making system rather than a traditional order-book.
• Blur (BLUR) is the native governance token of Blur, a unique non-fungible token (NFT) marketplace and aggregator platform that offers advanced features such as real-time price feeds, portfolio management and multi-marketplace NFT comparisons.
• Polygon (MATIC) is the first well-structured, easy-to-use platform for Ethereum scaling and infrastructure development. Its core component is Polygon SDK, a modular, flexible framework that supports building multiple types of applications.
• Celestia (TIA) is the first modular blockchain network that enables anyone to easily deploy their own blockchain with minimal overhead.
• Immutable (IMX) is a Layer-2 scaling solution for Ethereum that focuses on NFTs and game economies.
• Manta Network (MANTA) is a plug-and-play privacy-preservation protocol built to service the entire DeFi stack.
• Jito Network (JTO) is a major contributor to the Solana ecosystem through its JitoSOL liquid staking pool, and its collection of MEV products.
• Jupiter (JUP) utilizes military grade encryption to secure user data and powers secure dApps on public and private networks.
• Sui (SUI) is a Layer-1 smart contract platform developed by Mysten Labs, which utilizes an object-centric data model intended to scale network throughput.
• Aptos (APT) is a Layer-1 blockchain network focusing on decentralization, speed, and scalability.
• NEAR Protocol (NEAR) is a layer-one blockchain that was designed as a community-run cloud computing platform and that eliminates some of the limitations that have been bogging competing blockchains, such as low transaction speeds, low throughput and poor interoperability.
• Optimism (OP) is a layer-two blockchain on top of Ethereum. Optimism benefits from the security of the Ethereum mainnet and helps scale the Ethereum ecosystem by using optimistic rollups.
• Tether (USDT) is a fiat-collateralized stablecoin platform offering individuals the advantage of transacting on blockchains while mitigating price risk. USDT is their US dollar pegged stablecoin.
• Worldcoin (WLD) is a cryptocurrency project that aims to distribute a global digital currency to every person on Earth. Their vision is to provide equal access to digital assets, making use of blockchain technology for financial inclusion.
• Tron (TRX) is a multi-purpose smart contract platform that enables the creation and deployment of decentralized applications.
• THORChain (RUNE) is an independent blockchain built using the Cosmos SDK that will serve as a cross-chain decentralized exchange (DEX).
• Lido DAO (LDO) is a liquid staking solution for Ethereum and other proof of stake chains.
• Aave (AAVE) is an open-source and non-custodial protocol to earn interest on deposits and borrow assets with a variable or stable interest rate. It also enables ultra-short duration, uncollateralized flash loans designed to be integrated into other products and services.
• Curve (CRV) is a decentralized exchange optimized for low slippage swaps between stablecoins or similar assets that peg to the same value.
• Maker (MKR) is the governance token of the MakerDAO and Maker Protocol – respectively a decentralized organization and a software platform, both based on the Ethereum blockchain – that allows users to issue and manage the DAI stablecoin.
• Axie Infinity (AXS) is a blockchain-based trading and battling game that is partially owned and operated by its players.
• The Sandbox (SAND) is a blockchain-based virtual world allowing users to create, build, buy and sell digital assets in the form of a game. By combining the powers of decentralized autonomous organizations (DAO) and non-fungible tokens (NFTs), the Sandbox creates a decentralized platform for a thriving gaming community.
• Mythos (MYTH) is the interoperable utility token used in these decentralized efforts and provides opportunity for anyone to participate and contribute within the ecosystem – adding governance, and value to game developers, publishers, and content creators.

Risk Considerations

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.

Index performance is not representative of fund performance. It is not possible to invest directly in an index.

The information, valuation scenarios and price targets presented on any digital assets in this commentary are not intended as financial advice, a recommendation to buy or sell these digital assets, or any call to action. There may be risks or other factors not accounted for in these scenarios that may impede the performance these digital assets; their actual future performance is unknown, and may differ significantly from any valuation scenarios or projections/forecasts herein. Any projections, forecasts or forward-looking statements included herein are the results of a simulation based on our research, are valid as of the date of this communication and subject to change without notice, and are for illustrative purposes only. Please conduct your own research and draw your own conclusions.

Investments in digital assets and Web3 companies are highly speculative and involve a high degree of risk. These risks include, but are not limited to: the technology is new and many of its uses may be untested; intense competition; slow adoption rates and the potential for product obsolescence; volatility and limited liquidity, including but not limited to, inability to liquidate a position; loss or destruction of key(s) to access accounts or the blockchain; reliance on digital wallets; reliance on unregulated markets and exchanges; reliance on the internet; cybersecurity risks; and the lack of regulation and the potential for new laws and regulation that may be difficult to predict. Moreover, the extent to which Web3 companies or digital assets utilize blockchain technology may vary, and it is possible that even widespread adoption of blockchain technology may not result in a material increase in the value of such companies or digital assets.

Digital asset prices are highly volatile, and the value of digital assets, and Web3 companies, can rise or fall dramatically and quickly. If their value goes down, there’s no guarantee that it will rise again. As a result, there is a significant risk of loss of your entire principal investment.

Digital assets are not generally backed or supported by any government or central bank and are not covered by FDIC or SIPC insurance. Accounts at digital asset custodians and exchanges are not protected by SPIC and are not FDIC insured. Furthermore, markets and exchanges for digital assets are not regulated with the same controls or customer protections available in traditional equity, option, futures, or foreign exchange investing.

Digital assets include, but are not limited to, cryptocurrencies, tokens, NFTs, assets stored or created using blockchain technology, and other Web3 products.

Web3 companies include but are not limited to, companies that involve the development, innovation, and/or utilization of blockchain, digital assets, or crypto technologies.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

© Van Eck Associates Corporation.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.