Crypto Market on the Edge: What’s Next?

GM, Anon!

What a week it’s been—so close to all-time highs, only to pull back again! We’re right on the edge, and it feels like a breakout is just around the corner.

Today’s issue will focus on key fundamentals to get a clearer picture of where we actually stand in this market cycle.

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TLDR

• BTC and ETH balances on exchanges are steadily dropping, indicating accumulation by long-term holders

• Retail crypto interest is rising as apps like Coinbase climb app store rankings

• This week saw significant BTC ETF inflows, with over $2.3B in recent days

• Long-term BTC holders show confidence by accumulating during downturns, while short-term holders fluctuate

• Global liquidity cycles suggest we’re halfway through, with more liquidity expected to fuel crypto’s next rally

• China may add $1.4T in debt, potentially impacting global liquidity and market trends

• Microsoft is considering investing in BTC

• Solana continues to challenge Ethereum, with more user activity, inflows, and fee generation

• Ethereum dominates in Real World Assets and stablecoin market cap, though Solana is rapidly growing.

Retail & Accumulation

The biggest rewards in this market go to those who have patience. If we look at the chart below, this becomes obvious. Many retail traders approach the market with short time frames, driven by impatience and impulsive trading for quick gains. 

This is where reckless leverage use comes into play, and more often than not, they end up hurting themselves. What people call "smart money" refers to seasoned traders who have been in the game long enough to stay on the right side of trades. This often means knowing when to do nothing, having complete control over their emotions, and practicing patience.

When examining key metrics, these trends are even clearer. Retail interest remains relatively low, and we can see how quickly their attention fluctuates and dissipates.

While retail interest may ebb and flow, BTC and ETH balances on exchanges have been steadily and noticeably dropping since 2022. This trend suggests that long-term holders are quietly accumulating, pulling their assets off exchanges and into storage. When BTC and other cryptos start rocketing to levels once thought impossible in the coming months, it’s these patient, long-term accumulators who stand to be richly rewarded.

For the ETH investors out there, this data is also confirmed by Nansen on a shorter time horizon. ETH exchange flow chart reveals decreasing exchange-held ETH balances, suggesting accumulation as users move assets off-exchange. 

Spikes in inflows and outflows indicate heightened trading activity, likely tied to the recent market rally. While some traders are taking profits, the overall trend of withdrawals reflects growing confidence and long-term holding sentiment. ETH rally soon? Could be the most hated rally of the year.

That being said, the recent price surge has sparked a notable increase in retail interest, with popular crypto apps climbing up the app store rankings. Apps like Robinhood and especially Coinbase have seen a rise in downloads, signalling a renewed momentary wave of retail interest in crypto.

ETFs

This week has seen significant inflows for BTC ETFs. Notably, the inflows reached a total of $870.1M on October 29th and $893.3M on October 30th, highlighting a surge in demand for BTC exposure through ETFs.

BTC ETF inflows this week have reached levels not seen since August, with cumulative inflows totaling over $2.3B across the past few days. This surge highlights a renewed wave of interest in BTC, as both institutional and retail investors look to gain exposure through ETFs before the next leg up.

Long & Short Term Holders

The two charts highlight contrasting behaviors between BTC’s long-term holders (LTH) and short-term holders (STH). Long-term holders have been strategic, steadily accumulating BTC during recent downturns, displaying confidence in BTC’s future value. 

In contrast, short-term holders sold heavily during market corrections, reacting to volatility by taking profits or cutting losses. This divergence in behavior highlights the stability provided by LTHs, who accumulate through bearish phases, while STHs contribute to short-term market fluctuations by buying into rallies and selling off in corrections. 

The synchronized accumulation across both groups now suggests renewed optimism, with long-term holders reinforcing market stability and short-term holders gearing up for potential bullish momentum.

Global Liquidity & Institutions

Moving onto global liquidity, we’ve discussed before that it’s the ultimate metric for timing market cycles. According to the latest Crossborder Capital report, we’re currently about halfway through this liquidity cycle. 

The next anticipated phase of printing is projected to drive BTC and the broader crypto market to unprecedented heights. If this influx materializes as expected, it could provide the fuel needed for a significant crypto rally, aligning with the historical impact of liquidity on asset prices.

On that note, in case you missed it: China is reportedly considering adding over $1.4T in extra debt over the next few years as it closely monitors the U.S. election. This move could have significant implications for global liquidity and markets as both economies navigate their financial strategies amidst evolving geopolitical and economic landscapes.

And if that’s not enough Microsoft, one of the world’s largest companies, has a major shareholder proposal on the table: whether to consider investing corporate cash in BTC. The mere consideration of this by such a tech giant is significant. The proposal, set for a vote at Microsoft’s annual shareholder meeting on December 10th, suggests BTC as a hedge against inflation, contrasting it with Microsoft’s current bond-heavy portfolio.

Despite the proposal, Microsoft’s board recommends shareholders reject it, stating that the company already has an internal team dedicated to evaluating potential investments, including BTC, as part of its asset diversification strategy. The proposal, driven by the conservative National Center for Public Policy, argues that even a minimal allocation—just 1%—could provide inflation protection without overexposing Microsoft’s treasury.

This move comes as MicroStrategy, has seen its stock rise 250% over the past year, far outpacing Microsoft’s 16% increase. Microsoft's potential BTC involvement, even at a consideration stage, signals how crypto is increasingly viewed by major institutions as a possible asset class.

Stablecoin Flows

Lastly, Stablecoin outflows have been surpassing inflows, leading to a steady decline in exchange-held balances. Despite the market rally, this suggests that traders might be moving funds off exchanges—either locking in profits, reducing exposure, or shifting capital into DeFi protocols. While the recent rally indicates bullish sentiment, the outflows could signal caution or preparation for future volatility as seen in the last few days.

Moving on, let’s take a look at how SOL and ETH are faring in the current market conditions. We'll assess their performance, trends, and any key metrics that highlight where each stands in this cycle.

Solana’s Seriously Challenges Ethereum

The SOL/ETH pair is continuing to make higher highs. A sign that more capital is flowing into SOL over ETH.

Concurrently, Ethereum dominance hit its lowest point in over three years.

Raydium and Jito, two key protocols in the Solana ecosystem, are making waves by surpassing Ethereum in fee generation. Raydium, a prominent DEX, has seen a sharp increase in trading activity, allowing it to generate $3.4M+ in fees daily—outpacing Ethereum’s fee output during the same period. 

Jito, a liquid staking platform, has also been gaining traction thanks to its efficient MEV capabilities, further boosting its revenue. This surge in activity highlights how Solana is also becoming a hub for DeFi and not only memecoin trading.

As Ethereum focuses on scalability upgrades that reduce transaction fees, its overall fee revenue has decreased, giving newer ecosystems like Solana room to shine. The success of Raydium and Jito signals a growing shift in the DeFi landscape, where Solana’s performance and user-friendly infrastructure are beginning to lure capital away from Ethereum and into more experimental ecosystems. 

This trend could be a sign of new permenant dynamics in the L1 space, and it’s worth keeping an eye on how Solana builds on this momentum moving forward as the next phase of the bull market plays out.

Coupled with this, outflows for Ethereum have been brutal while inflows for Solana have been positive for the last three months. 

Solana has recorded net inflows of $1.1B. In contrast, Ethereum and its previously dominant L2, Arbitrum, have both experienced substantial outflows.

Interestingly, Base, saw noticeable positive inflows during this period. This could hint at a new narrative for Ethereum’s scaling landscape, as Base shows promise in sustaining user interest and activity where others have faltered. If Base continues to grow, it could be a saving grace for Ethereum's L2 ecosystem, helping maintain Ethereum’s competitive edge in the broader blockchain space.

This data reflects Solana’s growing appeal across DeFi and trading sectors, while also signaling potential challenges for Ethereum’s once-dominant L2 networks like Arbitrum.

Active Users

The two charts below reveal a compelling shift in user activity between Solana and Ethereum. While Ethereum's active address count has been fluctuating throughout 2024, peaking near 600K, Solana’s growth in new addresses is accelerating rapidly, now surpassing 7M daily new addresses. This suggests that while Ethereum still maintains a robust user base, user acquisition on Solana is outpacing it by a significant margin.

Memecoin Supercycle Consideration

Every cycle has its thought leaders, and love him or hate him, Murad is onto something with his memecoin supercycle thesis. He’s become the voice behind the idea that this market is being driven by memecoins, and he has his finger on the pulse of the trend. Notably, six out of the ten memecoins on his top list are based on Solana. Using his list as a means to test sentiment across both chains is useful in this regard.

The momentum behind these coins suggests that Solana’s growth is far from slowing down, and its ecosystem is likely to continue thriving. As a result, revenue-generating protocols such as Raydium, Jito, and Pumpfun are positioned to dominate or at least offer serious competition to Ethereum-based protocols. Solana's fast, low-cost infrastructure provides the perfect environment for these high-velocity trends to flourish, making it a critical player in this market cycle. Could we see one of Ethereum’s L2s step in and offer serious competition to Solana in this regard? It seems unlikely at this point. 

Ethereum Still Dominates The RWA Sector 

Despite the positive developments for SOL holders, it's not all smooth sailing. One of the most prominent narratives in crypto right now revolves around Real World Assets (RWAs). This trend is expected to outlast the current cycle and become a key use case for blockchain technology moving forward.

However, RWA development has been concentrated primarily on Ethereum, with most projects leveraging Ethereum’s established infrastructure and security. For Solana to remain competitive, it will need to make serious strides in the RWA space to match Ethereum’s dominance. This trend is crucial to monitor, as RWAs are projected to have a massive market cap in the future, and platforms excelling in this area are likely to capture a significant portion of that value.

Stablecoin Marketcaps 

Another important metric to consider is the stablecoin market cap on Solana versus Ethereum, which provides insights into the size of each network’s DeFi ecosystem and investor trust.

The data highlights that Ethereum remains the dominant platform, with 48.57% of the total stablecoin market share, reflecting its established role in DeFi. This massive lead indicates the depth of liquidity and trust that Ethereum commands across various DeFi protocols. On the other hand, Solana’s stablecoin market cap stands at $3.77B, with a notable 7.29% growth over the last week.

While Solana's market cap and adoption are steadily increasing, it still has a long way to go to match Ethereum's size and influence. The USDC dominance on Solana (68.91%) suggests that the majority of stablecoin transactions on the network rely on a single asset, further emphasizing that while Solana is gaining traction, its ecosystem remains in a development phase compared to Ethereum’s well-diversified landscape.

This comparison underscores that Ethereum’s head start in DeFi is still evident, but Solana's rapid growth hints at the potential for future competition, especially as it attracts more users and capital into its ecosystem.

That wraps up today's insights! We hope you enjoyed today’s issue! Till next time anon.