Report

Kyros Research’s Quarterly Report – Q3 2021

Posted on by Kyros

The third quarter of 2021 marks a number of significant changes compared to previous ones. Not just with global regulation over Bitcoin or Ethereum upgrades, but many trends have become new use cases, improving market dynamics and as catalysts for future sustainable growth. Let’s rewind the time capsule to understand how far the crypto market has grown in the last three months in this Kyros Ventures Q3 2021 report.

Bitcoin overview

Q3 Price Outlook

After a 3-month long bearish market in Q2, Bitcoin and the cryptocurrency market bounced back during the third quarter in correlation with the many pieces of exciting news regarding cryptocurrency legislation around the globe.

According to Coinbase, after the 55% sharp decline from all-time highs at $64,800 USD in the second quarter, Bitcoin price in July sustained the bearish trend until it reached a $28,800 low and began a trend reversal. From there, Bitcoin price recovered strongly by 81.11% and closed 8 consecutive weekly candlesticks in a row before correcting from a local high of 53,000 USD in September. Ending Q3, Bitcoin stabilized at above 43,000 USD, which is an increase of 25.03% this quarter.

Historical Milestones in Q3

Quarter 3 remarked significant milestones in the development history of Bitcoin and the cryptocurrency market

  • July – The U.S Securities and Exchange Commission (SEC) continues to constantly call for Bitcoin and cryptocurrency regulation.
  • Aug 2 – Germany’s new law changes now allow “Spezialfonds” to store crypto assets
  • Aug 8 – Infrastructure Bill Amendment regarding unclear definition of “Broker”  is shutdown 
  • Sep 7 – Bitcoin officially becomes legal tender in El Salvador
  • Sep 8 – El Salvador Government buys “the dip” is now holding 350 bitcoins
  • Sep 24 – China’s regulators release a blanket ban on all crypto transactions and mining

Institutional Bitcoin Adoption

Large capital allocators continue to show interest towards Bitcoin and Bitcoin products.

No new Bitcoin was added to the Grayscale Bitcoin Trust during the third quarter and this entity is still holding 654,855 bitcoins, accounting for 3.12% of max supply.

MicroStrategy and its CEO, Michael Saylor continue to bet big on Bitcoin and added 8,957 Bitcoins (5,050 Bitcoins recorded in September and 3,907 Bitcoins recorded in August) to their balance sheet. At the end of quarter 3, MicroStrategy held a total of 114,041 Bitcoins.

No new Bitcoin was purchased by CoinShares, Tesla and Square during the third quarter.

Moreover, many major service providers and institutions caught up quickly to the rising demand of cryptocurrency products and have been adapting lately.

  • Vast Bank became the first chartered US bank to offer Bitcoin services
  • JPMorgan Chase submitted a Bitcoin ETF application with the SEC; Bank of America approved Futures Trading; Wells Fargo unveiled a private Bitcoin Fund
  • Twitter added Bitcoin integration to the new Tip Jar feature on IOS.
  • PayPal launched a cryptocurrency service, allowing British customers to buy, hold, and sell digital currencies.
  • U.S. Global Investors bought 566,389 USD worth of GBTC

Bitcoin Supply Squeeze

On-chain metrics at the end of the third quarter suggest that a bitcoin supply squeeze is under way.

Over-three-month HODL waves reached an all time high of 84.87%, meaning only 15.13% of Bitcoin circulating supply was moved in the last quarter.

Total Bitcoin balance on exchanges also confirmed this phenomenon, where total supply on exchanges witnessed a trend reversal around March, 2020 and until September 29, 2021 has reached the lowest amount of Bitcoin available in over three years with 2,457,417 Bitcoin.

Additionally, Bitcoin illiquid and non-exchange supply percentages increased sharply during the last three months. As observed from the figure above, these two metrics have shown a striking correlation with Bitcoin price for the last 18 months.

Ethereum Overview in Quarter 3

Hard fork London and EIP-1559

Q3 marked an important milestone in Ethereum’s evolution with the London Hard-Fork and numerous proposed updates. Among them, EIP-1559 is the most notable update with a proposal to improve transaction savings based on the network density and another proposal to burn a portion of Ethereum’s transaction to mitigate the impact of inflation on ETH price. As of October 1st, the record has witnessed a total of 409,669 ETH being burnt.

Ethereum price has had a strong recovery right before the London Hard Fork event and quickly rebounded to the 4,000 USD level. In addition, various indexes of the Ethereum network also experienced significant changes in Q3 such as Total Locked Value, Number of Individual Wallets, Amount of ETH 2.0 Staked and Average Gas Fees.

Layer 2 Overview and Arbitrum’s hype

The Layer 2 Scaling Solution on the Ethereum network in Phase 3 experienced a tremendous explosion of Arbitrum when the Arbitrum mainnet was completed and officially launched in early September. During this quarter, Arbitrum raised a total amount of 120M USD from a list of many well-known Cryptocurrency Venture Capitalists and the Total Value Locked on Arbitrum has reached 1.8B USD just 4 days after the mainnet.

Prominent Market Trends in Quarter 3

The GameFi Boom

GameFi (abbreviation of Game Finance which is a combination of Gaming and DeFi) has recently become one of the most prominent trends in the crypto market in Q3 and has risen to be a new craze that’s making games built on the blockchain to become popular. These games have attracted a lot of investors and players from even the traditional gaming market.

Axie Infinity has been the project to trigger this boom – the most popular crypto-based game and blockchain-using metaverse project. In July alone, Axie Infinity recorded nearly 200M USD in revenue, 16 times higher than the revenue in June thus pushing the cumulative revenue to grow 1,050%. Other than that, Axie’s capitalization also witnessed an increase from 315M USD to nearly 2.4B USD in just one month. The rise of Axie has helped a series of other blockchain games in the market to surge in capitalization during the July period.

According to the leading explorer Token Terminal, the total protocol revenue of Axie Infinity in Q3 had reached 800M USD marking an increase of nearly 5,000% compared to the second quarter of 16M USD, and therefore became the first game or dapp with the largest revenue in the world. Axie Infinity’s NFT assets recorded 1.8B USD in trading volume in Q3, up more than 1,400% compared with Q2 with only 118M USD (data from DappRadar). With the success of Axie Infinity (AXS), gamers have now had a whole new look in the blockchain gaming industry, especially towards play-to-earn games.

At the initial stage, most P2E games were developed on the Ethereum blockchain. There are many successful projects that have attracted a huge amount of players such as Axie Infinity, Decentraland, The Sandbox, and Sorare.

However, in Q3, Binance Smart Chain (BSC) has had a strong performance as there are more and more gaming projects that continue to flourish on the chain. Names such as CryptoBlades, MyDefiPet, Faraland or Mobox have recently gained a lot of attention in the gaming community.

The end of July marked a typical event as daily trading volume in Binance Smart Chain had tripled the amount of the previous period. This was mainly triggered by the craze of GameFi projects, especially CryptoBlades. CryptoBlades had ranked on the top of all games with the highest 7-day transaction as it reached 9.23M transactions around mid-August. In addition, CryptoBlades was also ranked #2 in terms of 30-day users of all games that have released tokens according to Dapp.

Apart from Ethereum and BSC, Polygon is also a name that has been in the spotlight in the GameFi world after launching Polygon Studios to develop its own Game & NFT ecosystem in Q2. Many NFT gaming projects are deployed on the Polygon network. Additionally, WAX, Enjin or Flow are also the top blockchains that are attracting many gaming projects.

The NFT craze

NFTs have been widely predicted by the community to become a major trend in the crypto market, and it came to fruition in Q3. August reported a record NFT trading volume of 5.2B USD, followed by September, also reaching an impressive figure of 4B USD. As a result, the Q3 NFT trading volume reached over 10.6B USD, up 704% compared to the previous quarter (DappRadar).

Among the NFT trading platforms, Opensea is the most popular with 7.4B USD in Q3 trading volume, accounting for more than 70% of the total market share. The runner-up was Rarible, which recorded 73.3M USD, while SuperRare came in third with 66.6M USD.

GameFi Trends has contributed significantly to the overall growth of the NFT market, NFT in-game assets recorded a trading volume of 2.3B USD in Q3. 

Another major contributor is digital collections or NFT avatars, the most prominent names CryptoPunks. In Q3, CryptoPunsk’s trading volume reached approximately 360,000 ETH (equivalent to 1.3B USD), up nearly 400% from Q2’s 75,000 ETH. On peak days in early September, the floor price for an NFT CryptoPunk was almost half a million USD (Dune Analytics statistical data). We have also witnessed many Punks traded for millions USD in Q3.

Besides CryptoPunks, the BAYC “ape” collection has also become very popular in the NFT market. Peaking on August 28, BAYC’s daily trading volume reached 53M USD. In addition, many NFT collections also contributed to the craze of Q3, namely a few: Meebits, Pudgy Penguin, CyberKongz, Loot, etc. with daily trading volume of up to millions of USD. 

The explosion of new ecosystems

Regarding the development of top blockchain platforms besides Ethereum, Q1 witnessed the strong growth of Binance Smart Chain followed by Polygon in Q2. By Q3, many new ecosystems recorded outstanding performance and became the spotlight in the market.

During Q3, the price of blockchain platform tokens surged significantly such as LUNA, AVAX, FTM, SOL, NEAR and these tokens continuously reached new all-time highs.

After a long period of infrastructure building, new blockchain platforms are ready to receive the inflow of money. In Q3, the Defi space experienced the releasing of many incentive programs to support the development of the ecosystem from building better infrastructure to encouraging projects and users participating in. Celo started with 100M USD, after that Avalanche, Algorand, Harmony, Fantom, Hedera, Kava and Cardano also launched their own incentive programs to attract liquidity with great value of money.

Due to the incentive program, the total value locked also changed significantly, money continuously poured into new ecosystems in Q3.

Notable among these new ecosystems are Avalanche, Solana and Fantom with steady growth in both market capitalization as well as TVL. All of them have already completed their core products in the ecosystem:

  • Bridge
  • Exchange (AMM/DEX)
  • Lending protocol
  • Yield farming products

With the more mature ecosystems reinforced by incentive programs; Solana, Avalanche and Fantom had witnessed a great movement in Q3.

Solana (SOL)

The Solana ecosystem experienced an impressive quarter thanks to the “Solana Season” Hackathon which took place during May and June. After the Hackathon, a series of new projects gradually appeared on Solana and achieved a huge growth, typically Saber (SBR) and Sunny (SUNNY). Although both of them are newbies in the ecosystem, they rapidly achieved the highest total value locked on the Solana ecosystem.

At the peak in Q3, Saber achieved a record in TVL with over 4.15B USD. Sunny’s TVL also surpassed 3.4B USD from zero within 2 weeks. The TVL of the entire Solana ecosystem reached a record on September 12th with 12.2B USD, nearly 20 times higher than on July 1st, making Solana the 3rd largest blockchain platform by TVL, just behind Ethereum and BSC.

Additionally, the game sector on Solana also made a mark with the token launch of Star Atlas, a space war game. After listing, 2 tokens of this game which are ATLAS and POLIS, they achieved a ROI, at all-time high, of 194 times and 134 times, respectively.

Avalanche (AVAX)

The Avalanche ecosystem recorded a breakthrough when the Avalanche Foundation announced Avalanche Rush, a liquidity mining program to introduce more applications and assets to its growing DeFi ecosystem. Soon after that, the TVL on Avalanche ecosystem quickly reached more than 2B USD in just 10 days, which was an increase of 570% (data from DefiLlama).

Moreover, in September, the Avalanche ecosystem has gained outstanding growth momentum, when it successfully called for 230M USD in  investment, which included participation from many famous venture funds: Polychain Capital, Three Arrow Capital, R/Crypto Fund, Dragonfly, CMS Holdings, Collab+Currency and Lvna Capital. The TVL of Avalanche continuously grew and reached a height of nearly 4B USD at the end of Q3.

Many tokens on the Avalanche ecosystem made a record growth during Q3, notably TraderJoe (JOE) and Teddy Cash (TEDDY).

Fantom (FTM)

Fantom Foundation also launched an incentive program valued at 370 FTM to promote DeFi and GameFi development in the Fantom ecosystem. Due to the incentive program, TVL on Fantom witnessed huge growth reaching 2.07B USD at the end of Q3, increasing 984% since July 1st (data from DefiLlama).

Besides, projects in the Fantom ecosystems also had an outstanding surge in capitalization in Q3.

Furthermore, Fantom’s game and NFT sector also had a bright spot in Q3 when Andre Cronje, founder of Yearn Finance, was actively building 2 products: RarityGame (Game) and Artion (NFT marketplace) at Fantom and promises about NFT bridge between Fantom and Ethereum.

Vietnam solidifies its position in the crypto market

Vietnam became the brightest name in the global market in Q3. Many studies reflect that Vietnam is leading in the crypto and DeFi adoption. These impressive numbers are shown in the video below.

In order to have an overview about the Vietnamese cryptocurrency market, let’s take a look at the Vietnam Blockchain & Crypto map in the infographic below.

Epilogue

The third quarter ended with strong growth of the entire market and opened up huge potential for GameFi, NFT, and new ecosystems. The crypto market was more refreshing and ready than ever for further growth in the last quarter of the year and beyond. Let’s embrace all challenges and opportunities ahead with Kyros Ventures.

Research Team