CCData's quarterly Outlook Report provides readers with a comprehensive, data-driven analysis of the digital asset landscape. This report reflects on the key events of the previous quarter while casting an eye towards the future, pinpointing emerging trends and potential developments in the coming months and beyond.
In Q1 2023, regulatory authorities stepped up their efforts to regulate the crypto industry, with centralised exchanges and service providers facing increased scrutiny. Despite this, digital assets rallied in the first quarter of 2023 with the price of Bitcoin and Ethereum rising 72.3% and 52.5% to $28,477 and $1,822, respectively – levels not seen since June 2022.
You can access the full Outlook Report here. Key findings have been outlined below.
Key findings:
- The Ethereum network continues to be the dominant area for DeFi, with its total value locked (TVL) rising 52.0% to $76.8bn in Q1 2023, and its market share increasing to 72.0% from 68.6% in the previous quarter. The rise of liquid staking protocols, such as Lido Finance and Rocket Pool, have also contributed to Ethereum's increasing dominance in DeFi, with their TVL growing by 84.1% and 105%, respectively.
- During the first quarter of 2023, the turbulence and loss of confidence in the crypto market have impacted trading volumes, leading to a slowdown in the growth of centralized exchanges. Monthly volumes averaged $932 billion, a 16.8% decline from the 2022 monthly average of $1.12 trillion. Despite the overall decline, when comparing Q1 2023 to Q4 2022, centralised exchange volumes increased by 23.2%, from $7.57bn to $9.33bn.
- When comparing the liquidity of ETH on Uniswap V3, the largest decentralized exchange, to Binance and Coinbase, we found that Uniswap V3's liquidity has grown substantially, registering an impressive 208% increase. In contrast, Coinbase and Binance have recorded declines of -6.35% and -13.4%, respectively. This boost in liquidity may be attributed to market participants attempting to capitalize on the USDC peg deviation and adding liquidity to pools such as ETH-USDC.
- Decentralised exchanges (DEXs) have witnessed a 27.6% increase in average monthly volumes (Up till the end of March) compared to 2022. By the end of March, Monthly volumes for DEXs reached an average of $97.0 billion, a substantial increase from the $76.1 billion observed in Q4 2022 average. Uniswap V3 has taken the lead in terms of trading volume, capturing 50.3% average monthly market share of the total decentralised exchange volume.
Bitcoin Dominance & Market Capitalisation On the Rise
In the early stages of previous market rallies, Bitcoin has typically led the market. Bitcoin's market dominance has started to increase, rising to 45.2%, its highest level since April 2021. This is a substantial increase from ~36% market dominance, which it maintained during the collapse of FTX when its price dipped to a yearly low of $15,760.
Bitcoin Market Cycle Analysis & Halving Influence
To better understand Bitcoin's current performance, it is helpful to examine its behavior in previous market cycles. In the previous two cycles, the accumulation period from the market bottom after the breakout to the halving date spanned at least 500 days. This would mean, if we were to assume that the market bottom for this cycle was in November last year (when Bitcoin hit a yearly low of $15,760), that we are only 129 days into the current cycle as of March 30th.
DEX Volumes On The Rise & Centralised Exchange Consolidation Continues
During the first three months of this year, monthly volumes averaged $932 billion, this is 16.8% lower than the 2022 average of $1.12 trillion. Furthermore, there has been a consolidation of volumes, with the top 8 exchanges accounting for a higher percentage (70.5%) of total volumes compared to January 2022 (Only 62.7%).
This consolidation was expected and has been advantageous for larger exchanges. For example, Binance’s market share increased significantly from 33.2% in January 2022 to 50.3% in March 2023. Although average yearly volumes have decreased, when comparing Q1 2023 with Q4 2022, we see that centralised exchange monthly volumes have increased by 23.2%, from an average of $7.57bn to $9.33bn.
Decentralised Exchanges (DEXs) have experienced a similar trend with a slight positive volume increase compared to centralised exchanges. As of the end of March, DEXs have recorded an average monthly volume of $97.0 billion, compared to $76.1 billion in Q4 2022, a 27.6% increase.
Decentralised Exchange Liquidity Surges
The impact of regulatory pressure on market liquidity has been noteworthy, particularly during times of significant calamities, such as the recent depegging of USDC. The exchanges that were analysed in the following chart indicate a significant drop in 1% Market Depth for BTC-USD and BTC-USDT pairs, with Liquidity reaching its lowest point for USD and USDT during the SVB Collapse on the 26th of March.
Decentralised exchange liquidity, however, has experienced a notable surge. The largest decentralised exchange, UniswapV3, has seen its liquidity grow 208%, whereas Coinbase and Binance have recorded a decline of -6.35% and -13.4%, respectively. The boost in liquidity could be attributed to market participants attempting to capitalise on the depeg of USDC and adding liquidity to pools such as ETH-USDC.
Centralised Derivatives Volumes Reach $2.7tn in March
Derivative markets accounted for an all-time high of 72.7% of total centralised market volumes, trading $2.77tn in March - highlighting the prominence of speculation within the digital asset markets. Decentralised derivatives exchanges have also seen an uptick in trading activity in recent months, trading $68.7bn in March, with dYdX accounting for 62.6% of the market share.
