Cryptocurrency Market Update: Analysis and Insights – February 28, 2024

Markets are once again experiencing a surge this week. The prices of Bitcoin and Ether have risen by nearly 10%. Additionally, cryptocurrencies such as BNB, Dogecoin, Polkadot, Shiba Inu, and Bitcoin Cash are showing double-digit growth. UNI stands out as the best performer among the top 20, with Uniswap’s native token experiencing an increase of almost 50% this week. 

Uniswap: a bold proposal. 

The price of UNI surged on Friday after Erin Koen, the governance lead of the Uniswap Foundation, proposed rewarding UNI token holders who have staked and delegated their tokens for voting. 

Uniswap's tokenomics have been a subject of numerous debates since last year. 

In October, it started charging a 15 bps ‘interface fee’ on swaps involving specific cryptocurrency pairs, including ETH-USDC or ETH-USDT. This fee is relatively significant compared to the standard fees incurred on major centralized exchanges. Additionally, there was a 5 bps 'protocol fee' that could be determined by voters. 

Observing the swap volume on the USDC/ETH pool: it has consistently exceeded an average volume of over $150 million per day. Over the past 24 hours, the volume has surged to over $400 million. Therefore, the additional 15 bps 'interface fee' could easily generate over $80 million in yearly revenues. 

Until now, the Uniswap Foundation has been hesitant to propose rewards for stakers other than liquidity providers (LPs). Currently, LPs receive UNI tokens as rewards for providing liquidity to a DEX pool. These LPs are required to stake their UNI tokens to receive rewards proportional to their liquidity contribution. 

The foundation refrained from proposing a staking program for holders other than LPs due to concerns about UNI satisfying the Howey test. Granting rewards to stakers/delegates who are not LPs falls within the scope of the Howey Test in the US. Uniswap, headquartered in the US, aims to avoid attracting attention from the SEC. Uniswap Labs was already under investigation by the SEC in 2021, as reported by the Wall Street Journal, and likely remains under scrutiny regarding its token listings. 

Essentially, one crucial question to avoid falling within the scope of the Howey Test could be: Are stakers actively contributing to the management of the protocol, or are they merely passive investors unrelated to the protocol's core revenue-generating operations? 

Back to the main topic for this week: the market rally. 

This is the latest report on Bitcoin ETF netflows published this morning by Bitmex Research. 

The net inflow is nearly $1.1 billion over the past two days, with BlackRock and Fidelity still leading the pack. BlackRock’s ETF saw injections of $520 million yesterday, marking a daily record for the fund. 

The market has never been so transparent. BlackRock's demand continues to surpass any supply currently provided by miners or whales in general. 

In fact, the miners' reserve has increased this week. It's up by 14,000 Bitcoins in the past 2 days according to the block. Additionally, yesterday, we witnessed the largest upward move since January 9th. 

With inflows of such intensity, it's not particularly surprising to see the market increase by nearly 5% every day. 

Additionally, Bitcoin ETFs have altered the market's behaviour and its microstructure. Prices are experiencing more substantial increases on weekdays. Volumes are more concentrated near the US market close (4pm ET), and market depth has significantly improved, although the improvement in market depth measured in BTC is only marginal. 

In the futures market, funding costs reached record levels on Binance. Yesterday, long positions were paying more than 20 bps per day to maintain their positions on Binance or OKEx. 

The Bitcoin futures Open Interest reached a new all-time high of $25 billion according to Coinglass. On the CME, it reached $7.8 billion. This represents almost a tripling since October. 

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