Bitstamp Monthly Briefing – January 2024

Welcome to 2024's crypto revelations in our January Monthly Briefing! Each month, we carefully curate and discuss notable crypto events and trends, providing you with a comprehensive look into what's shaping this dynamic industry. This January, we're focusing on the intricacies of crypto lending and borrowing, and the major global events forecasted to impact the crypto market in 2024. We aim to equip you with the knowledge and insights necessary to navigate the ever-changing world of cryptocurrency and blockchain technology.

Let's get straight into it!

Monthly recap: January 2024

The total crypto market cap decreased by 1.3% month-over-month, reaching $1.58 trillion at the end of January. Trading volume on the leading crypto spot exchanges we monitor experienced a 5% increase during this period.

TC's market dominance rose by 1.1 percentage points month-over-month to 52.7%.

Source: Total crypto market cap, Bitcoin dominance

Best performing CMC 100 assets in January

• + 115.3% Pendle (PENDLE) - Price surged following a strategic partnership announcement with Ondo Finance.
• + 95.9% Sui (SUI) - Protocol's brief entrance into the top 10 DeFi projects by total value locked signaled bullish prospects for the price.
• + 51.3% Ronin (RON) - Price was further driven by positive network growth metrics.

Worst performing CMC 100 assets in January

• - 34.7% SATS (100SATS) - Bearish price momentum coincided with decreased inscription fees and a falling BTC price.
• - 31.1% BitTorrent (BTT) - Price declined as the December’s rally failed to maintain high levels.
• - 28.6% Algorand (ALGO) - Price declined following its failure to breach the $0.20 resistance.

Key macro & crypto events in February 2024

• February 13: US Consumer Price Index data
• February 13-15: The Blockchain Event (ITexpo)
• February 13 - March 3: ETHDenver
• February 21: FOMC Minutes
• February 21: ECB non-monetary policy meeting in Frankfurt
• February 23-24: NFT Paris
• February 26-29: MWC Barcelona

Maximizing the utility of your crypto portfolio – Lending and Borrowing

This month, we are exploring the world of crypto lending and borrowing. Lending and borrowing products enable users to leverage their crypto holdings to access additional capital or earn rewards on assets they lend. While popular in Decentralized Finance (DeFi) for years, these services are now increasingly available on centralized crypto platforms too. 

Understanding the basics is the first step to safely making the most of your crypto portfolio.

First, we examine how you can use your crypto holdings for access to more capital, or borrow, by exploring various forms of cryptocurrency loans:

• Collateralized loans, the most common type, require users to deposit cryptocurrency as collateral, often involving overcollateralization. The loan-to-value (LTV) ratio affects interest rate, and a lower LTV mitigates the risk of margin calls.
• Crypto lines of credit are offering collateralized lines without predefined repayment terms. Users can borrow a specified percentage against their deposited collateral.
• Uncollateralized loans, similar to personal loans, require an application, identity verification, and creditworthiness review
• Flash loans enable instant borrowing and repayment within a single transaction. These high-risk loans are favoured for exploiting market arbitrage opportunities, quickly capitalizing on price differences between markets.

Most loans feature instant approval since the borrowing terms are defined in a smart contract, and all transfers occur on-chain. It's important to note that borrowing crypto carries risks. Margin calls become a threat when the value of pledged collateral decreases, necessitating additional crypto deposits or risking asset liquidation.

Deposited assets may often become illiquid due to varying withdrawal times across platforms.  Additionally, some borrowing options have high interest rates, often exceeding 5% APR and reaching up to 13% or more. 

Next, let's explore crypto lending, where cryptocurrency holders lend out their assets to earn rewards/generate yield. Think of this as putting your crypto to work to make more money, which is a perfect scenario if you intend to hold your crypto for a longer term. Crypto lending platforms and products typically cater to retail lenders on one side, lending crypto to larger market makers or institutional borrowers on the other.

This setup allows smaller retail lenders to earn rewards that can range from 2% APR to 6% or even more. The crypto lending platforms, however, can better manage risk as they are working with fewer large borrowers. 

Although crypto lending can vary in many details, such as restrictions on borrowers, length of the lending period or others, there are two main types of crypto lending:

• Flexible lending offers no lock-in periods, meaning lenders can recall lending crypto anytime, thus providing greater liquidity freedom in portfolio management.
• Stable lending features a pre-defined lock-in period, which lenders must agree to when lending their crypto holdings. Shorter lending periods often offer lower APR, but enable the lender to have more flexibility.

Like borrowing, crypto lending carries risks. To mitigate those risks, the lending platform can apply different measures such as ensuring proper due diligence on the borrowing entities, thoughtfully designing the terms of the borrowing agreements and requiring borrowers to fully or overcollateralize when borrowing.  

Trust and transparency are other important factors to consider when using lending products. At Bitstamp, we provide data and insights into lending product performance every month, with the Monthly Lending Performance Report. The report provides a comprehensive view of lending performance, including lending pool and yield performance, borrower risk profiles, collateral levels and leverage, portfolio concentration and risk profiles for each category of borrowers. See our latest report from December here.

Recommended reads

Key event to watch in 2024 by Blockchain Coinvestors

Blockchain Coinvestors anticipate 2024 as a crucial year for the blockchain landscape, emphasizing pivotal developments. Their 2024 predictions include four key events: the UK election, the implementation of MiCA in the EU, the US election, and interest rate cuts.

Assessing the health of Bitcoin by Lyn Alden

This article emphasizes the need for comprehensive metrics to evaluate Bitcoin investments and assess the health of the Bitcoin network. It goes beyond price charts, highlighting the network's open-source nature with millions of users and various ecosystems. Alden underscores the importance of firsthand experience with Bitcoin, explores its global use cases, and provides key metrics for assessing network health, including market capitalization, liquidity, conversion points, technical security, decentralization, user experience quality, legal acceptance, and global recognition.

Memetic Backed Value; An exploration of building an engaging community through memes by Boffin  

This blog post explores the concept of community, particularly in the crypto space, emphasizing the importance of genuine engagement beyond mere follower counts. It highlights the significance of memes as a form of cultural expression and communication. The article introduces the concept of "Memetic Backed Value" (MBV) or the idea that memes can contribute intrinsic value to a community. The discussion revolves around Monad, a crypto project, and its approach to building a community centered around memes.

The history of the ETF by Angelo Calvello

With the highly anticipated approval of Bitcoin ETFs now behind us, this article emphasizes that the concept of ETFs itself traces back over 30 years to the creation of the first ETF, the Standard & Poor’s Depositary Receipt (SPDR), in 1993. The SPDR, designed to track the S&P 500, revolutionized the asset management industry by democratizing investing and creating a global financial ecosystem. The article explores the historical developments, challenges, and innovations that led to the creation of ETFs, suggesting that the January approval of bitcoin ETFs could mark a new era in the cryptocurrency market.

Minting NFTs: what the on-chain data tells us about the primary NFT market by Sealaunch

The article explores the evolution of NFT minting beyond speculation within the Ethereum blockchain. It discusses how minting has transformed into immersive on-chain experiences involving media, social actions, and marketing campaigns. The analysis focuses on the NFT primary market on Ethereum, renowned as the "NFT value layer," and examines on-chain data to provide insights into the current state and future trends of NFT mints. Additionally, the article explores Layer 2 EVM networks, highlighting their rising popularity in 2023 due to lower transaction costs, increased scalability, and enhanced accessibility for NFT activities.

------------------------------------------------------------------------------------------

No information in this blog is intended to provide any personal investment services or advice nor is it an investment recommendation. Clients are responsible for making their own investment decisions. Bitstamp accepts no responsibility for any damage and/or loss arising from the use of information provided herein. Past performance is not necessarily an indicator of future results. Please consider your individual position and financial goals before making an independent investment decision.

Bitstamp is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Licensed as a Money Transmitter by the New York State Department of Financial Services

Not offered in the following states: Hawaii and Nevada

Bitstamp UK Limited is registered with the Financial Conduct Authority under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

"This webpage has been approved as a financial promotion by Bitstamp UK Limited which is registered with the UK’s Financial Conduct Authority. Please read the Risk Warning Statement before investing. Cryptoassets and cryptoasset services are not regulated by the Financial Conduct Authority. You are unlikely to be protected if something goes wrong. Your investment may go down as well as up. You may be liable to pay Capital Gains Tax on any profits you earn."