This article is compiled and organized by BlockWeeks
From market prices to on-chain data, from private investment metrics to regulatory progress, the evidence that Bitcoin and the entire cryptocurrency industry are in a historic growth phase is hard to ignore. Galaxy Research has sorted out ten key clues and 15 charts to outline the full picture of this market cycle.
1. Bitcoin Takes Off Along with Inflation Expectations
Since hitting a low of about $29,000 on July 20, Bitcoin has staged an epic rally, gaining more than 100% in 90 days. Ethereum rose more than 110% over the same period. Both significantly outperformed the public stock market. Most notably, Bitcoin simultaneously exhibited both the attributes of a risk asset and those of a gold-like inflation hedge.
Several factors supported this rally:
Inflation expectations are at trend highs and continue to rise. As inflation becomes evident across multiple sectors of the economy, inflation expectations continue to climb. Bitcoin's correlation with inflation expectations is nearly perfect, while gold has been weak over the same period, which to some extent shows that the market is beginning to accept the narrative that "Bitcoin is digital gold." Bitcoin's market capitalization has now reached 10% of the above-ground stock of gold.
Risk appetite has returned. The Nasdaq Composite and S&P 500 rebounded in October and are currently only slightly below the all-time highs set in August, with risk appetite clearly recovering. Bitcoin benefits from rising inflation expectations and is also widely regarded as a risk asset. This dual attribute of being "both a risk asset and a gold-like alternative" makes it particularly attractive in the current environment.
Resilient performance on down days. On the 10 worst trading days for the Nasdaq from September to October, the Nasdaq fell an average of 1.16%, while Bitcoin fell only 0.54% on average over the same period, outperforming the broader market. The same is true in the bond market: on the 10 worst sell-off days for 10-year U.S. Treasuries (when 10-year Treasury yields rose an average of 5.4 basis points), Bitcoin was essentially flat. This phenomenon has been noticed by both traditional and crypto-native trading desks.
ETF approval. The first exchange-traded fund tracking Bitcoin, the ProShares Bitcoin Strategy ETF (NYSE ticker: BITO), was approved and listed the same day, marking an important milestone for Bitcoin and the crypto market. Although BITO gains exposure through CME futures (rather than the more efficient spot product), and the much-anticipated spot ETF appears unlikely to be approved in the short term, the emergence of a U.S.-domestic public investment vehicle will allow a broader group of investors to allocate to Bitcoin.
Capital flowing back to Bitcoin from DeFi, altcoins, and NFT trading. After Bitcoin peaked in April and the broader market peaked in May, many funds shifted their attention to DeFi and then to alternative layer-1 public chains such as SOL, AVAX, and LUNA. As the BTC rally restarted, many funds found themselves structurally underweight Bitcoin, and capital flowing back pushed Bitcoin's market share higher.
During these extraordinary 90 days, Bitcoin futures open interest rebounded to levels not seen since the April peak. A large portion of the incremental increase came from the recovery in CME futures market share, meaning that "risk-free" basis trades are returning. If the premium of the basis over spot persists, it will attract more institutions to adopt a "buy spot, sell futures" strategy, which itself is bullish for the spot price.
2. Hashrate Recovers, the United States Takes the Top Spot in Bitcoin Mining
The latest data from the Cambridge Centre for Alternative Finance confirms industry observations: after years of growth, the United States now holds the largest share of global Bitcoin mining.
Cambridge's study is generally regarded as one of the highest-quality estimates of global mining distribution, but caution is still needed when interpreting the results, as its methodology has several known issues—the data comes from mining pool sampling. First, although the mining pool sample covers about 40% of hashrate, it is not fully representative: in a landscape basically composed of Chinese mining companies, the inclusion of Foundry, a rare American mining pool, biases the results toward the United States to some extent, though the final conclusion is consistent with industry expectations. Second, the IP addresses collected by mining pools can be spoofed via VPN, which explains the underestimated 0% share for China in the latest study—despite mining restrictions, this is clearly inconsistent with reality; other jurisdictions with strict regulation may likewise be underestimated. Conversely, European VPN hotspots with strong data privacy laws, such as Ireland and Germany, are significantly overestimated.
When writing our analysis of China's ban on Bitcoin mining, we predicted that hashrate would migrate to more friendly jurisdictions, including the United States, but we did not expect the migration and hashrate recovery to be so fast.
3. Ethereum Remains the "Ledger Layer" for Tokens
More than 60 million Ethereum accounts hold non-zero balances, the most among all public chains. According to ConsenSys data, MetaMask, the most widely used DeFi and Web 3.0 wallet, has more than 10 million monthly active users. As usage of DeFi, NFT issuance, and other use cases rises, Ethereum smart contract usage is also at historic highs.
Even as layer-2 networks and alternative layer-1 public chains rise significantly, their reliance on Ethereum cross-chain bridges further reinforces Ethereum's central position and importance as the "ledger layer" for tokens.
4. Layer-2 Networks Accelerate Adoption
With increased exchange adoption, usage in El Salvador, and the spread of simpler and more powerful DIY home Bitcoin node solutions, the Bitcoin Lightning Network is growing parabolically.
Arbitrum One, an Ethereum layer-2 network based on optimistic rollup, has already accumulated considerable usage just over a month after launch. Usage of Ethereum layer-2 networks is growing, bringing significant scaling benefits.
The total value locked (TVL) in DeFi applications and protocols has surpassed $220 billion, a 24x year-over-year increase—in October 2020, that figure was only $9.2 billion. The summer of 2020 was called "DeFi Summer" because of the surge in DeFi adoption, but TVL never exceeded $9 billion during that phase. Since then, projects have continued to refine incentive strategies and deploy them on lower-barrier layer-1 public chains and layer-2 protocols to maximize growth, bringing faster, simpler, easier-to-use, and more profitable DeFi experiences.
A note on TVL: TVL measures the dollar value of tokens deposited as collateral in lending, market-making, and yield-aggregation applications. Because users use recursive re-collateralization techniques (borrowing against one set of collateral and re-depositing the borrowed funds into the same or other protocols) to add leverage, this figure contains a lot of "double counting," and sometimes even multiple counting. But the complexity of these strategies cannot actually be fully disentangled using on-chain data, so TVL remains the best proxy for measuring DeFi growth.
5. NFTs Break Out, Trading Heat Continues
This summer, non-fungible tokens (NFTs) broke out of the crypto ecosystem and into the public eye, with large investors, brands, celebrities, and traditional institutions all participating. Although there is a perception that enthusiasm faded after the August boom, trading volume remained strong in September and is expected to be so in October as well.
Despite some fluctuations in NFT market prices, the number of daily addresses interacting with NFTs continues to rise.
6. Venture Capital Floods In, Crypto Private Investment Hits Record High
In the third quarter, venture capital firms invested a record amount of more than $8 billion in crypto startups. The sustained and growing interest in VC allocations shows long-term institutional demand for exposure to the crypto ecosystem.
VC demand is so strong that competition for allocation has become intense: many large funds are trying to deploy capital into a relatively limited number of startups. Combined with the growing maturity of the crypto ecosystem (more later-stage deals), median valuations have been pushed to historic highs, more than 70% above the overall venture capital market.
7. Congressional Allies Speak Up for the Industry
Against the backdrop of major regulatory developments and pending legislation that could affect the crypto ecosystem, industry advocates have significantly increased their presence in Washington and achieved notable results. According to their count, at least 17 U.S. senators clearly support or lean toward supporting the crypto industry based on public statements and voting records, while another 11 are regarded as neutral. Combined, more than a quarter of the U.S. Senate is not regarded as opposed to the crypto industry—a major step forward in just a few years.
The increase in congressional support is in sync with growing adoption by retail and institutional investors. A report released by Crypto.com in June showed that more than 221 million people hold cryptocurrencies (including 114 million holding BTC and 23 million holding ETH). Fidelity's July survey of institutional investors showed that 52% of institutional investors had allocated to digital assets (including financial advisors, family offices, pensions, crypto hedge funds and venture capital funds, traditional hedge funds, endowments and foundations, and high-net-worth individuals), and 70% held a neutral-to-positive view of digital assets.
8. The Stablecoin Ecosystem Continues to Expand
The stablecoin ecosystem can be viewed as a proxy for capital inflows—USDT is widely used in offshore deposit scenarios. Over the past year, the ecosystem has grown sharply.
9. Total Crypto Market Cap Hits a New All-Time High
This week, the total market capitalization of cryptocurrencies broke through its previous all-time high, surpassing $2.6 trillion.
