The past three months have seen significant developments in the crypto market. While Bitcoin's price mostly ranged between $50,000 and $60,000 with some fluctuations, important shifts were happening behind the scenes.
The market showed increased liquidity and complexity this quarter. Institutional interest remained strong, with US spot Bitcoin ETFs attracting $5 billion in net inflows, indicating sustained participation despite occasional volatility. Ethereum staking reached an all-time high, reflecting traditional finance exploring new ways to engage with digital assets. Meanwhile, stablecoins continued to be one of crypto's most widely used applications, with their market capitalization reaching a record $170 billion, demonstrating their ongoing utility in cross-border transactions and beyond.
This report provides a comprehensive overview of the forces driving these trends and explores potential transformations and directions for major assets, particularly Bitcoin and Ethereum, as we approach year-end.
Market Overview
Both Bitcoin and stablecoins saw their dominance rise in Q3 as market participants were drawn to higher-quality assets.
As the market matures, BTC and ETH have shown a significant trend of decreasing volatility.
Throughout the third quarter, perpetual swap funding rates traded within a narrow range, indicating a balance between buyers and sellers.
US spot BTC ETFs attracted over $5 billion in net inflows during Q3.
After several weeks of outflows, US spot ETH ETF flows rebounded toward the end of the third quarter.
The basis (CME futures minus spot) for both BTC and ETH declined throughout Q3.
Extreme basis fluctuations, whether positive or negative, often correlate with significant shifts in market sentiment.
Cryptocurrencies demonstrated low or negative correlation with all major asset classes.
Since 2020, Bitcoin's average correlation with the S&P 500 has been just 0.33, and with gold merely 0.13.
Stablecoin Surge
The total stablecoin market capitalization reached a new all-time high of nearly $170 billion in Q3 2024, coinciding with the implementation of new rules under the EU's Markets in Crypto-Assets (MiCA) regulation.
Both developments reflect stablecoins' growing mainstream adoption and recognition of their advantages, including speed, cost efficiency, and security. Stablecoins are increasingly being used to build payment systems, facilitate remittance payments, and streamline cross-border transactions.
The integration of stablecoins into existing payment systems represents just one example of cryptocurrency's expanding role in the real economy.
As market participants continue to utilize stablecoins for various new and existing use cases, their supply reached record levels in the third quarter.
Year-to-date stablecoin transaction volume has surged to nearly $20 trillion.
Layer 2 Developments
As we entered the fourth quarter, ETH's price hovered near its January levels. Beyond price, however, a rapidly growing Ethereum ecosystem has emerged, primarily driven by innovative new Layer 2 solutions.
As developers and end-users continue migrating to these blockchain layers, both active user numbers and transaction volumes have risen dramatically. Following Ethereum's Dencun upgrade, L2 fees have decreased significantly.
While the distribution of activity between Ethereum L1 and various L2s remains to be seen, L2s have brought more users, activity, and innovation to the Ethereum ecosystem.
Daily active addresses in the Ethereum ecosystem have risen sharply this year, with L2s showing the most significant growth and Base taking a leading position.
With new L2s and use cases flourishing, the number of daily transactions in the Ethereum ecosystem has increased fivefold since early 2023.
Following Ethereum's Dencun upgrade in March 2024, which substantially reduced L2 transaction fees, total fees paid have decreased significantly despite surging transaction activity.
Bitcoin (BTC) Analysis
The current BTC cycle closely correlates with the 2015-2018 and 2018-2022 cycles, which delivered total returns of nearly 2,000% and 600% respectively.
Bitcoin has experienced four market cycles, each consisting of bull and bear markets. This chart illustrates how the current market cycle (beginning in 2022) compares to previous cycles. (Past performance does not indicate future results)
BTC's performance since the fourth halving most closely resembles that following the third halving, when prices consolidated for several months before rising dramatically within a year post-halving.
This chart measures Bitcoin's total returns during each halving cycle or period. Following halving events, prices tend to trade sideways, as they have during the six months since the April 2024 halving. However, prices increased significantly within 12 months after the first three halvings. After the first halving, prices rose over 1000% in the first 12 months. Following the second halving, prices increased 200% in the first 12 months. After the third halving, prices climbed over 600% in the first 12 months. Since the fourth halving on April 19, 2024 (black line), Bitcoin's price has declined 1.2%.
By the end of Q3, just nine months after launch, US spot BTC ETFs had reached nearly $60 billion in assets under management.
Crypto market liquidity continues to strengthen. Year-to-date, BTC trading has averaged $2 trillion monthly, representing 76% growth compared to the same period last year.
Bitcoin derivatives open interest averaged $44 billion during Q3 2024.
Following significant long liquidations in early August 2024 related to the unwinding of Japanese yen short carry trades, Bitcoin positions appear healthier.
BTC Derivatives Summary
BTC Traditional Futures Specifications
Throughout Q3, the balance between liquid and illiquid BTC supply remained relatively stable.
As markets traded sideways, sentiment shifted from greed to fear, potentially setting the stage for the next rally.
Ethereum (ETH) Analysis
After closely tracking the 2018-2022 cycle, the current ETH cycle has begun to diverge as prices retreated during Q3.
ETH has experienced two full market cycles, each consisting of bull and bear markets. This chart illustrates how the current market cycle (beginning in 2022) compares to previous cycles. In the current cycle, ETH has gained over 125% since hitting cycle lows in November 2022. (Past performance does not indicate future results)
US spot ETH ETFs launched in July and reached $7.1 billion in total assets by the end of Q3.
Crypto market liquidity continues to expand. ETH's average monthly trading volume reached $930 billion in 2024.
ETH derivatives open interest averaged $15 billion in Q3 2024.
Following the US launch of spot ETH ETFs and the early August unwinding of Japanese yen short carry trades, ETH experienced a significant spike in long liquidations.
ETH Derivatives Summary
ETH Traditional Futures Specifications
Despite rising fees toward the end of Q3, ETH issuance continued to show net inflation.
As more holders sought to generate yield from their positions, ETH staking reached record levels in Q3.
The amount of ETH locked in DeFi increased by 11% during the third quarter.
Staking has become a primary sink for ETH liquidity.
As ETH prices retreated, market sentiment shifted from greed to fear, potentially setting the stage for the next rally.
Frequently Asked Questions
What drove Bitcoin and stablecoin dominance in Q3 2024?
Market participants increasingly favored higher-quality assets during this period, leading to increased dominance for both Bitcoin and stablecoins. Institutional flows into Bitcoin ETFs and growing stablecoin utilization for payments and cross-border transactions contributed significantly to this trend.
How has Ethereum staking changed market dynamics?
The surge in ETH staking has created a substantial liquidity sink while providing yield opportunities for holders. This development reflects traditional finance's growing interest in crypto yield generation and has helped stabilize portions of the ETH supply amid market fluctuations.
Why are Layer 2 solutions important for Ethereum's growth?
L2 solutions have dramatically reduced transaction costs while increasing throughput capabilities. This has enabled more users and developers to participate in the Ethereum ecosystem without facing prohibitive fees, ultimately driving innovation and adoption across the network.
What correlation exists between cryptocurrencies and traditional assets?
Cryptocurrencies have maintained low correlation with traditional asset classes, with Bitcoin showing just 0.33 correlation with the S&P 500 and 0.13 with gold since 2020. This makes crypto assets potentially valuable for portfolio diversification strategies.
How might the next Bitcoin halving affect prices?
Historical patterns suggest that after periods of consolidation following halving events, Bitcoin prices have experienced significant increases within 12 months. However, past performance doesn't guarantee future results, and market conditions continue to evolve with each cycle.
What role do stablecoins play in the current crypto ecosystem?
Stablecoins have become fundamental infrastructure for crypto markets, facilitating trading, payments, and cross-border transactions. Their record $170 billion market cap demonstrates their critical role in connecting traditional finance with digital asset ecosystems. For those looking to explore advanced trading strategies involving stablecoins, understanding their mechanics is essential.
The crypto market continues to mature with increasingly sophisticated products and participants. As institutional adoption grows and regulatory frameworks develop, the ecosystem is positioned for further evolution in the coming quarters.