The challenging year of 2020 concluded its third quarter, marking a period of significant transformation across global financial markets. From the severe crash in Q1 to the robust recovery and strong performance in Q3, the crypto market has been a focal point of investor attention.
This analysis delves into the performance of various crypto sectors, compares them with traditional assets, and explores what the future might hold.
Overall Market Performance: Nearing $400 Billion
The total market capitalization of cryptocurrencies closed Q3 at approximately $343.88 billion, representing a solid 31.9% increase for the quarter. Although this growth rate was slightly lower than Q2's 46.5% surge, the market successfully breached the $300 billion mark, with a peak near $393.3 billion in early September.
Trading volume also saw a healthy rise. The average daily trading volume for Q3 reached $115.96 billion, a 27% increase from the previous quarter. A notable spike occurred in mid-September, with single-day volumes exceeding $200 billion for several days and peaking at over $283 billion.
Top Ten Cryptocurrencies: DOT and LINK Break Into the Elite
The ranking of the top ten cryptocurrencies by market cap saw some reshuffling. Ethereum continued its strong performance, while EOS fell out of the top ten. Binance Coin (BNB) climbed to fifth place.
The most significant story was the ascent of DeFi-related assets. Chainlink (LINK), a decentralized oracle network, saw its valuation soar, briefly touching the top five and consistently securing a spot in the top ten by quarter's end. Polkadot (DOT), following its network redenomination, also experienced massive growth and entered the top ten list.
- Top Q3 Performers (Top 10): LINK (+115.27%), DOT (+107.66%), BNB (+90.24%)
- Volatility Leader: LINK also exhibited the highest volatility (amplitude of 176.29%), while Bitcoin remained the most stable, indicating its maturing market position.
- Monthly Breakdown: July and August were dominated by LINK and ETH's growth, while September saw a market-wide correction, with BNB being one of the few assets that ended the month in positive territory.
Bitcoin: Holding Firm Above $10,000
Bitcoin had an exceptionally strong quarter, closing with a 17.55% gain and reaching a quarterly high near $12,500. This performance made Q3 2020 one of Bitcoin's best third quarters on record, drawing comparisons to its historic 2017 bull run.
The rally was primarily fueled in July, which saw a 23.74% price increase, including a remarkable 10-day winning streak. After consolidating between $11,000 and $12,000 for much of August, BTC faced a correction in September, testing the $10,000 support level before closing the quarter above $10,700.
Key Bitcoin Network Metrics:
- Transaction Value: The total USD value of on-chain transactions grew 25% quarter-over-quarter to $225 billion.
- Miner Revenue: Network transaction fees surged, with miner income from fees increasing by 88% compared to Q2.
- Dominance: Bitcoin's market dominance fell below 60% for the first time in over a year, dipping as low as 55.95%, sparking discussions about a potential "altcoin season."
- Mining Difficulty: The network's mining difficulty reached a new all-time high, climbing 22.3% throughout the quarter to 19.3 T.
Exchange Tokens: BNB Leads the Pack
Exchange-based tokens delivered mixed results amid the DeFi boom. Among the major exchange tokens, Binance's BNB was the clear standout, recording a 90.24% quarterly gain and leading in maximum upside potential (+117.04%).
This growth was driven by two key factors: Binance's continuous initial exchange offering (IEO) launches and its aggressive strategy in the DeFi space, including the launch of its "New Coin Mining" section and the Binance Smart Chain.
Other exchange tokens like ZB also performed well (+44.68%), while others like MX showed signs of fatigue after previous rallies. On a year-to-date basis, OKB and BNB have been the strongest performers, with cumulative gains of 135% and 113%, respectively.
Stablecoins: Unstoppable Growth and DAI's Rise
The stablecoin market continued its explosive growth in Q3. The total supply of stablecoins grew from $11.94 billion to $20.06 billion, a massive 68% increase. This growth accelerated from Q2's 53.2% rate.
- Tether (USDT): remained the dominant force, with its supply growing 53.8% to $155.5 billion. However, its share of the total stablecoin market decreased from 84.6% to 77.6%.
- Emerging Stablecoins: The ranking behind USDT shifted. USD Coin (USDC) solidified its second-place position with 248% growth. The biggest story was the rise of the decentralized stablecoin DAI, which saw a 221% increase in supply due to its critical role in the DeFi ecosystem, breaking into the top three.
Derivatives: Ethereum Options Steal the Show
Sentiment in the derivatives market was overwhelmingly bullish. The BTC Long/Short Ratio on major exchanges saw a dramatic increase, peaking at over 17, indicating heavy leverage on long positions.
While Bitcoin futures daily volume was volatile and ended the quarter slightly lower, open interest reached new all-time highs, suggesting strong institutional involvement and a mature market.
The most dramatic growth was in the options market, particularly for Ethereum.
- Bitcoin options trading grew steadily, with open interest rising 55.5%.
- Ethereum options activity exploded. Quarterly trading volume surged 343% compared to Q2, and daily volume hit a record high of $706 million, representing a staggering 1402% increase from the start of the quarter.
DeFi Market: Exponential Growth and a Reality Check
Decentralized Finance was the undeniable narrative of Q3. The total value locked (TVL) in DeFi protocols skyrocketed from $1.9 billion to over $11.2 billion, a near 500% increase.
- BTC and ETH Locked: The amount of Bitcoin locked in DeFi grew an astonishing 1350%, while locked Ethereum saw a 171.3% increase.
- DEX Volume: Decentralized exchange (DEX) trading volume grew 700% in Q3, significantly outpacing the 70% growth of centralized exchanges. Uniswap captured a dominant 63% market share among DEXs.
- Token Performance: While "yield farming" projects like SushiSwap captured headlines, many were short-lived. First-generation DeFi tokens generally performed better. Band Protocol (BAND) was the quarter's star, posting a 492% gain.
Traditional Markets: Equities and Gold Hit Records
Traditional markets also enjoyed a strong quarter. U.S. equity indices like the S&P 500 and Nasdaq Composite reached new all-time highs, with quarterly gains of 8.47% and 11.02%, respectively.
Gold, the classic safe-haven asset, broke the $2,000 per ounce barrier for the first time in history before closing the quarter with a 5.78% gain.
Bitcoin vs. Traditional Assets:
- Performance: Bitcoin's 17.55% return outperformed major stock indices and gold in Q3.
- Correlation: A significant development was the rising correlation between Bitcoin and traditional markets. Bitcoin's 30-day correlation with the S&P 500 ended the quarter at 51.2%, and its correlation with gold also turned positive, briefly exceeding 50%. This suggests Bitcoin is increasingly being traded as a risk-on/risk-off asset alongside equities, rather than as an uncorrelated safe haven.
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Frequently Asked Questions
What was the best-performing cryptocurrency in Q3 2020?
Among the top ten cryptocurrencies by market cap, Chainlink (LINK) was the best performer with a gain of over 115%. In the broader DeFi sector, Band Protocol (BAND) saw gains of nearly 500%.
Did "altcoin season" happen in Q3?
There were signs of its beginning. Bitcoin's market dominance fell below 60% for the first time in over a year, and many major altcoins significantly outperformed Bitcoin throughout the quarter, which are classic indicators of an altcoin season.
How did Bitcoin's performance compare to the stock market?
Bitcoin's 17.55% return in Q3 outperformed major U.S. stock indices like the S&P 500 (8.47%) and the Nasdaq (11.02%). However, it's important to note that their correlations increased, meaning they often moved in the same direction.
Why did stablecoin supply grow so much?
The massive growth in stablecoin supply was primarily driven by demand for liquidity in cryptocurrency trading and, crucially, for use as capital in DeFi yield farming and liquidity provision activities.
What is the significance of rising Bitcoin-Traditional Market correlation?
A rising correlation suggests that macroeconomic factors affecting stocks are also influencing Bitcoin. This means Bitcoin is becoming more integrated into the traditional financial system but may be less effective as a portfolio diversifier during broad market downturns.
What was the most surprising trend in crypto derivatives?
The explosive, exponential growth of the Ethereum options market was the standout trend. Its growth rate far surpassed that of Bitcoin options, highlighting the massive demand for leveraged exposure and hedging solutions within the Ethereum and DeFi ecosystem.