Key Points from ‘Risk-Off Capital Rotation – Week 23, 2023‘ published by On-chain analytics firm Glassnode
The analysis discusses the current state of the digital asset market, highlighting indicators of a risk-off rotation of capital and a preference for stablecoin capital. The price of Ethereum (ETH) has remained range-bound, with low volatility since mid-March. However, there are underlying shifts in market preference, including decreased trade volumes, increased automated usage of decentralized finance (DeFi) protocols, and a growing preference for stablecoins, particularly Tether (USDT).
The analysis explores the rise in automated arbitrage, driven by trading activity on decentralized exchanges like Uniswap. The top traded pools on Uniswap reveal that the highest volumes are associated with larger market cap assets like ETH, stablecoins, and derivatives such as cbETH. The analysis indicates that a significant portion of Uniswap’s trading volume is generated by MEV (Miner Extractable Value) bots engaging in arbitrage transactions.
While trading bots may be perceived as harmful to Ethereum end-users, they provide benefits to Ethereum validators through increased rewards and MEV-boost payments. This trend favors staked ETH as a primary asset within the Ethereum ecosystem and establishes a hurdle rate for tokens seeking capital flows.
Furthermore, the article discusses capital rotation moving towards stablecoins and Bitcoin (BTC) as liquidity decreases. Futures trading volume has contracted, indicating weak institutional interest and liquidity. On-chain data shows a shift in investor preference, with ETH’s dominance in capital flows declining and a potential transition of capital back towards stablecoins.
The analysis also mentions the outflows from stablecoins, primarily USDC and BUSD, potentially reflecting a geographical preference for USDT outside the US. Similarly, there is a reversal in supply dominance among different geographical regions for BTC.
Overall, the trends suggest a risk-off environment with capital concentrating in more liquid assets, such as BTC, and a growing preference for stablecoins. The article highlights the influence of factors like interest rates, regulatory environments, and access to US capital markets on the market dynamics.
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