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The Hard Fork – Weekly Market Commentary

This Week’s Topics:
1) BitMEX outflows increase after legal concerns
2) LMAX Digital sees highest volume month ever, gains market share
3) TVL deposited in DeFi hits new high


Indices Round-up


TradeBlock Index Asset1 Price ($) 7d∆2
XMRX Monero 106.45 10.25%
ZCX Zcash 62.53 8.15%
XRX XRP 0.25 1.76%
LTX Litecoin 46.32 -0.10%
ECX Ethereum Classic 5.76 -0.28%
XBX Bitcoin 10680.40 -1.83%
ETX Ethereum 351.64 -2.09%
EOSX EOS 2.51 -3.52%
XLMX XLM 0.07 -3.82%
BCX Bitcoin Cash 219.89 -4.75%
1. Underlying asset sorted in descending order by 7 day price movers.
2. 7 day price movers monitored from 09/28/2020 06:00 ET thru 10/0-5/2020 06:00 ET.


7 day price movers
Digital currencies posted mixed results on the week while volatility declined to a recent low despite market concerning headlines. Digital currencies brushed off the recent BitMEX investigation as well as concerns associated with US President Donald Trump’s COVID-19 diagnosis and hospitalization. Among our indexed currencies, monero traded up the most, gaining 10.25%. Conversely, bitcoin cash traded down the most, declining 4.75% on the week.

In traditional markets, US equities traded up, with the S&P 500 rising 50 bps despite choppy trading sessions during the week. US bond yields were little changed on the week except for a modest drop on Friday immediately following Trump’s announced COVID-19 diagnosis.

1) BitMEX outflows increase after legal concerns
This week, US regulators charged one of the largest crypto derivatives exchanges, BitMEX, with “executing futures transactions on an unregistered board, offering illegal options, failing to register as a futures commission merchant, failing to register as a designated contract market, failing to implement proper KYC rules and other counts.” The exchange’s CTO, who resides in the US, was arrested shortly after announcement in Massachusetts–the other individuals charged, including the firm’s CEO, do not reside in the US.

Following the announcement, users rushed to withdraw assets fearing funds could be frozen amidst an investigation. So far there have been no reported issues with withdrawals being processed as normal. Since news broke, more than 25,000 bitcoin (~$260 million) were withdrawn from the exchange–a large percentage of which went to other exchanges (~65%) and a minority percentage went to private wallets.

The recent charges by US regulators did not necessarily come as complete surprise, as the CFTC had been investigating the exchange since 2019. Nonetheless, the legal challenges for BitMEX pose risks to other exchanges which operate similarly. A large scale shutdown across derivatives exchanges could have a serious negative impact on market liquidity.

2) LMAX Digital sees highest volume month ever, gains market share
We have focused a considerable amount of attention recently on the rise of decentralized exchanges, as Uniswap and others saw exponential growth in trading volumes. Alongside DEXs, centralized exchanges have also seen a large increase in volumes as price gains in August and September pushed volumes higher. In particular, LMAX Digital saw its highest volume month ever in September.

With the recent increase in activity across its exchange, LMAX Digital gained considerable market share in September competing with Coinbase as the highest volume US accessible exchange. In the figure below, we diagram bitcoin notional trading volume market share across the five largest US accessible exchanges. As shown, LMAX Digital saw a heightened increase in market share for the most recent full month period.

Figure 1: Bitcoin notional trading volume market share over 2020


3) TVL deposited in DeFi hits new high
DeFi has been the theme of 2020 and it appears to show no signs of slowing down. Despite the recent price slump in DeFi tokens, DeFi apps continue to attract more capital as market participants clamor for yield. The total value of digital currencies deposited in DeFi smart contracts hit a new all-time high this past week, cruising past $10 billion in notional value. Additionally, the total amount of ETH deposited in DeFi contracts hit a new all-time high recently with more than 8 million ether currently in these contracts. Ether is the primary asset used in the DeFi ecosystem.

Figure 2: Ether deposited across DeFi smart contracts over time


DeFi tokens themselves have underperformed the broader digital currency market amidst an unwind in the DeFi trade over the past few weeks. YFI, for instance, which had been one of the best performing DeFi tokens, declined 39% this past week. Through the summer, YFI went on an incredible bull run, rising more than 50x from $750 per token to a staggering $43,000 per token by September 9th.

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