Key Takeaways The crypto market has seen a remarkable surge in Q4, with Bitcoin’s price rising over 25%, and the total market capitalization reaching $1.3 trillion, in contrast to Q3’s stagnation. Market Overview: Trading activity on the top 10 crypto exchanges dropped by 23% in Q3, with trading volumes totaling $6.1 trillion, down from $8.3 trillion in Q2. Binance, in particular, saw its market share plummet to 44% due to legal challenges. Trading Volume Declined in Q3: Bitcoin’s dominance increased to 51% by the end of Q3, up from 46% in Q2 2023 as excitement builds up on the possibility of a Bitcoin Spot EFT launching in the U.S as early as 2024. BTC Dominance and ETF Anticipation: Layer 1 blockchains saw a 2% decrease in active users, while Layer 2 chains experienced an 18% growth. Base, an Ethereum Layer 2 solution, emerged as a significant player, handling a peak of 1.8 million daily transactions. Layer 1 and Layer 2 Dynamics: The crypto VC market faced headwinds in Q3, with only $1.975 billion invested in the crypto and blockchain sector, marking a new low since Q4 2020. Crypto VC Funding: Q3 2023 witnessed several major security breaches; Mixin Network suffered the largest breach with around $200 million compromised. Other notable hacks were Multichain, CoinEx, Curve Finance and Alphapo. Crypto Security Breaches: Two emerging narratives in the crypto space include tokenized real-world assets (RWA) and Social DApps (SocialFi), with the latter exemplified by the success of the Friend.tech DApp, which experienced rapid growth in active wallets. Emerging Narratives: The crypto market has been on a remarkable upward trajectory in October, with surging by over 25%, and the total market capitalization reaching an impressive $1.3 trillion. However, a retrospective glance at Q3 2023 reveals a period of relative stagnation and subdued optimism compared to the current market dynamics. Bitcoin’s price In this comprehensive market overview, we will delve into the performance of various crypto metrics and shed light on some of the emerging narratives and niche innovations within the digital asset realm. Market Overview The total crypto market cap declined by 9.6% in Q3, closing at $1.12 trillion, down from $1.24 trillion in the previous quarter, according to . This is despite the frenzy caused by discussions around the possibility of a Bitcoin Spot ETF approval in the U.S. Coingecko On the brighter side, the market is now pricing in the probability of ‘when,’ not ‘if,’ based on the latest developments, which could see several Bitcoin Spot ETFs debut in the U.S. as early as next year. Trading Volumes on Exchanges Continued to Decline Trading activity took a 23% nosedive across the top 10 crypto exchanges; according to a by TokenInsight, Q3’s trading volumes totaled $6.1 trillion compared to $8.3 trillion in Q2. Notably, Binance was the most hard-hit crypto exchange, with its market share tanking to 44%, thanks to the legal hurdles the exchange is currently facing in multiple jurisdictions, including the U.S. For context, Binance enjoyed a market share of over 66% earlier in the year before its woes began. report Bitcoin’s Fundamentals Improving While Bitcoin’s price was stagnant for most of Q3 2023, it has rallied by over 28% this quarter, and few metrics indicate that this could be the beginning of a secular bull market. I’ve highlighted the main four drivers for this below: 1. BTC Supply is Sitting Still The percentage of inactive BTC supply in circulation is currently at 29.6%, the highest it has ever been since Bitcoin’s debut. This suggests that BTC long-term HODLers have a strong conviction and are also likely positioning for the halving expected in 2024, which will see Bitcoin’s reward per block halved from the current 6.25 BTC to 3.125 BTC. 2. Miners are Committed and Continue to Invest Bitcoin’s computational power (hash rate) has been on the rise, indicating that the network is becoming more and more secure. Currently, the hash rate is at 445 EH/s, up from 393 EH/s at the beginning of Q2 2023. 3. Bitcoin’s Dominance Trending Upwards Bitcoin’s dominance is also on the rise, currently at 51%, compared to 46% at the onset of Q2 2023. Historically, an increase in Bitcoin’s dominance has often preceded bull markets. It is also interesting to observe that liquidity is drying up on altcoin pairs, which is evident in the BTC/ETH chart. 4. Future ETF Approvals Causing Excitement This excitement surrounding the approval of the Bitcoin Spot ETF and applications submitted by prominent fund managers, including Blackrock, as well as Grayscale’s legal victory against the SEC. Larry Fink, Blackrock’s CEO, is also on record recently to Bitcoin’s recent rally as a ‘flight to quality’ in light of current geopolitical tensions and macro uncertainties. referring Layer 1s Stagnating and Layer 2s Rising The third quarter of 2023 witnessed a decline in the number of active users on Layer 1 smart contract blockchains, with Near being the only ecosystem that recorded an increase in its on-chain activity following the launch of the USDC stablecoin in Near’s ecosystem. The Layer 1 and Layer 2 landscape has also witnessed notable shifts in their share of active users, daily transactions, and generated fees, with more crypto natives opting for the latter due to the high fees associated with the Ethereum network. Source: Fidelity Digital Assets Base Emerges as a Leading Layer 2 Chain Base, an Ethereum Layer 2 solution developed by Coinbase and built on Optimism’s OP stack, is now a strong contender in the Layer 2 space. The chain, which launched as recently as August 9th, witnessed a peak of 1.8 million daily transactions. This can be attributed to popular projects like Friend.tech, a socialfi DApp, which is building on Base. Decentralized Finance (DeFi) Similar to the broader crypto market, the total value locked (TVL) in DeFi protocols plunged from $45 billion to $38 billion during Q3 according to . DeFi Llama Liquid Staking was the #1 DeFi Sector in TVL Since Ethereum transitioned to a Proof-of-Stake (PoS) blockchain and, finally, the merge, which allowed withdrawals, the total number of ETH staked through Liquid Staking Derivatives (LSDs) has been on the rise, constituting a significant portion of the on-chain activity in DeFi. Data: Binance Research According to Coingecko, the number of staked ETH eclipsed 27.3 million in Q3, having grown by 3.5 million QoQ. Lido Finance accounts for the lion’s share with over 77% as of writing, which is causing a as to whether it poses a centralization risk to the Ethereum network. debate NFTs and Blockchain Gaming The NFT market, trading volumes and sales in this crypto sub-niche have been on a downtrend since February. The latest report by DappRadar reveals that Q3 recorded $1.39 billion in trading volume, down from $2.9 billion in the previous quarter. However, it is interesting to observe that during Q3 2023, there was an increased interaction with NFT socialfi DApps, although blockchain gaming retained its position as the most dominant category in the NFT space. Crypto VC Funding Q3 2023 The crypto VC market also continued to face headwinds, with investors remaining on the sidelines in Q3 2023. According to a report by Galaxy, only $1.975 billion was invested in the crypto and blockchain sector during this period, marking a new low since Q4 2020. Binance Labs and Ethereum Foundation Among the Biggest Investors While the funding activity in Q3 marked a multi-year low, several noteworthy investors, including Binance Labs, the Ethereum Foundation, HashKey Capital, and Coinbase Ventures, a significant amount of funds toward blockchain and crypto projects. Notably, blockchain infrastructure and service projects attracted the most funding during the previous quarter. allocated Major Crypto Security Breaches Q3 2023 Mixin Network - $200.000.000 Mixin Network suffered a hack in September 2023. The breach occurred when hackers compromised the database of Mixin’s cloud service provider, resulting in the loss of digital assets worth $200 million. Multichain - $126.000.000 Multichain cross-chain protocol was abnormally drained of $126 million on July 7 when the digital assets on the MPC bridge were ‘exploited’ by hackers. According to on-chain data, over $102 million was drained from Multichain’s Fantom bridge, although post-analysis revealed this hack could also have been a rug pull by the Multichain team. CoinEx - $70.000.000 CoinEx experienced a cyber attack in September, resulting in the loss of approximately $70 million. The exchange noted that the attack was discovered by its risk control system, which “detected anomalous withdrawals from several hot wallets.” Curve Finance - $61.700.000 Multiple pools on Curve Finance, using Vyper, were compromised through a reentrancy vulnerability in July 2023, resulting in a loss of over $60 million. However, in a surprising turn of events, the hacker later posted a message on the Ethereum network, stating that they would return the funds to avoid ruining the compromised protocols. So far, they have returned $8.9 million worth of Alchemix ETH (alETH). Alphapo - $60.000.000 Alphapo was also hacked in July with trails pointing to the infamous Lazarus Group, a cybercrime syndicate from North Korea. Initially, the losses were estimated to be around $21 million but were later revised upwards to $60 million when on-chain sleuths discovered that the hackers had also compromised Alphapo’s old addresses. Stake.com - $41.300.000 Stake.com experienced a security breach in September 2023, resulting in a loss of $41.3 million. The attackers initially transferred $16 million worth of DAI, USDT, USDC, and ETH from Stake.com’s ETH address to their personal address, after which they converted the funds into ETH. CoinsPaid - $37.300.000 CoinsPaid fell victim to an attack by North Korean hackers in September 2023. The hackers drained $37.3 million. Key Developments in Crypto Regulation Q3 2023 – Federal district judge Analisa Torres that the act of selling XRP to public buyers through programmatic means and the distribution of XRP to employees of Ripple Labs were not in violation of securities regulations about unregistered securities. 13th July ruled – Sam Bankman-Fried was following a judge’s decision to support federal prosecutors’ motion to revoke the bail of the FTX founder, citing allegations of witness tampering. 11th August incarcerated – Grayscale Investments, a crypto asset manager, achieved a significant against the United States Securities and Exchange Commission in its pursuit to convert its over-the-counter Grayscale Bitcoin Trust (GBTC) into a publicly listed Bitcoin ETF. 29th August win Emerging Narratives This new DeFi sub-niche is currently a hot topic both within and outside of crypto circles. According to from Coingecko, tokenized U.S. Treasury bills have been the most significant on-chain driver of the RWA sector this year, growing from $114 million in January to over $665 million as of the end of September. Tokenized Real World Assets: statistics This is another emerging area of innovation that is gaining significant traction. One good example that fared particularly well in Q3 is the Friend.tech DApp; in the past month, the number of unique active wallets (UAWs) has grown by over 200% to 576,000. Social DApps (SocialFi): Conclusion Q3 2023 was quite a rollercoaster for the crypto market. On one hand, there was some optimism given the news of an expected Bitcoin ETF approval in the U.S. just around the corner, and on the other, the broader market outside Bitcoin did not have a major reaction to this news. However, looking ahead, momentum is gradually picking up. Bitcoin’s recent rally could mark the beginning of a new price trend as we move towards the halving in 2024. Also published . here Enjoyed these insights? There's more where that came from. Follow me on for daily tidbits and updates. Twitter/X

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