Digital asset firm Genesis recently released its third quarter market observations report, which highlights some of the top trends in the market. This time, it shows the demand for bitcoin had faded during Q3 as institutions were exploring DeFi platforms and altcoins.
Declining BTC Demand Trends Due to Institutionalization
According to the report, demand for BTC trended downward during the third quarter due to the lack of opportunities for traders to take advantage of the spreads between the price of BTC in the spot and futures markets.
The firm noted a “significant structural change” in the crypto market, starting with the deleveraging of retail exchanges. During the second quarter, we saw several exchanges limit their leverage offerings, such as Binance reducing levels to a maximum of 20x for accounts opened within 30 days.
“In Q1 2021, Genesis first noted a significant decline in the weighting of BTC in our overall portfolio due to the relative lack of BTC-denominated trading opportunities. While it paused in the second quarter, it picked up again in the third quarter due to continued GBTC premium reversal and base curve flattening. – reads the report.
The “deleveraging of retail exchanges,” noted the report, combined with the Chinese crackdown on crypto, led to a shift towards institutionalization in the industry, which in consequence made Bitcoin less attractive to opportunist traders.
Institutions adopting DeFi – ETH is the favorite
The firm highlighted the growing number of institutions coming to the DeFi space. The document reported a greater appetite in ETH from institutions to borrow and lend across several decentralized applications (DApps).
Emerging layer 1 protocols also saw a resurgence of interest, with various crypto-native institutions exploring yield opportunities on L-1s that offered attractive rates for stablecoins and ETH / BTC pairs. This led to an increase in price for altcoins, which throughout Q3 continued to gain ground in the market. A die the top winners are Solana (SOL), who overtook Cardano (ADA) after a new all-time high this week.
“Alongside greater interest in ETH loan originations during the quarter, altcoins (alts) – and particularly L1 alternatives – saw a boost in demand, serving as natural liquidity pairs for DeFi yield opportunities.”
Despite the lack of interest in bitcoin, the anticipation of the first Bitcoin ETF linked to futures in the United States has revived the market with traditional financial institutions, like investment banks and $ 100 billion in asset managers, showing a strong interest in the product.
In total, Genesis traded over $37 billion across derivatives and spot in Q3. BTC accounted for roughly 61% of Genesis’ OTC (over-the-counter) trading activity, up 47% in Q2.
