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1. Market movements: Crypto outperformed stocks and gold in May as the US dollar and Treasuries weakened; bulls and bears debate meaning of 1999/2017-esque frothiness

In May cryptoasset markets continued to bounce back from their “Black Thursday” March low for the year, with bitcoin (BTC) and Ethereum (ETH) up an almost identical 10.5% and 10.6%, respectively, in May (Table 1).

Table 1: Price Comparison (% Change): Bitcoin, Ethereum, Gold, US Equities, Long-dated US Treasuries, US Dollar

Sources:, Google Finance

Crypto experienced a strong price rally last spring and now no longer eclipses all other major asset categories over the trailing twelve months; both gold and long-dated bonds have outperformed bitcoin over this period. While Ethereum has more than twice as high percentage gain compared to bitcoin in 2020, it still lags significantly behind bitcoin over the past 12-months.

As we publish this month’s Outlook some “rationality” appears to be returning to US equity markets, which have recently seen trading action reminiscent of the late-1990s tech stock and 2017 crypto bubbles.

Companies like Hertz (HTZ) that have declared bankruptcy and risk seeing equity holders completely wiped out have seen prices rally sometimes over 10x. Some of this price action appears aided or possibly led by substantial retail speculation. In crypto markets, a number of “altcoins” have also seen dramatic price increases, such as Kyber Networks (KNC) which more than doubled over the last several weeks.

How should crypto market participants interpret this recent dramatic price action?

Are price mania episodes essential to significant increases in crypto adoption?

One question that is often debated in cryptoasset markets is whether dramatic price swings are an inherent part of the process of sustained cryptoasset price appreciation.

Looking at history, crypto markets have experienced a number of arguably manic “bubble” episodes since bitcoin launched over 11 years ago. While the sell-offs from such speculative episodes have frequently been extraordinary, prices have subsequently stabilized at levels higher than where they started at the outset of the speculative period (Figure 1).

Figure 1: Major bitcoin price rises and subsequent corrections have generally stabilized at ever higher price levels

While crypto bubbles receive significant attention, there are periods in bitcoin’s history where what can be characterized as less dramatic, relatively steadier price appreciation was experienced. For example, bitcoin showed measured price gains (by bitcoin standards) from its mid-2015 lows to the end of 2016 (Figure 2).

Figure 2: During mid-2015 through end of 2016 Bitcoin’s price showed sustained and significant appreciation without “manic” price exuberance

During this 18-month period bitcoin’s price, after stabilizing in 2015 in the ~$250 range for an approximately six-month period, climbed into the ~$400 range for a number of months . Bitcoin’s price then moved upwards again into the ~$500-$600 range for a shorter period of time. Towards the end of 2016 the price then started more rapidly ascending to ~$1,000, setting up a dramatic ~20x price increase in 2017.

While it might be tempting to wish for a return of heady 2017 price action, it remains an open question whether less dramatic periods along the lines of those witnessed in 2015–16 are “healthier” and ultimately more constructive for longer-term cryptoasset adoption than the manic periods, which we appear to be seeing some early evidence of a possible return to recently.

Manic periods attract significant media attention, which in turn boosts awareness and fan powerful psychological drivers of adoption (so-called “FOMO”, or fear of missing out). Manic episodes have also certainly expanded crypto network activity in the short-term. It would be hard to argue against the importance of price mania in crypto’s rise over the past decade, and looking ahead manic episodes may prove essential to any rise from today’s tens of millions of crypto users to billions.

But manic episodes can also turn-off some newcomers to cryptoassets, who are frightened by the volatility, or arrive too late to the party and miss-time the inevitable sell-off. Dramatic sell-offs may ultimately slow down the rise of crypto use by deterring or setting back crypto adoption for extended periods.

Manic episodes also place significant emphasis on price as the driving force in using cryptoassets, overshadowing other important reasons for why the technology has been developed and adopted (eg self-custody and financial sovereignty, censorship resistance).

As we contemplate how another manic crypto bubble could play out, one potential key difference between the current era and 2017 is the increasing integration of the traditional financial system with crypto markets. The rise of US Commodities Futures and Trading Commission (CFTC) regulated futures markets, and the participation in these markets of potentially systemically important institutions, such as Renaissance Technologies, could lead to regulatory concerns over outsized and possibly destabilizing price exuberance in crypto markets. Indeed, this specific concern has already been highlighted in the Financial Stability Board’s financial stability risk assessment of cryptoasset markets.

However, there are reasons beyond mass collective amnesia to believe we may not see another episode as manic as 2017.

Today, with the development of futures and options markets, and growth in crypto borrowing/lending markets, crypto traders have more ways of speculating on downward price moves than in 2017. Indeed, in spring 2019 crypto prices began rising rapidly in a manner reminiscent of 2017, as bitcoin’s price quickly climbed above $10,000. However, price momentum was arrested well below the 2017 all-time high of ~$19,000 as traders last year moved to punish unsustainable exuberance. Today’s less lopsided crypto trading landscape may help tamp down future excessive exuberance.

2. On-chain insights: highlights from the data science team

We start at a high level with a look at network activity in May compared to April. In short, May was a month of increased market capitalization, an increase in transactions, and an increase in the number of active addresses (Table 2).

Table 2: Bitcoin network activity — May vs April


Yet when we examine the average network fees there was more congestion and a higher fee per transaction. In May, the average fee per transaction was $3.36, as opposed to $0.67 in April.

Figure 3: Increased user activity boosted network fees in May, which in turn increases network security


But that’s just the average fee. It’s perhaps more useful to understand the best time to send a transaction.

To do so, it is important to know the state of the mempool to estimate — given the selected fee rates — how long it might take the network to confirm the transaction. We looked at what day of the week and hour of the day the mempool was more or less busy in May.

Around 5am UTC time, the mempool is on average 30% less busy than the daily average, while it is around 40% more busy around 2pm UTC time. As we reported in November last year, the “Bitmex effect” triggers an afternoon of more congested mempool to avoid. Mornings are found to be the sweet spot where the network will be more likely to confirm your transactions quickly.

Figure 4: Best time of the day to send a transaction is early morning Greenwich Mean Time


The month of May saw really busy transaction activity towards the end of week, with mempool 30% busier on Fridays than the weekly averages. The mempool took the whole Saturday and a bit of Sunday to catch up on accumulated transactions, and Monday was the best day to send transactions with the mempool almost 30% less busy.

Figure 5: Best day to send a transaction is Monday


Trending countries⁴

Another question we’re often curious about is how crypto is trending at the country level. In May we saw a number of countries increase their fraction of overall transactions, most notably Nigeria, Mexico, and the United States.

Table 3: Trending countries: increase in use in May over April

Source: internal data

Meanwhile, the fraction of transactions sent from Korea, Brazil and Romania have decreased by 24.42%, 23.8% and 22.93% in comparison to April.

Table 4: Trending countries — decrease in use in May over April

Source: internal data

Bitcoin ownership concentration

Another interesting way to analyze the market is to look at active wallets and examine the fund concentration

As of 5th June, here is the number of addresses that contain more than:

  • 1 USD : 22,219,444
  • 100 USD : 7,720,841
  • 1,000 USD : 2,877,749
  • 10,000 USD : 686,281
  • 100,000 USD : 140,160
  • 1,000,000 USD : 13,511
  • 10,000,000 USD : 1,578

How concentrated are funds :

  • 3,040,600 addresses (10.05% of total addresses) have more than 0.1 BTC, and represent 98.88% of total bitcoins
  • 816,632 addresses (2.7% of total addresses) have more than 1 BTC, and represent 95.04% of total bitcoins

3. George Floyd, Black Lives Matter and Crypto

Concerns that law enforcement may leverage social media accounts and activity to help police BLM protests may have driven the rapid growth in use of the privacy enhancing Signal app (Figure 6). The rise in the use of the Signal app suggests awareness of the importance of privacy, encryption and open source technology is growing, and this may in turn bode well for increased future use of cryptocurrency.

Figure 6: US daily downloads of the privacy enhancing Signal messaging app spiked at end of May alongside the start of Black Lives Matter protests

Source: Quartz

While there are some reports of an uptick in cryptocurrency activity related to the BLM protests, we do not yet see any statistically significant evidence of this in either our own public or internal data. But could the BLM protests aftermath help drive a similar meaningful increase in crypto use and adoption?

While the protests sparked by George Floyd’s death are ongoing and evolving, and it is interesting to note similarities between present conditions and prior periods when new payment systems were adopted. For example, the initial surge in M-pesa mobile money use in Kenya in 2008 is believed to have been driven in significant part by ethnic/political unrest and a mistrust of banks during an election season.

Kenyan ethnic unrest is thought to have played a significant role in the rapid adoption of the M-pesa payments system in 2008

Of course, bitcoin is not only an alternative payment system, but also an alternative currency (M-pesa allowed for the transfer of an existing currency). Prior academic work from head of research Dr Garrick Hileman has explored common factors driving alternative currency adoption throughout history, and many of these factors are widely present today (Figure 7).

Figure 7: Five forces have historically powered growth of alternative currencies

4. COVID and rising US-China tensions: how will we pay for it?

However, what is well known is that the world was already facing a world record level of total debt (government + corporate + household) prior to the outbreak of the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) virus. Just looking at the government balance sheet, or public debt, we know that advanced economies were already facing world war levels of debt without having entered into any such conflict (Figure 8).

Figure 8: Prior to the COVID-19 outbreak the world was already facing world war levels of public debt

At the same time, there is growing signs that the world’s two largest economies — the United States and China — are moving towards or already in what some are labeling a new “cold war”. Others say the evidence of hostile activities across various areas including information (misinformation), cyber and other forms of espionage, and intellectual property theft and other forms of economic conflict make it more akin to a “hot war”. The fact that a significant kinetic conflict over Taiwan or other issues in the South China Sea has not occurred yet disguises from public view to some degree the intensity of competition already occurring between the world’s two leading powers.

As Figure 8 shows, wars are expensive. Any escalation of hostilities between the United States and China could have a very negative impact on government balance sheets across two dimensions. First, the additional fiscal outlays, leading to a nominal rise in the absolute level of debt. Second, the negative hit to economic growth due to trade tensions and other negative economic spillovers that undermine growth, thereby negatively impacting the public-debt-to-GDP ratio, a key measure for assessing debt sustainability.

The dual threat of COVID and US-China tensions may lead to a situation where debts simply become unsustainable. In such a scenario there are only seven distinct mechanisms for addressing an unsustainable public debt problem (Figure 9).

Figure 9: Of the available mechanisms for addressing a sovereign debt problem, financial repression may prove the most politically feasible

In the current environment, not all of these options may be available (eg sufficient economic growth) or politically feasible or desirable (eg tax hikes, spending cuts).

Policymakers may find that financial repression, in the form of an artificial low interest rate environment enforced via yield curve control and other restrictive measures, can help erode the real value of public debt. Following World War II, financial repression and inflation helped return public debts to sustainable levels in the US, UK and other countries. Recently Fed Chairman Jay Powell took another step in this direction when he communicated the Fed’s forward interest rate guidance that near-zero rates would remain in effect at least though the end of 2022.

The question of “how will we pay for it” here is not one that policymakers alone must confront. Individuals, especially savers, must also think about how they will manage through a low-to-negative interest rate environment.

To help address this challenging environment for savers, was pleased to recently announce a new interest product for bitcoin (BTC) savers where individuals can currently earn 4.5% APR (paid in bitcoin).

We anticipate that crypto interest and savings products, which are supported by a number of platforms for a range of different cryptoassets (including stablecoins), to be a key driver of cryptoasset adoption in the years to come.

5. What we’re reading, hearing, watching

Beyond crypto

For more insights from our research team, go to our Research page and follow our Head of Research, Garrick Hileman on Twitter.