Digital assets firm Genesis recently published its Q3 Market Observations Report, and it highlights some of the major trends across the market. This time, it shows the demand for bitcoin had faded during Q3 as institutions were exploring DeFi platforms and altcoins.
BTC Demand Trends Downward Due to Institutionalization
As per the report, BTC demand trended downward during Q3 due to the lack of opportunities for traders to profit from spreads between the BTC price in spot and futures markets.
The firm noted a “significant structural change” in the crypto market, starting with the deleveraging of retail exchanges. During Q2, we saw several exchanges limiting their leverage offers, like Binance reducing the levels to a max 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 this paused in Q2, it resumed over the third quarter due to the continued GBTC premium inversion and flattening of the basis curves.” – 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 spike in interest, with various crypto-native institutions exploring yield opportunities across L-1s that provided 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. One of the top gainers is Solana (SOL), which surpassed 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 US first futures-linked Bitcoin ETF revived the market with traditional financial institutions, like investment banks and +$100 billion asset managers, showing 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.