What Coinbase’s New Report Says About Bitcoin, Ether, and Crypto As A Whole

Coinbase just dropped a massive crypto report – almost 50 pages and packed with charts – put together with the blockchain data pros at Glassnode. But don’t worry: you don’t have to read the whole thing. I’ve broken down the key points for you. Here’s what it says about bitcoin, ether, and where crypto stands as an asset class now.

1. Bitcoin

Bitcoin was a mostly retail investment in its early years. But now it’s well and truly “accepted” by big institutions – especially since January of last year, when BlackRock and the gang launched nine spot bitcoin ETFs. Those funds, which buy actual bitcoin to match investor demand, have amassed over $105 billion in assets under management (AUM) in just 12 months. And BlackRock’s iShares Bitcoin Trust (ticker: IBIT; expense ratio: 0.25%) holds over half of the group’s total coins – and a few new records, too. IBIT was the first ETF ever to take in more than $1 billion in a single trading day, and the fastest ETF to hit the $50 billion mark – doing so in just 227 trading days.

Bitcoin spot ETFs have amassed over $100 billion in assets under management (AUM) since launching last year. Source: Coinbase Institutional and Glassnode.

Those big ETF flows have helped bitcoin climb near six-digit territory. But investor sentiment hasn’t been overly “euphoric” – at least not compared to prior bull runs. The report uses an indicator called Net Unrealized Profit/Loss (NUPL) to gauge investor greed levels. And the higher the ratio, the greedier: since that suggests that more investors are sitting on gains without cashing out. According to the report, greed levels haven’t hit crypto’s past extremes – they’ve been hovering between “optimism” (yellow) and “belief” (green). So there could be less reason for you to be fearful.

Investors aren’t quite as greedy for bitcoin as they’ve been in past bull runs – even though prices are high. Source: Coinbase Institutional and Glassnode.

On the flipside, there was a 60% jump in bitcoin derivatives “open interest” last quarter – as the crypto rallied from around $60,000 toward $100,000. Now, that open interest is made up of long and short positions – so it doesn’t say too much about whether folks were using leverage as they fueled the rally. But when you check out perpetual futures funding rates, the jump higher makes it clear that leverage did have something to do with the move. When funding rates get too high, you typically see short-term volatility spikes – which liquidate overleveraged traders. Those funding rates have cooled down lately, but you’ll want to keep an eye on them in the future (see how to do that here).

Bitcoin derivatives open interest shows that more leverage (long and short positions) joined the market last year. Source: Coinbase Institutional and Glassnode.

2. Ethereum

The No. 2 crypto started trading via its own set of spot ETFs in August – which now have about $12 billion under their belts. That’s still small-fry compared to their bitcoin ETF counterparts ($105 billion), but there was a 70% increase in AUM last quarter. If that trajectory keeps up, you might finally see ether have its run. Ether has a market size of around $300 billion (compared to bitcoin’s $1.9 trillion), so in theory, ETF inflows could have a relatively bigger impact on the price (all else being equal).

Ether spot ETF inflows aren’t as impressive as bitcoin’s, but they picked up 70% last quarter. Source: Coinbase Institutional and Glassnode.

As for ether sentiment, that’s been less optimistic than bitcoin’s. And with ether’s price not keeping up with the OG crypto’s, that makes sense. So if you’re a contrarian, you might want to keep that in mind.

Sentiment toward ether has been subdued compared to bitcoin. Source: Coinbase Institutional and Glassnode.

Also consider that the number of ethers locked in DeFi (decentralized finance) smart contracts rose 58% last year – that’s worth around $70 billion (about 17.5% of its market value). If that metric keeps ticking up (orange, in the chart), there might not be as much supply left for those ETFs – which could put upward pressure on ether’s price.

More and more ether has been locked up in DeFi smart contracts. Source: Coinbase Institutional & Glassnode.

The number of daily transactions on Ethereum increased by 41% last quarter, and daily active wallets rose by 150% for the year. So putting all the pieces together, ether does have the ingredients of a contrarian crypto trade here. Just remember that contrarian trades don’t always work out, so manage risk accordingly.

3. Crypto as an asset class

Crypto’s role as an alternative asset and overall portfolio diversifier has been gaining ground – and two things from the report support that.

First, the volatility of majors like bitcoin, ether, and solana has been trending down. The three-month volatility (essentially, how much an asset moves around every three months) has made lower peaks since 2020 for all three coins. And while these stats might make the downtrends less brutal, they could also mute the upside moves (percentage-wise, compared to past market cycles). But most institutional investors would prefer those odds anyway, which could be a reason why more of them have been dabbling in crypto.

The volatility of bitcoin, ether, and solana has generally trended down since 2020. Source: Coinbase Institutional and Glassnode.

Second, crypto had low correlations with other assets last quarter – meaning it moved independently and was “good” for diversification. Harry Markowitz started using correlation coefficients to measure investment relationships in the 1950s as part of his Modern Portfolio Theory work (which earned him a Nobel prize). The gist of it is that correlation coefficients range between -1 and 1. And when those correlations are low or negative, they’re better for diversification.

Last quarter, the COIN50 index (which tracks the 50 biggest cryptos) had 0.35 correlation with stocks (S&P 500), minus 0.02 with gold, and 0.12 with the US bond market – or the iShares Core US Aggregate Bond ETF (AGG; 0.03%).

Since 2020, bitcoin has had an average 90-day correlation of just 0.34 with the S&P 500 and 0.13 with gold.

Bitcoin hasn’t had a high average correlation with with US stocks or gold since 2020. Low correlations tend to be better for diversification. Source: Coinbase Institutional and Glassnode.

Judging from the chart above, last quarter’s low correlation numbers weren’t just a fluke. Here’s a link to the full report if you want more detail.