How do digital assets perform relative to other asset classes? What were key milestones that impacted crypto in the second quarter? How can you measure the performance of the digital asset class to better understand the ever-evolving crypto landscape?

Welcome to the first installment of the CoinDesk 20 Quarterly Report, where we provide market commentary and insights through the lens of CoinDesk 20, a leading digital asset benchmark.

Alan Campbell, President
Andy Baehr, CFA, Head of Product Kim Klemballa, Head of Marketing

Why Digital Assets?

Comparing Digital Assets to Other Broad-Based Benchmarks

Complexity, volatility, and regulatory uncertainty are among the primary hesitations for investing in digital assets. Despite this, the innovation on and around public blockchains continues to mature and grow.

•   As of June 30, Bitcoin and Ethereum combine for over 176 million non-zero wallet addresses1 (a proxy for onchain users) — a figure that is growing at a 27% compound annual growth over the last 5 years.

•   Per crypto.com research, total global crypto users on all networks exceeded 580 million (onchain + off-chain) as of December 2023, up 34% over the prior year.

•   Asset management firms such as Blackrock, Grayscale, and Fidelity are now issuing digital asset ETFs and/or have begun tokenizing funds on the Ethereum network.

•   Dollar-backed stablecoins are doing more annual volume than the Visa network and are now the 18th largest holder of US Treasuries.2

•   Venture Capitalist firms continue to pour money into the space, with $3.2b invested into 577 projects in the second quarter.3

•   Progress continues to be made on the regulatory front, such as bi-partisan support for the repeal of the SAB 121 SEC rule in Q2.

  The resilience and persistent growth leave us with one conclusion: digital assets are here to stay.

  Digital assets have also been among the best performing, year after year, compared to traditional asset classes. This has persisted even during challenging parts of the market cycle. Allocating to digital assets within a multi-asset portfolio continues to provide compelling results, even as crypto is in the early adoption phase within the broader investment spectrum.

  The table below shows a hypothetical 5% allocation to the broad-based CoinDesk 20 Index in the one-year period ending June 30, 2024. Notably, a 5% allocation to CoinDesk boosted returns of the hypothetical portfolio by 3.49% on average while increasing average volatility by 18.6 basis points.

  1 Per Glassnode
  2 h􏰀ps://www.coindesk.com/markets/2024/06/20/stablecoin-issuers-now-18th-largest-holder-of-us-debt/ 3 h􏰀ps://www.galaxy.com/insights/research/crypto-and-blockchain-venture-capital-q2-2024/

Data: CoinDesk Indices, Investing.com, The DeFi Report (Blackrock 60/40 = BAGPX)4

Below we can see the direct outperformance of the CoinDesk 20 against industry benchmarks from the CoinDesk 20’s base date of October 4, 2022 through June 30, 2024.

•   CoinDesk 20 Index: +109%

•   Nasdaq Composite: + 59%.

•   S&P 500: +44%

•   SPDR Gold ETF (GLD): +34%

•   Blackrock 60/40 (BAGPX): +21%

•   iShares Core Emerging Markets ETF (IEMG): +19%

  The CoinDesk 20 outperformance over the same period is charted here using daily pricing data:

  Data: CoinDesk Indices, Investing.com (GLD, BAGPX, EEM, S&P 500, Nasdaq)5

  4 Past performance not indica􏰁ve of future results
  5 Benchmark data normalized with min/max scaling to bring datasets to common scale

Many investors considering digital asset allocations see 2024 as a year of important growth and landmark advances. Yet, at only $2 trillion of market value across the entire asset class, the room for growth seems clear. As investors and advisors continue to educate themselves about crypto, the decisions to make small allocations (particularly given the ease of starting with ETFs) are becoming more palpable.

Q2 Commentary and Insights

What impacted the markets and the performance of digital assets?

The second quarter of 2024 failed to maintain the momentum of Q1—prices and volumes stalled, despite a few attempts to rally.

The CoinDesk 20 Index was down 21.6% quarter over quarter but finished Q2 up 88% year to date. For reference, the S&P 500 was up 3.9% in Q2 and 22.7% on the year.

The digital asset class as a whole experienced its first significant bull market correction in Q2 as sentiment turned less favorable. The unemployment rate rose to 4.1% during the quarter, up from 3.6% one year ago. Further evidence of the slowing economy can be seen in the inflation rate — which dropped from 3.04% to 2.2% during Q2.6 As the appetite for risk waned, trading volumes on popular retail exchanges such as Coinbase dropped 28% quarter over quarter.7

Bitcoin was down 11% on the quarter — largely driven by profit-taking from long-term holders as well as persistent selling from Bitcoin miners — many of which struggled to earn a profit in post- halving conditions in which the cost to mine 1 BTC nearly doubled.

The sell-offs in the large-cap bitcoin market cascaded into corrections in the smaller-cap altcoin market. With that said, the bull market appears to be intact, as Bitcoin finished the quarter significantly above the all-important 200-week moving average at $36.3k. Furthermore, on-chain

data indicates that long-term holders are stepping back into the market — a signal that the “smart money” could be gearing up for the next leg of the cycle.8

Zooming out, below we can visualize the year-to-date performance for each constituent of the CoinDesk 20, for the period ending 6/30/24:

6 Per Trufla􏰁on
7 Per Coinbase 10Q 8 Per Glassnode

Data: CoinDesk Indices, The DeFi Report

About CoinDesk 20

The digital asset class has evolved. Bitcoin is now less than 60% of total market capitalization.

With countless innovations emerging, how can you capture the vast crypto landscape? The answer is simple: CoinDesk 20. The CoinDesk 20 is your gateway to measure, trade, and invest in the ever-expanding crypto asset class. The CoinDesk 20 Index (CD20) is a broad-based crypto index that addresses this growing demand for more diverse benchmarking and portfolio options beyond bitcoin. Designed with liquidity, diversification benefits, and implementation in mind, the CoinDesk 20 tracks the performance of leading digital assets, applying a market capitalization-weighted methodology to enhance diversification.

CoinDesk 20 Weightings

1%1% 1%1% 2%2%2% 2%

1%1%1%1%1%

2%
4% 3%

30%

19%

Solana
Polkadot
Near
Ethereum Classic Render

Bitcoin Cardano Bitcoin Cash Polygon Hedera

7%
18%

Ethereum Avalanche Uniswap
Internet Computer Cosmos

XRP Chainlink Litecoin Aptos Filecoin

Key characteristics include:

•   The CoinDesk 20 Index captures 93% of the digital asset market capitalization as of 6/30/24. The digital asset market is represented by the CoinDesk Market Index (CMI) which excludes stablecoins.

•   The index is market cap weighted with a 30% cap on the largest asset (bitcoin) and a 20% cap on all other assets (currently ether). Noting, weights drift with token prices between quarterly reconstitutions.

•   Since its start date of October 4, 2022, the CoinDesk 20 is up 109% through 6/30/24

  The CoinDesk 20 offers investors diversified exposure to the growing crypto asset class. The Index has demonstrated unprecedented institutional demand and trading activity, generating approximately $6 billion in perpetual futures volume on the Bullish Exchange over the past six months. This activity highlights the index's role as a highly liquid and actively traded benchmark in the digital asset space.

  CoinDesk 20 products are available globally in fund structures, separately managed accounts, perpetual futures, structured products, and options.

Constituent Review

Notable constituent drivers and highlights

Bitcoin

•   Weight 6/28/24: 33.11%

•   Change from Prior Quarter: +.94%

•   Q2 Performance: -11%

•   1-Year Performance: +102%

  As noted, we’ve observed persistent selling from Bitcoin miners in Q2, a trend that goes back to last year. We believe the selling in Q2, as well as the 5% correction in Bitcoin’s hash rate,9 is driven by the halving — which occurred on April 20th and cut miner revenues in half.

  Data: Glassnode, The DeFi Report

  As block rewards are reduced, the cost to mine 1 BTC rises, forcing inefficient miners to sell their bitcoin, and in some cases, to shut down operations.

  9 Per Glassnode

Long-term holders — defined by onchain entities that have not moved any BTC in over 155 days — decreased during the quarter as Bitcoin’s “smart money” booked some profit.

Data: Glassnode, The DeFi Report

In addition to the selling activity from miners and long-term holders, Bitcoin absorbed heavy selling activity from the German government — which began unloading its $2.8b stockpile on June 19.

Finally, the momentum behind the early success of the new ETF products waned in Q2 with $2b of net inflows, down from $10.5b in Q1.10

Ethereum

•   Weight 6/28/24: 24.29%

•   Change from Prior Quarter: +4.42%

•   Q2 Performance: -2%

•   1-Year Performance: +78%

  Ethereum was the best-performing asset in the CoinDesk 20 during Q2, largely due to the reaction of the market to reports of a pending ETF approval on May 19th (subsequently approved by the SEC on May 23rd) — a day in which the second largest crypto asset rose nearly 20%.

  10 Per Glassnode

Investors should note the significant progress Ethereum made on its scaling roadmap in Q2, as the network saw a 63% increase in transaction volume on layer 2 networks after implementing

the EIP4844 technical upgrade late in Q1. Ethereum’s layer 2’s are now processing nearly 9x the transactions on the L1, with Base and Arbitrum leading the way.

Data: Token Terminal, Artemis, The DeFi Report

Below we can see the impact of the EIP4844 technical upgrade on the combined daily cost of revenue (settlement fees paid to L1):

Data: Token Terminal, Artemis, The DeFi Report [Note that the above data includes Arbitrum, zkSync, Optimism, Starknet, Base, Blast, Immutable, Scroll, Linea, Mantle, and Manta Pacific.]

As a result of the upgrades at the L2 level, Ethereum’s fees dropped 58% quarter over quarter, resulting in the network turning inflationary for the first time since the merge to proof of stake:

Data: Glassnode, The DeFi Report

The drop in fees resulting from network upgrades also had a small impact on the Composite Ether Staking Rate (CESR) — which finished the second quarter yielding an annualized 3.32%, down from 3.5% at the beginning of the year.

Data: CoinDesk Indices

Factors impacting CESR in addition to network fees include:

•   Total ETH staked (up 5.3% in Q2)

•   Changes to issuance rate/consensus rewards (up 3.3% in Q2)

•   Network participation rate (99%)

  Solana

•   Weight 6/28/24: 13.07%

•   Change from Prior Quarter: +.05%

•   Q2 performance: -31%

•   1-Year Performance: +677%

  Solana corrected 31% in Q2, but is the best-performing asset in the CoinDesk 20 over the last year, rising 677%.

  The SOL token outperformance can be attributed in large part to a 344% increase in average daily active addresses over the last year.

  Data: Artemis, The DeFi Report

  We’ve also seen an explosion of stablecoin volume on Solana over the last year — with the network doing over $4.7 trillion in stablecoin volume in Q2 alone.11 99.2% of the volume can be attributed to USDC.

  11 Per Artemis

Uniswap

Data: Artemis, The DeFi Report

•   Weight 6/28/24: 1.46%

•   Change from Prior Quarter: -.09%

•   Q2 performance: -25%

•   1-Year Performance: +76%

  A few important stats about Uniswap, the largest decentralized exchange in crypto:

•   Uniswap has consistently owned between 60-70% of the DEX market since its inception in 2018.

•   Averaged 280k daily users in Q2, up 73% over Q1.12

•   Executed $551b of trading volume and $820m in trading fees over the last year.13

•   Consumes approximately 20% of Ethereum’s computing resources.14

  Below we can see how Uniswap compares to centralized exchanges, Robinhood, and Coinbase today.

  12 Per Token Terminal 13 Per Token Terminal 14 Per Token Terminal

Data: The DeFi Report, Token Terminal, Yahoo Finance, 10Qs (Robinhood volume includes equities + crypto) Q2-24

Near

•   Weighting: 1.08%

•   Change from Prior Quarter: +1.08%

•   Q2 performance: -32%

•   1-Year Performance: +267%

  Near is the 9th largest smart contract L1 network in terms of market cap and has been the third best-performing asset in the CoinDesk 20 over the last year, rising 267%. The big move is attributable to a 3,112% increase in active daily users, a 2,067% increase in daily transactions, and the announcement of their plans to create user-owned AI solutions in Q2.

  Data: Artemis, The DeFi Report

The applications driving the most users to Near include:

•   Kai-Ching: a retail shopping app designed to facilitate payments, provide cashback, and offer rewards. It had 14.6 million active users over the last 30 days per DappRadar.

•   Hot Game: a “play to earn” game with 5.2 million users over the last 30 days per DappRadar.

•   Sweat Economy: a “move to earn” game with 1.5 million users over the last 30 days.

  Conclusion

•   Looking back to November 2022, CoinDesk 20 has outperformed benchmarks like S&P 500, Nasdaq Composite, SPDR Gold ETF, Blackrock 60/40 (BAGPX), and iShares Core Emerging Markets ETF (IEMG).

•   CoinDesk 20 has historically provided uncorrelated returns to US Equities while increasing risk-adjusted returns across other asset classes.

  Data: CoinDesk Indices, Investing.com, The DeFi Report

•   CoinDesk 20, a broad-based index embraced by leading market-making firms and a broad array of market participants, caters to the growing institutional need to hedge, speculate, and diversify digital asset exposure.

•   The CoinDesk 20 offers investors and service providers diversified access to the fastest growing asset class on the planet via linked products such as the CoinDesk 20 Perpetual Futures (by Bullish), the GSR Options on CoinDesk 20, the CoinDesk 20 Fund by Hashnote, and more.

•   Designed for implementation at scale, CoinDesk 20 products are available globally. Learn more about CoinDesk 20 by contacting a CoinDesk Indices specialist today at

  sales@coindesk-indices.com or by visiting coindeskmarkets.com.

  About CoinDesk Indices

  Since 2014, CoinDesk Indices has been at the forefront of the digital asset revolution, empowering investors globally. A subsidiary of Bullish, our indices form the foundation of the world's largest digital asset products. Known for their precision and compliance, flagships such as the CoinDesk Bitcoin Price Index (XBX) and the CoinDesk 20 Index set the industry standard for measuring, trading, and investing in digital assets. With tens of billions of dollars in benchmarked assets, CoinDesk Indices is a trusted partner. Discover more at coindeskmarkets.com.

  Disclaimer

  CoinDesk is a portfolio company of the Bullish group. CoinDesk Indices, Inc. ("CDI") does not sponsor, endorse, sell, promote or manage any investment offered by any third party that seeks to provide an investment return based on the performance of any index. CDI is neither an investment adviser nor a commodity trading advisor and makes no representation regarding the advisability of making an investment linked to any CDI index. CDI does not act as a fiduciary. A decision to invest in any asset linked to a CDI index should not be made in reliance on any of the statements set forth in this document or elsewhere by CDI. All content contained or used in any CDI index (the "Content") is owned by CDI and/or its third-party data providers and licensors unless stated otherwise by CDI. CDI does not guarantee the accuracy, completeness, timeliness, adequacy, validity or availability of any of the Content. CDI is not responsible for any errors or omissions, regardless of the cause, in the results obtained from the use of any of the Content. CDI does not assume any obligation to update the Content following publication in any form or format. ©️ 2024 CoinDesk Indices, Inc. All rights reserved.