September 2021 Takeaways

• Despite BTC dropping over $10,000 in September in an “end of summer sale,” on-chain
data indicates market participants remain optimistic. Some speculate this was a classic
“buy the rumor, sell the news” event since the downturn began with a $10K red candle on
September 7th - the day El Salvador made BTC legal tender.

• UTXO data shows that the number of BTC moved in the last 6 months (young coins) has
fallen to a 10-month low of 27% of BTC’s circulating supply, suggesting that long-term
holders didn’t drive recent market weakness.

• BTC’s Average Spent Output Lifespan (ASOL) also indicates that long-term holders did
not fuel recent weakness, as evidenced by the indicator dropping from a multi-year high
of 69 days on August 31st to 45.5 days after the recent sell-off.

• BTC’s monthly active entities appears to have bottomed after reaching a 1-year low
of 14.34M in mid-July and has since increased over +16%, which tells us that network
demand is back on the rise after a market-wide correction that began in May.

• China’s crackdown in mining drove hash rate and mining difficulty down as much as -51%
and -45% from mid-May to July, respectively. However, a resurgence in both suggests
miners are returning to the network and we could see all-time highs by end-of-year.

• After exiting “buy” territory in early July and hitting a 3-year high on July 31st, a gradual
resurgence in hash rate and mining difficulty has caused BTC’s difficulty ribbon
compression to trend lower. This tells us that the network has begun to stabilize following
a hectic past few months and that the indicator should re-enter the “buy” territory by
October.

• On-chain data shows that the 7-day moving average of individual miner outflows reached
a 1-month high of roughly ₿34,560 on September 2nd, but has since fallen -42.4% to
month-to-date lows as miners begin to accumulate and price consolidates; in other
words, miners are holding onto their coins in anticipation of future price appreciation.

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• Since ETH’s London hard fork went live on August 5th, over $1B worth of ETH has been
burned, ETH’s hash rate hit an all-time high of 695 TH/s on September 21st, and miner
revenue was as much as $70M on September 7th - all of which can be attributed to robust
demand for NFTs and optimism over ETH’s future.

• After ERC-721 token (ETH-based NFTs) transfers rose more than +2,000% from May to
August, the NFT market experienced a significant correction in prices, user count, and
trading volume. Not only could this impact ETH miner revenue and lead ETH miners to go
offline, but a drop in NFT activity could also reduce the amount of ETH burned and cause
interest from market participants to wane.

• The amount of ETH held by individual miners hit an all-time high of Ξ22.3M ($68.5B) on
September 21st after accumulating an additional Ξ2M ($6.1B) since EIP-1559 went live.
Though miner accumulation was stagnant for most of the summer before ticking up in
July in spite of ETH price trending lower, accumulation picked up speed after the EIP-1559
upgrade went live as they likely expected the upgrade’s disinflationary effects to increase
price.

ETHUSD (1D)

Source: Cryptowatch

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Hodlers Hold It Down
BTC’s summer-end rally came to a halt on September 7th when El Salvador officially made
BTC legal tender; after rebounding from a low of roughly $29,760 on July 20th to a local high
of roughly $53,000 on September 7th, BTC fell almost $10,000 after the announcement in what
many called a classic “buy the rumor, sell the news” event. Though price recovered partially
in the week that followed, BTC’s bounce was short-lived, and BTC fell back below $40,000 on
September 21st. Despite the drop, on-chain data shows that long-term BTC holders, colloquially
known as “hodlers,” remain bullish. Metrics such as BTC’s HODL waves and Average Spent
Output Lifespan (ASOL) point to a trend of more coins being untouched for longer, which
means long-term BTC holders continue to accumulate. However, it should be noted that these
metrics solely track when a coin was last moved, which doesn’t necessarily indicate a sale.

BTC’s HODL waves, which reflects what percentage of BTC’s circulating supply has been
untouched over a certain period of time, can lend insight into changes in holding and spending
behavior. When plotted against BTC’s price, one can better understand what kind of market
participants (long-term, medium-term, or short-term holders) may be selling coins given recent
price changes. We’ve segmented coins into the following groups:

• Ancient or Lost Coins (> 5 years): Coins that have not moved in over five years are often
assumed to be lost since they are rarely spent, though some continue to hold and leave their
coins untouched. Over time, the size of this cohort tends to steadily increase as lost coins
mature and more people opt to hold for longer. However, few market participants leave coins
untouched over 5 years, but it still is possible.

• Old Coins (6 months - 5 years): These coins are often owned by long-term holders who
typically accumulate in bear markets or after big moves lower. Usually, they hold for a long
time, sell into bull market strength, and opportunistically buy back coins when the time
is right. The number of old coins tends to fluctuate between market cycles, ballooning
after accumulation periods and dwindling as coins are spent, but remain in a much larger
uptrend.

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• Young Coins (0-6 months): Many young coins are held by short-term holders, such as
traders or those using BTC as a medium of exchange. For that reason, they are likely to be
moved around. As demand from long-term holders outpaces short-term holders, the number
of young coins continues to dwindle. This typically happens during bear markets, as market
participants expect future price appreciation and opt to buy and hold. This outsized demand
from accumulators can result in a supply shock that drives prices higher.

BTC’s HODL waves show that long-term holders did not sell during BTC’s latest sell-off, as
evidenced by the percentage of older coins remaining largely unchanged. The metric reveals
that old coins (long-term holdings) are reaching levels last seen in November 2020 when BTC
was still below $19,000, indicating that accumulation has not slowed in the face of the latest
market weakness. Meanwhile, coins younger than 6 months slid to a 10-month low of 27% of
BTC’s circulating supply. Such supports the idea that the average age of coins spent throughout
the September market correction was relatively young, and older hands were not shaken out as
they saw the latest crash as a short-term occurrence.

Bitcoin HODL Waves (Young Coins vs. Old Coins)

Source: Kraken Intelligence, Glassnode

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Further verifying that long-term holders were unfazed by the latest move lower, BTC’s Average
Spent Output Lifespan (ASOL) has begun trending lower after recently reaching a multi-year
high of 69 days. The ASOL indicator measures the average age (in days) of UTXOs when they
are spent (excluding outputs with a lifespan of less than one hour to account for change and
eliminate relay transactions). Market participants can use the ASOL for insight into the balance
between short-term (young coins) and long-term (old coins) spending behavior over time. A
rising ASOL indicates that older coins account for a greater share of network traffic, which is
often associated with long-term holders realizing profits. On the other hand, a falling value
typically indicates that daily network activity is from young coins being spent.

After reaching a near 4-year high of 69 days on August 31st, BTC’s ASOL (30-day moving
average) began trending lower and plunged to a reading of 45.5 days following BTC’s recent
$10K candle on September 7th. This trend is consistent with the idea that long-term holders
were unfazed by the September sell-off, and sellers were mostly short-term holders. if this trend
of longer term accumulation persists, this may impact marketable supply of BTC and therefore
price.

Bitcoin’s Average Spent Output Lifespan (ASOL) (30-Day Moving Average)

Source: Kraken Intelligence, Glassnode

Not only has recent accumulation by long-term holders signaled that the outlook for BTC
remains bright, but also for network activity. Looking at monthly active entities, which

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measures the number of unique addresses that sent or received transactions over the past
30 days, one can see a resumed uptrend after recently hitting a local low. Historically, a steep
decline has resulted in a prolonged degradation of active entities as BTC enters a bear market.

BTC’s monthly active entities reached an all-time high of 22.13M in January and spent the
lion’s share of 1H2021 slipping lower until falling off a cliff in mid-May following a market-wide
correction. However, a bottom and YTD low of 14.34M was reached in mid-July before shifting
trend as the market recovered and network demand grew again. Since finding a bottom 2
months ago, BTC’s monthly active entities metric has risen over +16% to 16.7M. Though it
appears that the latest drop in demand was only temporary and not indicative of a bear market
on the horizon, a close eye should be kept on the overall trend in monthly active entities as a
reversal could signal that market participants are once again losing interest.

Bitcoin Monthly Active Entities

Source: Kraken Intelligence, Coin Metrics

As discussed, on-chain data tells us that despite BTC’s latest drop, market participants in it for
the long haul were not shaken out and presumably continue to see incremental upside at the
current price. Instead of selling, they have opted to accumulate - which may mean a supply
squeeze is on the horizon, and price is bound to head higher should the aforementioned trends
persist.

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Miners Resurface...
Optimism over BTC’s future can also be found when looking at several mining metrics, including
BTC’s hash rate, mining difficulty, and miner flows. Taking a closer look at the on-chain data, one
can see that miner demand is rising, and the recent pullback in hash rate and difficulty proved
to be a short-term event.

BTC’s hash rate fell significantly following a series of mining crackdowns in China in mid-May,
which coincided with prices plunging and market sentiment falling off a cliff as miners were
forced to leave the region (which previously housed most of BTC’s hashing power). BTC’s price
and hash rate fell roughly -36% and -51%, respectively, in a couple of months following the
developments in China. The drop had many convinced that a bear market was on the horizon.
However, the ship turned around, and recent on-chain data shows the network is on track to
reach new all-time highs before year-end.

Because hash rate reflects the speed that miners perform Proof-of-Work (PoW) calculations per
second to mine blocks, an increase in hash rate means more computational resources are being
used to validate transactions, and the network is thus more secure. Conversely, a drop in hash
rate can be an early sign of a potentially “unhealthy” environment, which may cause a loss of
confidence that drives price lower and subsequently creates a vicious cycle.

The graph below shows BTC’s hash rate (7-day moving average) fell over -51% from 172.3 EH/s
to 84.3 EH/s between mid-May and July 2nd, or a 2-year low. However, since reaching lows
nearly 3 months ago, BTC’s hash rate has recovered +60% to 134.5 EH/s, but remains down
nearly -26% from its all-time high of 180.63 EH/s on May 13th. At the current rate, BTC’s hash
rate could surpass 211 EH/s by year-end, putting it +16.7% above current all-time highs. Such
would imply that not only have China-based miners fully completed their overseas migration of
equipment, but also that fears following the crackdown were overblown; price remains far from
where it was before the crackdown despite BTC’s hash rate being shy of a full recovery, which
shows that BTC is healthy and its outlook appears fruitful.

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Bitcoin’s Mining Hash Rate (7-Day Moving Average)

Source: Kraken Intelligence, Coin Metrics

BTC’s mining difficulty, a self-adjusting mechanism that makes it easier or harder to mine a
block depending on the number of miners on the network, has also rebounded significantly
and is trending higher after a historic crash from June through July that had market participants
on their toes. Since hash rate direA ctly contributes to mining difficulty, a change in hash rate
will also cause a change in difficulty. This mechanism is primarily used to ensure blocks are
confirmed, on average, every 10 minutes. However, it also indirectly incentivizes miners to
join the network following a drop in hash rate or decreases incentives when mining becomes
saturated. Because a miner’s costs are typically fixed, and the price of BTC is variable, a sudden
price drop may cause high-cost miners to suffer unprofitable conditions. As a result, miners
would no longer deploy new computational power to the network or turn off their machines
entirely. This would surely cause mining difficulty to adjust lower, making it more efficient to
mine BTC with less hash power.

The sharp decline in hash power caused four consecutive difficulty corrections, one of which
was the largest difficulty correction in over six years (-28%). The eight-week-long stretch
of negative difficulty adjustments amounted to a -45% correction, meaning active miners
presumably saw a material increase in mining profitability after Chinese miners went offline.
However, BTC’s mining difficulty has since seen five positive adjustments for a total +39%

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development was initially thought to be a massive setback for the industry. In reality, on-chain
data shows that it was just another growing pain. BTC’s current difficulty growth rate is also on
a trajectory to break all-time highs by year’s end, further revealing the significant demand from
miners.

Bitcoin’s Mining Difficulty Adjustments

Source: Kraken Intelligence, Coin Metrics

With BTC’s hash rate and difficulty rising following the historic mining departure from China,
concerns that surfaced a few months ago appear to have subsided. The network’s +60% gain
in hash power since July 2nd and +39% rebound in difficulty since July 31st can be attributed
to China-based miners successfully migrating their operations overseas, namely to the US,
Canada, Russia, and neighboring country Kazakhstan, among others. Though some may have
thought this at first to be a negative development, interest from miners continues to resurface;
mining difficulty is heading towards unseen territory, data from the University of Cambridge
shows hash power has become even more distributed, and price remains in an uptrend.

Not only does the rebound in hash rate and difficulty imply better times may be ahead, but
BTC’s difficulty ribbon compression also suggests that BTC may have upside potential. Simply
put, the difficulty ribbon compression indicator looks at the volatility of mining difficulty moving
averages to identify instances where it has historically made sense to either buy or sell BTC.
Specifically, the indicator looks at the 9-day, 14-day, 25-day, 40-day, 60-day, 90-day, 128-day, and
200-day moving averages of BTC’s mining difficulty.

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The difficulty ribbon compression signals “buy” when between a reading of 0 and 0.05, as it
indicates that the difficulty moving averages have compressed. When the indicator is greater
than a reading of 0.05, we know that the spread amongst the moving averages is high, likely due
to a sudden change in network difficulty thanks to a change in network hash power.

On July 5th, BTC’s difficulty ribbon broke above 0.05 for the first time since November 2020,
indicating that difficulty moving averages began widening. This change was due to BTC’s
difficulty plunging after the network saw a significant drop in hash power amidst an exodus of
miners in China. In this case, the reduction in BTC’s hash rate and difficulty caused the ribbon
compression to break out of “buy” territory.

Unlike prior readings, the rise in BTC’s difficulty compression ribbon was associated with an
abrupt drop in hash power as miners left the network. In the past, a sudden rise in the indicator
was associated with greater demand from miners. That said, a move down into the “buy”
territory would suggest that the network is well-positioned for an abrupt jump in hash power
because a gradual increase in hash power has historically only lasted for so long.

Now that hash rate and mining difficulty have bounced significantly and remain in a gradual
uptrend, BTC’s difficulty ribbon compression is rapidly approaching the “buy” territory as the
network stabilizes yet again. Assuming this trend continues, the difficulty ribbon compression
indicator will signal “buy” in the month(s) ahead.

Bitcoin’s Difficulty Ribbon Compression vs. Difficulty Ribbon

Source: Kraken Intelligence, Glassnode

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Last but not least, miner flows indicate that market participants remain optimistic despite BTC
being relatively far from its prior all-time high. According to BTC’s one-hop outflows, a metric
that quantifies individual miner coin spends, miners have begun accumulating since the start
of the month and through the latest crash. Following the coin movements out of addresses that
received funds from the “coinbase transaction,” or the first transaction of every BTC block, is one
of the best ways to understand individual miner behavior.

Though mining behavior is generally measured using the outflows from addresses containing
a block’s coinbase transaction, this method is often regarded as the most efficient method for
analyzing mining pool behavior because it looks at the pool’s behavior as one entity. However,
this method is arguably less useful for understanding miner behavior because BTC mining is a
decentralized endeavor with distributed individuals at the core of every pool.

Thus, looking at BTC’s one-hop transactions shows that not only are miners coming back online,
but they are also bullish. Before miners can sell cryptoassets, they must send a transaction
directly to a buyer or an exchange. In either case, there must be a transaction where coins are
sent from individual miners (one-hop) to other addresses.

One-hop outflows (7-day moving average) fell to a seven-year low of ₿15,987 ($691.9M) on
July 15th, when price approached $31,700. This drop followed a massive spike on BTC’s latest
rise to $53,000, implying miners were likely taking profits as the bull market raged on. The
7-day moving average of outflows from addresses “one-hop” from the coinbase transaction
reached a 1-month high of roughly ₿34,560 as miners sold into market strength. However, one-
hop outflows have since fallen -42.4% to month-to-date lows as miners begin to accumulate
and price consolidates. This suggests that miners are holding onto their BTC and further
contributing to what could be a supply squeeze due to market participants accumulating BTC.

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Bitcoin Flows Sent One-Hop From Miners (7-Day Moving Average)

Source: Kraken Intelligence, Coin Metrics

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EIP-1559: The Miner Killer?
Market participants aren’t only optimistic about BTC’s future, but ETH too. Since the latest EIP-
1559 upgrade on August 5th, which was previously thought to deter miners as it would decrease
miner revenue, several ETH mining metrics suggest that demand is strong and the future is
bright. In fact, ETH’s hash rate and miner supply have consistently broken new all-time highs
since the protocol’s upgrade, and revenue has increased up until early in the month on the back
of NFT minting and ETH optimism. However, ETH has since pulled back below $3,000, and signs
suggest that NFT momentum may be fading. With ETH and NFT momentum softening, market
participants should keep an eye out for falling mining revenue, as it could cause some miners to
stop mining and lend insight into market sentiment.

As discussed in our August 2021 Monthly Market Recap & Outlook report, “Game On,” ETH’s
much-anticipated London hard fork went live on August 5th, at block 12,965,000 and included
an upgrade called EIP-1559. Under the new Ethereum improvement proposal (EIP), ETH’s
transaction fee mechanism reduces transaction fee volatility and increases fee market efficiency.
Previously, ETH transactions were conducted using a blind auction-style fee market where
users bid against each other to have their transactions processed by miners, which some
developers believe contributed to high fee volatility. Thus, transaction fees are now composed of
a fixed “base fee,” which is required for a transaction to be included in a block, and a voluntary
tip known as a “priority fee.” While the priority fee is paid to miners, the base fee is “burned.”

EIP-1559 changed the way ETH transactions are prioritized so that instead of users submitting
bids in an auction, their base fee is algorithmically determined by block space demand. The
network’s base fee will always be clear to users as they go into transactions and will not jump
around from one second to the next, making them more “predictable.” EIP-1559 also introduces
greater block size variance to allow block sizes to fluctuate up to 2x the maximum limit during
times of high network congestion. This flexibility intends to improve fee market efficiency and
increase ETH’s transaction throughput. While roughly Ξ661,507 ($2B) has been issued since the
hard fork went live 49 days ago, nearly Ξ351,989 ($1.08B) from base fees have been burned. As a
result, ETH’s total supply inflation during that period was reduced by about -53.2%, all of which
has been in a bid to reduce ETH fee volatility. So long as ETH continues to be a disinflationary
asset, market participants may increasingly view ETH as a store of value.

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Aside from lower transaction fee volatility, this upgrade controversially aims to reduce miner
revenue by making miners more reliant on transaction tips. While this feature was thought
to deter ETH miners, ETH’s hash rate reached a new all-time high of roughly 695 TH/s on
September 21st - a day after the latest market-wide correction. Much like BTC, ETH experienced
a slump in hash rate following the May crackdown in China as many ETH miners were
previously based largely out of China. However, the rise in hash rate since falling to a 3-month
low of 455.4 TH/s in late June shows that demand from ETH miners continues to grow despite
recent market corrections and the EIP-1559 upgrade. This tells us that not only was the reaction
to the China crackdown exaggerated, but miners also viewed the latest upgrade as an overall
boon for ETH that outweighed the cons of its miner reward reduction.

Ethereum Mining Hash Rate

Source: Kraken Intelligence, Coin Metrics

Moreover, increasing ETH prices and high network demand, such as NFT minting with high
priority fees, has kept miner revenue climbing until reaching a near 4-month high of $70M on
September 7th, thus attracting more miners to the network. ETH miner revenue was up around
+27% a month after the fork as NFT activity in projects such as PALS, Junkies, and Loot likely
pushed priority fees higher. However, the latest decline in price took ETH miner revenue down
to levels not seen since the end of July.

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Ethereum Miner Revenue

Source: Kraken Intelligence, Coin Metrics

Market participants should beware of a continued drop in miner revenue since the latest
correction increased NFT softness. After ERC-721 token (ETH-based NFTs) transfers rose
more than +2,000% to all-time highs from May to August, NFT volumes, user count, and floor
prices have taken a hit. NFT marketplace OpenSea has seen daily users, trading volume,
and transaction count fall -23%, -83%, and -31%, respectively, to 31.26K, $51.4M, and 77.8K,
respectively, since reaching all-time highs on August 29th. Should interest in NFTs continue
to weaken in the months ahead, the amount of ETH burned could stall as network usage slips.
This may result in ETH losing its appeal as an increasingly disinflationary cryptoasset - or what
many argue was a driver of ETH’s recent price appreciation. A secondary effect could be mining
profitability falling enough such that some miners are either forced to close up shop or sell ETH.

Though it has yet to be seen whether ETH will lose its momentum in the near term, a close eye
ought to also be kept on individual miner supply. This metric, which reflects ETH in individual
miner wallets that haven’t been moved, will be another critical metric to follow as miner
revenue falls due to EIP-1559. However, the adoption of EIP-1559 has not yet affected the ETH
accumulation amongst individual miners. On the contrary, the amount of ETH held by individual
miners is at its highest level to date.

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Since EIP-1559’s activation on August 5th, ETH miners have accumulated an additional Ξ2M
($6.1B), which caused holdings to hit an all-time high of Ξ22.3M ($68.5B) on September 21st and
make up 19% of ETH’s circulating supply. Of note, ETH accumulation was stagnant for most of
the summer before picking up speed in July in spite of ETH price trending lower. However, ETH
accumulation amongst miners really took off after EIP-1559 as they likely saw the disinflationary
effects of the upgrade to drive up price.

As miners continue to accumulate despite potentially dwindling revenue, it’s evident that this
cohort of market participants is trying to mine and accumulate as much ETH as possible before
the migration to ETH 2.0, which will effectively end mining on Ethereum. Once the network
transitions to a proof-of-stake system sometime next year, these miners will be well-positioned
to become stakers using their coins.

Ethereum Miner Supply (One-Hop)

Source: Kraken Intelligence, Coin Metrics

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 September On-Chain Overview

Cryptoasset Matrix
Bitcoin (BTC) Ethereum (ETH) Cardano (ADA) Polkadot (DOT) Chainlink (LINK)
Monthly MoM Monthly MoM Monthly MoM Monthly MoM Monthly MoM
Avg Change Avg Change Avg Change Avg Change Avg Change
Onchain Economics
Active Addresses 887.0K 6.2% 537.1K -5.9% 148.4K 73.5% 29.6K 15.7% 5.5K 9.6%
Active supply 1 yr 8.6M -0.3% 79.9M 0.0% 26.4B -1.4% 812.7M 0.8% 395.2M -2.6%
Active supply 30 days 1.4M -16.1% 36.3M 2.6% 9.6B 16.6% 296.4M -7.0% 185.5M -17.4%
Transactions 253.1K 7.4% 1.2M -1.4% 85.9K 122.6% 179.9K 30.9% 7.6K 2.6%

Network Value

Market Cap 892.1B 11.0% 399.2B 20.8% 84.1B 55.9% 33.5B 54.8% 27.7B 17.1%
Free Float Supply 14.5M -0.1% 111.7M -0.4% 30.9B 1.0% 1.1B 0.8% 450.7M 1.5%

Total Issuance 44.6M 6.0% 46.0M 21.6% - - 8.9M 24.7% - -

Total Supply 18.8M 0.2% 117.2M 0.2% 32.3B 0.2% 1.1B 0.8% 1.0B -

Transaction Fees (USD) 657.4K 11.1% 37.3M 154.2% 47.5K 213.2% - - - -

Transaction Fees (Native Units) 13.9 -0.1% 10,848 114.8% 18.3K 118.3% - - - -

Network Security

Hash rate (TH/s) 133.0M 16.5% 0.6K 15.8% - - - - - -

Mean Difficulty 17.86T 22.2% 8.67T 15.0% - - - - - -

Hodl Distribution

Addresses with balances > $100 15.4M 3.3% 10.6M 14.5% 1.6M 13.6% 302.8K 26.2% 349.8K 7.3%
Addresses with balances > $1K 6.4M 5.0% 3.1M 13.6% 855.1K 22.8% 105.6K 32.6% 170.5K 11.6%

Addresses with balances > $10K 2.1M 6.8% 648.3K 14.5% 275.1K 32.0% 25.0K 40.2% 39.3K 14.0%
Addresses with balances > $100K 406.3K 7.1% 118.4K 18.1% 55.6K 37.9% 5.3K 33.7% 6.6K 12.5%

Source: Kraken Intelligence, Coin Metrics

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On-Chain Highlights
• Month-over-month, on-chain activity across some of the largest blockchains saw a
meaningful uptick; on average, the number of active addresses rose +20%, with Cardano
and Polkadot seeing the most notable upticks in network activity at +74% and +16%,
respectively.

• Crypto hodlers grew across the board as bullish momentum persisted; DOT and ADA
hodlers led the pack with an average increase of +33% and +27%, respectively.

• The latest rise in on-chain activity occurred alongside a jump in network value across the
board as BTC’s hash rate is rising once again, ostensibly placing the worst of the China
mining crackdown in the rearview mirror.

• Cardano’s +74% increase in active addresses, +123% rise in transactions, and +56% gain
in market cap can be attributed to the September 13th Alonzo hard fork. This upgrade
introduced smart contracts to the network, which have been a long-anticipated feature on
Cardano since its launch in 2017.

• ETH’s network transaction fees (USD) skyrocketed over +154% to a whopping $37.3M on the
back of “NFT Summer” and increased demand for ETH due to the supply issuance reduction
brought by EIP- 1559. Still, ETH fees will likely start to decline if NFTs do not pick up steam
in 4Q.

• Polkadot’s +16% increase in active addresses, +31% rise in transactions, and +55% gain
in market cap may be related to Kusama successfully completing its first five parachain
auctions on Kusama. DOT likely saw the increase due to Polkadot’s founder Gavin Wood
having said the completion of the first batch of Kusama auctions would be necessary
before Polkadot parachain auctions started. Wood also recently announced that five more
parachains are coming to Kusama, meaning parachain auctions on Polkadot are a step
closer to launching. As such, it’s probable that market participants are increasingly buying
Polkadot in hopes of parachains coming to Polkadot soon.

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Conclusion and Outlook
Though crypto’s summer appeared to have been ending on a positive note, some are now
uncertain of what lies ahead for crypto after BTC’s latest market correction. However, on-chain
data for both BTC and ETH indicates that demand from market participants remains strong, and
the bulls likely have not lost control of the market just yet. Indicators such as BTC’s HODL waves
and ASOL imply long-term holders were unfazed by the crash and used it as an opportunity
to continue accumulating. This supply crunch brought by long-term holders is coupled with
increasing on-chain demand as BTC’s monthly active entities rise.

Key on-chain indicators such as hash rate, difficulty, and one-hop outflows signal robust miner
demand. BTC’s hash rate has risen +60% since the recent China mining crackdown that caused
mass uncertainty in the market and is on track to reach new heights before the end of the year.
BTC’s difficulty ribbon compression also appears to be nearing the “buy” territory and is set
to reach the threshold by next month, further bolstering that the mining space has begun to
normalize following a rough past few months. Furthermore, individual miner outflows reached a
1-month high of roughly ₿34,560 on September 2nd and have since fallen -42.4%, meaning BTC
miners are holding for the time being.

On-chain metrics also suggest that increasing miner demand is also evident in ETH, despite
the latest EIP-1559 upgrade in August that was thought to keep miners from coming online by
reducing miner revenue. Since the upgrade went live, ETH’s hash power and miner holdings
have blasted through all-time highs. Also, miner revenue broke up to as much as $70M on
September 7th due to robust demand for NFTs and bullish market sentiment for ETH. However,
now that ETH and ETH-based NFTs have softened with the latest market pullback in September,
market participants should watch for falling miner revenue as it could lead to a temporary
offboarding of some less-profitable ETH miners and could lend further insight into overall
market sentiment.

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