Unwrapping What's Happening On-Chain: A Christmas Commentary Report
A consolidated report on the state of the market heading into the new year.
As the Bitcoin price has reached the $100,000 milestone and the end of the year approaches, it is a great time to reflect and project. This report aims to:
Give thought to 2024 and it’s large strides in development of the space.
Understand the current landscape of the market and industry.
Forecast the outlook for 2025 and beyond.
1. The regulatory and macroeconomic backdrop:
Prior to the beginning of this year, the fallout of the FTX crash captured significant mindshare of investors and policy makers in the space. Regulation through enforcement seemed to be the approach of the incumbent government and lead of the SEC, Gary Gensler. It was safe to say that the industry faced a regulatory overhang.
Yet, following the succession of the new Trump’s administration - the United States now appears to have the most crypto-friendly regulations in its history.
Trump has already engaged with key industry participants such as Brian Armstrong, the CEO of Coinbase. Has appointment the new Crypto and AI Czar, David Sacks and directly supports “World Liberty Financial”, his family owned DeFi project. Trump personally, is now a vocal supporter of the the industry.
But more critically, following the resignation of Gary Gensler and appointment of Paul Atkins as SEC Chair, the threat inhibiting actors in the space has now been removed through reversals of the tone set by regulators and policy makers.
For instance, in March 2022, the U.S. Department of Labor issued guidance “cautioning 401(k) plan fiduciaries about the significant risks of adding crypto currency investment options to their plans.” The DOL even went so far as to say it would “undertake an investigative program to protect plan participants from these risks”. With a new administration in D.C., it is expected that the Department is to soften that guidance.
Hester Peirce, current Commissioner on the SEC, who supports digital assets, had the following to say on the appointment of Paul Atkins as Chair of the SEC:
Furthermore, Senator Cynthia Lummis has proposed a bill that would have the U.S. buy 1 million bitcoins over a five-year period, and President-elect Trump has endorsed the idea. But currently Polymarket puts the odds below 30% and it remains nothing but murmuring for now.
Nevertheless, it is clear that the the regulation of the on-chain ecosystem has pivoted from negative to positive in 2024.
Now let’s turn to the rate environment and liquidity cycle to appreciate the macroeconomic landscape and the context of the development of the Blockchain space within the wider business cycle.
At the start of the year we were sat at peak FED funds rate with tightening of liquidity conditions being imposed in order to combat inflation. Following increasing confidence that inflation has subsided, the Federal Reserve began reversing it’s previous tightening cycle, and began with a more dovish stance.
And now there is a c.95% probability of a cut in the next FED meeting on Dec 18th:
Meaning an annual reduction of likely 100 basis points. With the FED dot plot currently suggesting further downside of 250 basis points to come by 2027 Yearend:
It appears that the brief period of Quantitative Tightening (QT) seems to have come to an end in the United States, at least for now. Many other countries are following suit in terms of financial conditions, the European Central Bank and Bank of England have also started to reduce their central bank rates. China, is even set to be stimulating it’s economy heading into the new year:
Globally, liquidity is starting to pick back up. Leading to a risk-on environment for the ecosystem to enjoy, through favourable conditions politically and economically.
2. Adoption:
The big story in terms of adoption, are the ETFs. The impact of these investment vehicles being approved can not be understated for either the Bitcoin or Ethereum networks. Unlocking significant capital from, and exposure to, traditional finance.
The Bitcoin ETF celebrates being the fastest growing ETF in the world, eclipsing gold to be the fastest to achieve $1Bn assets under management (AUM), and now sits comfortably with an AUM of c.$57Bn.
While the more recent Ethereum ETF, has achieved a AUM of c.$13Bn respectively.
Many firms are starting to allocate small percentages of their treasury to the asset class. However it is key to note that many entities still do not have board permissions or the systems set up to gain exposure through the ETFs, even if they have the risk appetite. Traditional investing is certainly done as at a slower speed than the crypto space. This means that the bidding is likely to continue going into 2025 and beyond.
So institutional adoption has arrived, with large financial entities entering the market:
- MicroStrategy:
- BlackRock:
While many more are evaluating their options following changes to regulations:
However, institutions are not just buyers of the assets, they are also integrating and innovating to build in the space. For example, Stripe, paid $1.1 billion to acquire the Stablecoin platform Bridge in October. Many others have also started to launch:
For a comprehensive list of high profile entities building on-chain, please explore the valuable resource below, which has complied all notable projects:
It is also possible that Coinbase will enter the S&P 500 and MicroStrategy will enter the Nasdaq-100, adding crypto exposure to nearly every U.S. investor’s portfolio. Meaning the care for and nurturing of the industry becomes aligned with the every day investor, and therefore voter. Leading to the potential for longevity of protections.
It’s not just private institutions either, in the UK, the new Chancellor made a big announcement, dubbed "DIGIT". The labour government is introducing a digital GILT instrument, leveraging distributed ledger technology. UK Finance and EY have even published a roadmap, signalling major momentum for this product to launch.
While the US Treasury states that the "primary use case for Bitcoin seems to be a store of value aka digital gold”. This sentiment is shared by FED chair, Jerome Powell. Who, in a recent interview, described Bitcoin as “a competitor for gold, a digital gold”.
From the US Treasury’s recent “Digital Assets and the Treasury Market” report:
3. What can be gleaned from the on-chain data?
Well let’s dive in:
I have created a Dashboard to track key metrics in real time in order to supplement this report and track how things progress through 2025, you can access it here:
Some highlights to focus on include:
Stablecoins
The total market capitalisation of the Stablecoin market approaches all time highs of $120Bn.
With the two largest players (USDC and USDT) with a market dominance approaching 90% together, at c.25% and c.65% respectively.
DeFi
The accumulative total volume of transactions in DeFi this year has total to $675bn:
The monthly number of unique DeFi users (unique addresses), hit its highest value:
It’s important to note that unique addresses are an overestimation of users, as users may use multiple addresses. Despite that the direction of the trend can be a signal.
ETH Staking
An indicator that has steadily been increasing over time including this year, is the total amount of ETH staked. This is now approaching 35m ETH or 28.24% of the total supply of Ether the asset.
With the following marketshare landscape:
The Dune index
This is Dune’s on-chain adoption index that measures blockchain adoption over time. Normalizing transaction fees, transfer volumes, and number of transactions has been increasing this year:
The methodology of how this is calculated can be found here:
It appears that overall, the YTD growth on-chain has been fruitful in 2024.
4. Where are we headed?
Well, the regulatory certainty provided to industry participants will allow for more aggressive business decisions to be made. This will enable more intra-ecosystem collaboration, such as the recent strategic relationship between Binance and Circle. But also the unlock of value from the network out into the traditional market, for instance: the potential for a launch of ETH ETFs with staking included. This will allow holders to benefit from the yield provided through locking up the token.
Also with more favourable market conditions, previously postponed IPO’s such as Kraken’s, or alternatively Circle appetite to go public could now gain traction and lead to success in the public debt markets.
A large winner from the change in administration is likely to be Stablecoins. As the lowest-hanging fruit for the new regime of pro-crypto policymakers in Washington is passing comprehensive Stablecoin legislation.
Stablecoins has already seen significant growth this year and seems set-up to escalate:
USDT (Tether) for instance has just surpassed $125Bn alone:
Tokenisation also appears to be a strong theme, with Real World Assets (RWAs) increasing significantly this year, Bitwise predicts a valuation of $50Bn by 01/01/26.
While AI agents & memecoins showcase a convergence of two ground-breaking technologies - AI and crypto. An exciting breakthrough in this space is Clanker, an AI agent built to autonomously deploy tokens on Base, Coinbase's Layer 2 scaling solution secured by Ethereum.
This is a more recent phenomenon, in less than a month, Clanker has deployed over 11,000 tokens, generating more than $10 million in fees. While it is unlikely that these memecoins offer real-world utility, it is a possibility that AI-launched tokens will spark further user growth in 2025 that is located on the Base chain and SOL chain.
There are also many projects which do offer real-world utility that are worth paying attention to, of which the following seem positioned to make garner support in 2025:
Decentralised Science (DeSci), aiming to leverage blockchain technology to aim for a more open, incentivized, and community-driven scientific research.
Regenerative Finance (ReFi), an alternative financial system that promotes and restores environmental, social, and financial stability along with monetary gains.
Decentralised Social Networks (DeSoc), is a growing sector of crypto that utilises blockchain technology to establish a novel standard for sharing ideas and information digitally.
Decentralised File Storage, a system that distributes data across multiple nodes in a network, instead of storing it in a single location.
The network securing and benefiting from the majority of this growth is Ethereum.
Activity on optimistic rollups like Base, Optimism and Arbitrum as well as ZK rollups such as Starknet and ZKsync have accelerated. It is transparent that momentum is building as the majority of decentralised applications (dApps) are built on the network.
A key possibility is for the approval of staking ETH ETFs to act as a catalyst and provide consistent bidding for the native token, Ether. This could potentially spark a mean reversion in the intra-market cyclicality, away from Solana and Bitcoin - who have observed outperformance in 2024. Once the memecoin mania on SOL and BTC dominance begins to wain, it is expected that the market will reprice the fundamental strength of the Ethereum ecosystem as the potential is unlocked through regulation and confidence in the market.
Ether is currently positioned at multi-year lows relative to the price of Bitcoin:
And it’s fundamentals and tokenomics are supportive of success:
With token supply stabilising around 120m and projected to become deflationary:
As entities building on the blockchain continue to contribute to removing token supply, through the burn mechanism, inbuilt into the blockchain through EIP1559 -an upgrade to the Ethereum protocol that occurred on August 5th, 2021 to change how Ethereum calculates and processes network transaction fees.
This is a table of the top entities burning Ether through purchasing block-space from the Ethereum blockchain:
In addition to this, over c.20m ETH - currently worth $78m is locked away in a variety of DeFi applications:
Meaning the circulating supply impacting the spot price or supply available on exchanges continues to diminish. Leading to the market impact of each purchase on CEX’s being significant on price action:
It is important to note that price determines narrative, rather than the other way around. Price appreciate can lead to a change in narrative and then the move can quickly become strongly reflexive, as enthusiasm grows and this supply shock sets in.
All while, the technology is proving to be scalable.
With the introduction of “blobs” as opposed to “call data” for Layer 2’s utilising the Ethereum blockchain in EIP4844 to use, transaction costs have reduced significantly on leading Layer 2 Blockchains to sub $0.01 per transaction.
This is all while the number of transaction of these Layer 2 solutions increases:
These Layer 2 ‘s are now profitable protocols and are approaching transaction per second (TPS) of 400, which provides validation to the blockchain rollup thesis.
5. Summary
"There are decades where nothing happens; and there are weeks where decades happen"-- Vladimir Ilyich Lenin. J Hepatol.
This is how I would describe 2024 and it’s profound impact on the industry. The final chapter of this year felt as if it was the weeks where decades happen - in terms of Crypto’s history. It is an exciting time to be a participant in the space watching the world beginning to lean into the next generation global settlement layer.
The outlook, in terms of the technology, adoption and price action of the native tokens of the blockchain networks, has never looked more positive heading into 2025. The industry is starting to mature and applications are poised to make tangible impacts in the world. Following legislation and answers to regulatory uncertainty.
It will be interesting to see how the $100,000 milestone for Bitcoin catalysis the space. As ultimately, price is the final arbiter when it comes to confidence in the network. Especially when considering the mission to onboard the next billion users.
Thank you for taking the time to read my Christmas Commentary Report.
Enjoy the holiday season and be merry,
Dewi Perrin
The information provided in this article is for general informational purposes only and does not constitute financial, investment, legal, or professional advice of any kind.