TLDR:

• Most crypto assets fell significantly in August, with Bitcoin down 11% and Ethereum down 24%
• Declining blockchain usage and large Bitcoin sales by governments contributed to weak performance
• Ethereum continues to struggle, losing market share to faster competitors and Layer 2 solutions
• Tron was a top performer, up 20% on growing stablecoin usage and meme coin activity
• zkSync lagged, down 24% as user growth stagnated after its token airdrop

Van Eck have published their crypto report for August 2024, it’s not pretty reading.

August 2024 saw most cryptocurrency assets experience sharp declines amid rising market volatility and a broader risk-off environment. Bitcoin fell 11% for the month, while Ethereum dropped a more substantial 24%.

Other major cryptocurrencies like Solana also saw double-digit percentage losses.

The crypto market downturn was driven by several factors. A “flash crash” on August 5th saw Bitcoin briefly dip to $49,000 and Ethereum to $2,100 before partially recovering. This volatility was reportedly triggered by the unwinding of leveraged positions related to the yen carry trade.

Blockchain usage metrics deteriorated in August. Daily active users declined 10%, fees generated fell 12%, and decentralized exchange volumes dropped 4% compared to July.

Large Bitcoin sales by the German and U.S. governments, totaling 62,000 BTC, also pressured prices. The Mt. Gox bankruptcy distribution of 124,000 BTC added further selling pressure.

Ethereum continued to underperform relative to Bitcoin and many of its competitors. Since the start of the crypto bull market in November 2023, Ethereum ranks just 13th in returns among major Layer 1 blockchains with a 62% gain, compared to Bitcoin’s 138% return.

Ethereum’s share of total blockchain fees has declined from 86% to 33% since 2022 as faster rivals have gained traction.

The shift of activity to Ethereum Layer 2 solutions has also impacted Ethereum’s economics. While intended to improve scalability, Layer 2 blockchains are capturing an increasing share of transaction fees and MEV (maximal extractable value) that previously accrued to Ethereum. Ethereum’s share of fees in its own ecosystem has dropped from 98% to 89% since 2022.

Among Layer 2 solutions, Coinbase’s Base blockchain saw strong growth in August. Base now has nearly 10 times more addresses deploying smart contracts than rivals like Arbitrum and Optimism combined. This highlights the advantage of Coinbase’s large user base in driving adoption.

Tron was a notable outperformer in August, with its TRX token gaining 20%. This was driven largely by growing stablecoin usage on the network and the launch of Sun Pump, a new meme coin creation platform. Tron now has more Tether (USDT) stablecoin value circulating than Ethereum.

At the other end of the spectrum, zkSync’s native token fell 24% in August as user growth stagnated. After an initial surge of activity driven by speculation around its token airdrop, zkSync has struggled to maintain momentum in the competitive Layer 2 landscape.

Looking ahead, the crypto market faces both headwinds and potential catalysts.

Regulatory uncertainty remains a concern, with the SEC recently issuing a Wells notice to major NFT marketplace OpenSea.

However, growing institutional adoption and the potential approval of spot Bitcoin ETFs could drive renewed interest.