Will bitcoin (BTC) move beyond “digital gold”? Is ether (ETH) viable as money? In 24 charts, CoinDesk Research shows what happened to crypto assets in Q1 2020 and examines what may emerge in the future. Download our Q1 analysis here, and join us on April 15 for a webinar discussing our findings and other relevant cryptocurrency research.

The CoinDesk Quarterly Review provides research-based insights on how the narrative has changed for blue-chips such as bitcoin and ether. We look at which assets outperformed on returns, and how the participants in crypto markets are shifting in the wake of Q1’s defining event, the March 12 plunge.

Bitcoin’s “digital gold” narrative grew up in a “bull market in everything.” Bitcoin as gold 2.0, a hedge against inflation and a safe haven in an eventual crash, was a meme investors readily understood.

Now, we’ve seen an economic crisis cause dislocation in crypto markets and push bitcoin’s price downward in tandem with stocks. Gold and Treasury bonds appeared to have failed to live up to “safe haven” expectations. If gold’s narrative is being debated, do we still know what “digital gold” means? At the very least, the events of the past month have put to rest the notion that bitcoin today can be a “haven.”

Q1 crypto analysis: Chart showing bitcoin returns vs S&P, gold and oil

How March 12 shook crypto markets, and how it didn't

The crash shook participants in crypto markets. Open interest in bitcoin futures and perpetual swaps fell off a cliff in March. These markets are used by traders large and small to speculate on bitcoin’s price, and as a temporary hedge against positions in the spot market. Futures volume spiked and settled at a higher baseline, as it did in spot markets. The increased activity is taking place in a shrunken market. About $1.6 billion of traders’ positions were liquidated over two days in March. The sharks are eating each other in a smaller pool, as it were.

At the very least, the events of the past month have put to rest the notion that bitcoin today can be a “haven.”

Bitcoin’s long-term holdings, however, remained unmoved. “Hodlwaves” use Bitcoin timestamps known as UTXOs to measure how long each bitcoin has been held. Tracking time between transactions is a useful measure of long-term “buy-and-hold” activity. That activity is consistent with bitcoin’s use case as “digital gold,” a putative store-of-value. Note that long-term holdings (180 days or more) did not change perceptibly during the March 12 crash. Balances held between 90 days and 180 days shifted abruptly. Were bitcoin sellers concentrated among three- to six-month holders? Or were exchange balances, which shifted on these dates, concentrated in that band?

Quarterly crypto analysis: bitcoin hodlwaves show long-held assets stayed put

Alternative user narratives: Return of payments?

Some of bitcoin’s long-term holders are surely hoping in time it will prove itself as a haven or store of value. But events such as the March crash open the door to new narratives. The flagship crypto asset’s next meme will set the adoption curve for verifiably scarce digital assets. Will payments re-emerge as an avenue to adoption?

Since launch, the number of computers running the Lightning Network has increased on average 53 percent every quarter. Lightning is a “layer two” payments system built on top of the Bitcoin network. The value held within Lightning payment channels has also increased.

Quarterly crypto analysis: growth in Lightning nodes shows interest in bitcoin as a payments network

New importance for bitcoin and ethereum technical road maps

It’s possible a new user adoption narrative will be something quite different from what long-term investors in bitcoin have contemplated to date. Will Bitcoin developers add capabilities — like Schnorr signatures, with their privacy and programmability — that lead to its adoption as digital financial infrastructure?

The technical road map emerges from Q1 2020 with increased importance for ethereum, as well. Ether evangelists have spread the meme “ETH is money” in the belief that it has potential as the base currency of a decentralized, digital banking system, dubbed “decentralized finance” or “DeFi.” The failure of flagship DeFi systems during the March 12 crash have raised questions about that narrative. Now more than ever it seems to be dependent on a relatively uncertain road map for “ETH 2.0,” an improvement designed to allow more transaction throughput.

On March 12, total ETH locked in DeFi applications increased as expected, then crashed amid a crisis in DeFi’s programmatic governance. If “ETH is money,” we’d expect to see the amount locked in DeFi and the ETH price grow in tandem, long-term. For the near term, a recovery to previous levels would indicate a restoration of confidence in DeFi systems.

Quarterly crypto analysis: chart showing ETH locked in DeFi and the ETH price