New report on crypto flows after Ethereum’s Merge

CoinShares’ new weekly report on crypto market flows after the launch of the Ethereum Merge is out. The results indicate a market that is still on hold.

The report on the Ethereum Merge, the effects on the market

Digital asset investment products recorded inflows totaling $7 million last week, marking another week of low activity. The combination of positive and negative flows from providers and assets suggests, according to a continued lack of engagement among investors at the moment. These are some of the findings of the latest report from analytics firm CoinShares.

The data that have emerged make it quite clear that the market appears to be basically waiting for some event that might persuade a return to the cryptocurrency markets. The data takes on even more significance because it was made in the week that finally saw the launch of the long-awaited Ethereum Merge, which many experts see as one of the major market innovations of the past decade.

The data also show some initial positive signs, such as that related to Bitcoin, with inflows totaling $17 million. This is quite an important figure because it represents the first sign of a reversal, after five weeks of outflows totaling $93 million.

According to CoinShares experts, the attitude of the Fed, which is implementing a restrictive policy on interest rates to fight inflation, is certainly having a heavy impact on investments in risky assets such as cryptocurrencies.

The report reads:

“Regionally, the inflows were focussed on the US and Germany, totalling US$14m and US$11m respectively. While Sweden and Canada saw outflows totalling US$16m and US$4.2m respectively.”

Still uncertainty in the markets

One final figure represents how investor sentiment is still leaning toward caution, and that is to certify the growth of investments in multi-asset products. Multi-asset investment products seem to confirm themselves as a staple during this long bearish period in the market. After seeing only a few weeks of outflows this year. Inflows since the beginning of the year now total $224 million, almost matching Bitcoin’s total inflows, implying that investors are looking for safety in numbers.

But while on the flows side the crypto market continues to somewhat disappoint expectations, still manifesting a substantially negative and wait-and-see market, the so-called GameFi market, i.e. gaming linked to blockchain and the cryptocurrency world, seems to be unaffected by the negative market influences in the second quarter of the year, after a substantial hold in the first

In particular, analytics firm Nonsense analyzed the sidechain market of Ronin, which controls the popular GameFi game, Axie Infinity, increasingly popular among young people. Ronin is an Ethereum sidechain created specifically for the Axie gaming ecosystem. It was created to fuel the play-to-earn revolution and has become a key player in the crypto games space. It is a precursor to play-to-earn, the games that through NFTs allow players to earn forms of income, just by playing their favorite game.

What is a sidechain? 

A sidechain is in simple terms a separate blockchain that runs in parallel with the Ethereum network and operates independently. It has its own consensus algorithm and is connected to the mainnet by a two-way bridge.

Sidechains support general computation and are compatible with EVM, ETH’s virtual machine.

Axie Infinity’s Ronin and TVL

The report showed a significant drop in Ronin’s TVL (Total Value Locked) in the second quarter, which collapsed to $55 million from $318 million in the first quarter of the year, a percentage drop of 82.7%, compared to a 62.5% drop in Ethereum’s TVL. The number of transactions on Ronin was almost half that recorded by the Ethereum network. It is enough to think that in November, Nonsense had recorded 560% more transitions for Axie Infinity than Ethereum itself.

Ronin, on the other hand, has much cheaper transaction costs than the Ethereum network, and this too, in addition to the boom in play-to-earn games, had resulted in exponential growth in 2021 for the Axie Infinity-related sidechain.

In March, Ronin suffered a hacker attack that siphoned off about 5,000 ETH, worth about $600 million, thanks to a flaw in the Ronin bridge; the hacker allegedly used hacked private keys to forge withdrawals, draining funds from the Ronin bridge in just two transactions.

As of 28 June, the Ronin team had successfully reopened the Ronin bridge with updated functionality. An update had been made to the Bridge Smart Contract software so that validators could set a daily limit withdrawal from the Ronin bridge. 

In the report’s conclusions, referring to the new Origin update that seems to have restored momentum to the Axie Infinity game, it states:

“Overall, despite the general decline in activity, there had been some interesting developments in the Ronin sidechain and Axie ecosystem, with Axie Infinity: Origin.”