Join Delphi Research today and immediately get access to our full Member Portal!
Join Delphi Research today and immediately get access to our full Member Portal!

Bitcoin Market Structure, Fees and Lightning

Sep 28, 2021 · 4 min read

By Ashwath Balakrishnan

Market Update

Barring a handful of tokens and stablecoins, virtually all of crypto is in the red today. The Sep. 21st bottom remains intact, but the market still looks fairly weak. It wouldn’t be surprising to see a break of BTC’s local low at $39.5K. For now, the signs point to a ranging market, so it’s probably wise to prepare yourself for some incredibly frustrating price action.

Large Options Expiry as BTC Trends Down
  • Last Friday saw the largest expiration of BTC options since Apr. 2021. This isn’t all too surprising, as quarter-end expirations tend to be larger than regular monthly expirations. However, open interest tends to recover quite dramatically over the course of the month post-expiration. So if we don’t see that bounce, it could be a sign of continued market exhaustion.

Traders Load Up on Insurance
  • The put-call ratio measures the relative purchasing demand between puts and calls based on outstanding open interest. We’ve seen increased demand for puts as BTC continues to look weak, which is yet another sign there’s a lot of fear brewing within the market.
  • Oftentimes, the put-call ratio helps identify pivot points where traders are going ham on puts (buying insurance), and calls start to look cheaper — and thus have more attractive upside. We cannot be certain if we’ve hit that pivot level just yet, but the longer the demand for puts stays at this level, the sooner we hit it. Put buying seems to be concentrated in Oct. 8 expiring options, so there may be some relief for the market thereafter.

Bitcoin Fees Collected Reach Multi-Year Low
  • Bitcoin miners’ earned fees are down to a 20 month low, with just over 8 BTC worth of fees collected yesterday. At the height of the bull market, miners were pocketing over 200 BTC in daily fees, implying a whopping 96% decrease.
  • On the bright side, these plateaus don’t last very long (see Sep. 2019 – Mar. 2020 on the chart). But realistically, this is a sign that network usage has dropped significantly as fewer people are transacting on-chain.

Lightning Quick Payments
  • On a more positive note, the Lightning Network is as lively as its ever been. Payment facilitation capacity–or the total amount of bitcoin on the network–is now up to 2,900 BTC ($121.5M at the time of writing). Meanwhile, over 75,000 active channels are facilitating these payments.
  • It’s unlikely that Lightning growth is responsible for lower fees as people migrate from L1 to L2, but it has definitely played a role in making Bitcoin more accessible and friendly to smaller players who cannot pay $10 in transaction fees.
  • Strike, a private app built on the Lightning Network, has taken off in El Salvador and is very likely the core catalyst for Lightning’s growth. The Lightning Network had a rough past few years, with virtually no uptick in usage between Sep. 2019 and Apr. 2021. Most of this growth happened after El Salvador’s move to adopt Bitcoin, adding more confluence to Strike as the driver of the Lightning Network’s growth.

Notable Tweets

5G cellular data, powered by Helium Network

A paradigm shift in marketing and promotion?

A primer of Alpha Finance’s new trading primitive

Join Delphi Research today and immediately get access to our full Member Portal!

Join Now  or  Sign in