The state of crypto – December 2022
Summary: Heading into the final month of the year, the balances of Bitcoins and Ether on exchanges are at the lowest levels in years upon fear of contagion following the collapse of FTX. This may indicate less sell pressure, yet it appears that some long-term holders have lost faith in crypto. In addition, particularly more traditional traders opened Bitcoin short positions in November.
Immediately upon interacting with a blockchain, much data becomes publicly available on a public ledger. Analyzing this data may provide crypto traders and investors with helpful insight into the present state of the market. In “The state of crypto”, we take a look at the most important metrics to observe the market based on transaction and trading activity. Our main focus is the two largest cryptocurrencies Bitcoin and Ethereum, and we divide the metrics into short-term and long-term indicators. You find the report for the last month here.
Promptly next to the shocking collapse of the crypto exchange FTX, the crypto market reacted by withdrawing funds from exchanges in fear of contagion, in case other exchanges would be insolvent too. In numbers, nearly 2% of the total Bitcoin supply and over 2% of the total Ether supply left exchanges in November alone. In fact, Ethereum approaches an all-time low in terms of supply held on exchanges. Seeing that funds have flowed away from exchanges, potential sell pressure in the short-term will be more limited now than a month ago, simply because crypto taken off exchanges is less likely to be sold.
On the other hand, there may have been a flow from some long-term holders to exchanges, as the dormant circulation for Bitcoin and Ethereum has surged. The dormant circulation counts how many Bitcoins and Ether were moved after not being moved for at least 365 days prior to that. Since the funds have not been moved for at least 365 days, these wallets are often controlled by more long-term holders. In theory, the surge in the dormant circulation can be due to the outflow from exchanges, but it is also likely due to a flow in the opposite direction, namely from long-term holders to exchanges. The latter implies that some long-term holders have sold Bitcoin and Ether, likely because of fear that FTX will lead the crypto market to a total collapse. Yet, if this is the case, these Bitcoins and Ether have largely already been sold.
In the past couple of months, there has been a clear trend that wallets with a low balance are accumulating, whereas wealthy wallets are cutting their portfolio. This trend intensified greatly in November. The intensification may mainly be due to the outflow of exchanges, yet nothing indicates that the trend has reversed, so whales have likely not collectively started accumulating.
Once again, long-Bitcoin funds saw an inflow equal to $6.9mn into exchange-traded crypto products e.g., ETPs and mutual funds, whereas Ethereum encountered an outflow equal to $1mn. Interestingly, exchange-traded short Bitcoin products saw an inflow of $22.2mn. This indicates that particularly more traditional traders are presently short Bitcoin, as crypto-native traders often use perpetual futures and not exchange-traded products when shorting.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.