This is the monthly market insights report for June 2022 Bitcoin.com Exchange. In this report and subsequent reports, expect to find crypto market performance summaries, macro reviews, market structure analysis, and more.
cryptocurrency market performance
The macroeconomic outlook continues to be unfavorable for risk assets due to high inflation, rising commodity prices and a tight U.S. labor market. Additionally, cryptocurrencies have experienced a credit crisis as major lending companies such as Celsius, 3AC, and Babel Finance went bankrupt.
despite seeing huge losses bitcoin and Ethereum, some large-cap assets remained firm. Of the top 50 assets by market cap, Helium has been the most positive performer, up 33% over the past 30 days. LEO is up 11.20% while LINK is almost unchanged. The worst performers were AVAX, down 44%, Bitcoin Cash (down 39%) and Cronos (down 40%).
Macro review: Commodity pressures despite central bank action
At the recent FOMC meeting, the Fed raised rates by 75 basis points for the first time since 1994. This is due to persistently high CPI figures, at 8.1% in May 2022 (the highest level since 1981). Labor conditions in the U.S. remained tight as April data (released June 1) showed job openings fell only marginally to 11.4 million after hitting an all-time high of 11.8 million in March. Chairman Powell hinted at another rate hike of 50 to 75 basis points, which will be announced at the FOMC July 2022 meeting.
Supply chain issues coupled with political instability continue to push commodity prices higher as central banks tighten policy. Oil led the way, with light oil futures hitting $120 a barrel before settling above $105 in the most recent session. Supply and demand continue to balance toward higher demand. While high oil prices have caused some damage to demand, supply has been tight due to supply chain constraints due to sanctions on Russian exports.
Market structure: Forced capitulation a sign of a local bottom?
bitcoin In a one-month time span, the market saw two massive forced sell-offs.First, the Luna Foundation liquidated its assets and sold 80,000 bitcoinand a considerable amount of Ethereum and other current assets. This was followed by the credit crunch and liquidation of Celsius, 3AC and Babel Finance. The cryptocurrency market capitalization fell 2.1 tons from its all-time high set in November 2021.
This puts pressure on miners, who also face rising electricity bills. As prices continue to fall, we could see miners’ profitability drop.According to Glassnode’s difficulty regression model, the current “full sustaining cost” of mining is $17,800, which is approximately bitcoin Trading last weekend.
With Bitcoin’s hash rate already down 10% from its all-time high, it appears that unprofitable miners have gone offline.
One could argue that as profitability declines, miners will become forced sellers. The Puell Multiple (PM), shown in orange in the graph below, is an oscillator that tracks the revenue generated by miners. PM shows a value of 0.35, which equates to income 61% below the annual average. This is close to the level of the 2014/2015 and 2018/2019 bear markets. At the time, miners had a PM multiple of 0.31, representing a 69% drop in revenue compared to the annual average.
The Difficulty Band Compression (DRC) shown in purple in the image above is the miner’s stress model. Indicates that the miner is offline. There are many reasons why miners go offline. These include regulatory considerations, an increase in the difficulty of the Bitcoin algorithm, an increase in the cost of electricity, and of course, a decrease in profitability due to lower market prices. In the chart above, we can see a drop in this metric, which indicates a decrease in the number of active rigs for one or more of the reasons above.
Next, we’ll look at the Long Term Holder (LTH) queue. LTH is under pressure as market participants capitulate. As shown in the graph below, the total supply of the LTH queue decreased by 178K bitcoin In the past month, it accounted for 1.31% of the total shareholding of the Group.
Another interesting indicator to understand the current state of the sell-off is that old supply is recovering. As you can see in the picture below, about 20-36K bitcoin It is currently recovering on a daily basis, similar to the levels seen on April 22. This indicator can be considered a fear gauge as it indicates that long-term holders need to sell positions due to current conditions.
Finally, we’ll look at the inflows and outflows from centralized exchanges, also known as netflow exchange balances. When we see the market flowing into exchanges, we can assume that market participants are looking to sell their tokens. When we see market exodus from exchanges, we can assume that market participants are looking to hold their tokens.
Below, we can notice strong market inflows in May 2022 following the LUNA crash, with inflows reaching +4% weekly (forex balance). This is similar to the 2018-2019 sell-off (>1% inflow of exchange balances).
However, during the most recent sell-off (June), we noticed a weekly outflow of 2.8%. This can be attributed to the uniqueness of the sell-off. With the credibility of some of the largest cryptocurrency players in question, participants may be forced to move their tokens to self-custody, where there is less perceived risk.
Taken together, the market has experienced back-to-back sell-offs in May and June 2022. While these are driven by strong macro headwinds, two black swan events (namely the LUNA crash and the bankruptcy of major companies such as 3AC) may have created oversold conditions. This may indicate that we have seen a partial bottom. However, macro conditions are likely to continue to have a strong impact on the market in the long run.
Image Source: Shutterstock, Pixabay, Wiki Commons