State of the Industry 4Q2022 Report

A promising start to the quarter was short-lived in 4Q2022 following several industry developments that weighed materially on virtually all cryptoassets. Said developments included the collapse of FTX and it’s sister-company Alameda, crypto lender BlockFi filing for bankruptcy, and turmoil for crypto lender Genesis and its parent company Digital Currency Group (DCG). Although the broader cryptoasset market advanced as much as +14% earlier in the quarter, a loss of confidence and full-blown market capitulation resulted in a near -20% intra-quarter decline to a total market cap of $725B, thus marking a 2-year low. However, when all was said and done, a modest grind higher resulted in the market minimizing losses to -15%.

Because crypto market participants had to come to terms with the collapse of industry giants, market volatility in traditional markets and key economic data was of little relevance to cryptoassets. For instance, cryptoassets finished the quarter near bear market lows, while equities refrained from slipping below levels set in Oct. 2022 and registering a lower low. Said disparity should be no surprise when looking at Bitcoin’s correlation with risk-on assets, such as the S&P 500 and the Nasdaq. As shown in the figure below, BTC’s 30-day rolling correlation with the S&P 500 and Nasdaq sank to a multi-year low of -0.85 and -0.83 in Dec. before finishing the year at 0.59 and 0.64, respectively.

Needless to say, traditional financial markets were the only ones to feel the tailwind of Fed Chairman Jerome Powell’s reaffirming “higher rates for longer” and an unsurprisingly faster decline in the Consumer Price Index (CPI). However, many crypto market participants believe that once the industry can finally digest, what many believe was the “final” capitulation of a year-long bear market, an improving macro environment could bode well for cryptoasset prices and general sentiment. Be that as it may, crypto markets may have to overcome potentially further weakness in equities should corporate earnings come in weaker than expected, central banks raise rates, and/or geopolitical tensions rise over the next few quarters.

Irrespective of last quarter’s turbulence, many real world assets (RWA) and stablecoins developments emerged, proving that innovation is alive and well. Furthermore, said developments largely show-cased that while many cryptoassets were severely impacted by industry developments, stablecoins and RWA didn’t feel the impact and instead continued to position themselves as robust sectors of crypto. For instance, Curve Finance released its whitepaper detailing its highly anticipated crvUSD stablecoin, the 30-day moving average of stablecoin active addresses rose +40% from 96,600 to 135,000, and the 30-day moving average of total value locked (TVL) for real world assets contracted -52% from $804M to $385M, which compares to -28% for the broader DeFi ecosystem.

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Disclaimer: The information contained herein is general information, intended for educational purposes only, and is not intended to constitute legal, tax, accounting, or investment advice. Information, opinions and views are solely of Fortunafi and none of the information contained should be used as the basis for an investment decisions. To ensure suitability, contact a licensed investment professional when making any investment decisions and do your own research.