Summary July 2022
- A good month for crypto with BTC up 17% and the digital asset market cap up 31%
- Ethereum was up 57% on the back of a September date announcement for the proof-of-stake upgrade
- The worst of the “crypto winter” may be behind us with the Luna unwind having run its course
- Institutional adoption continues with excellent positive headlines from Barclays, Santander and Tiffany
Macroeconomics and legacy financial markets
Traditional markets continue to be engaged in a battle between inflation and central banks seemingly being behind the curve. The ECB hiked 0.25% in July – the first such move in more than a decade. The Fed followed suit with another 75 bps rate hike later in the month. Equities were up significantly on the month with many market participants seemingly looking through the hiking cycle, seizing on downbeat news on the economy as a sign that this could be a short rate hike cycle.
After the May and June carnage in crypto that took bitcoin down 75% and Ethereum down more than 80% from their respective all-time highs, July brought relief to the market. Crypto assets were up 31% on
the month, putting in a tentative bottom after the gruelling pullback. The headlines turned bullish again with news that heavyweight banks Barclays, Charles Schwab, and Santander are plugging themselves into digital assets. In other news, Tiffany is launching a series of NFTs, Dubai revealed their economic strategy built around digital asset businesses, and the US will establish a new digital asset expert to advise President Joe Biden.
The current bear market appears to be in line with historical crypto bear markets: most recently with March 2020 (bitcoin was down 75%) and 2018 (bitcoin was down 84%). A number of indicators and metrics we follow point to a potential cyclical trough around the recent lows. To cite a couple of meaningful examples: the recent lows in prices were accompanied by massive trading volumes, hence a proper washout took place. Also, at recent lows, bitcoin traded all the way down to the average cost of production – just as other commodities do in times of pullbacks.
Ethereum’s migration from proof-of-work to proof-of-stake seems to be well underway with a new deadline communicated for this September: the so-called “merge” upgrade. The “merge” will bring with it a reduction in supply as well as supply elasticity going forward. Some investors argue that a successful “merge” will result in Ethereum becoming a scarce commodity. The debate is ongoing whether these post-“merge” properties are already priced in.
We think there is a good chance that the lows are in. The bottoming process is well underway but may be challenged by a more aggressive interest-tightening regime and crypto-specific risk, such as miner capitulation or a failure of the Ethereum “merge” next month.
NON-ZERO BALANCE ADDRESSES & TOTAL MARKET CAP
Growth in BTC Addresses with a non-zero balance is a good proxy for mass adoption and ultimately translates to a higher market cap. The current gap indicates strong upside potential for digital asset prices and total market cap.
NVT RATIO & TOTAL MARKET CAP
NVT ratio is the crypto asset classes’ equivalent to the equity world’s classic P/E ratio. The NVT ratio describes the relationship between market cap and on-chain transfer volume.
TOTAL CRYPTO MARKET CAP IN USD Bio
BTC DOMINANCE IN % (BTC in % of total market cap)