This is the June 2022 Monthly Market Insight Report from Bitcoin.com exchange. Expect a crypto market performance summary, macro summary, market structure analysis, and more in this and subsequent reports.
crypto market performance
The macroeconomic outlook remains unfavorable for risk assets as high inflation is combined with elevated commodity prices and tight US labor market conditions. On top of that, crypto has experienced a credit crunch as major borrowers like Celsius, 3AC, and Babel Finance have defaulted.
To be seen despite the great losses Bitcoin and ETH, some large-cap assets have held up well. Of the top 50 investments by market cap, Helium performed the most positively, gaining 33% over the past 30 days. LEO was up 11.20% and LINK was virtually flat. The biggest underperformers were AVAX (down 44%), Bitcoin Cash (down 39%) and Cronos (down 40%).
Macro review: Commodity pressures despite central bank actions
At the last FOMC meeting, the US Federal Reserve raised interest rates by 75 basis points for the first time since 1994. This was due to persistently high CPI data, which came in at 8.1% for May 2022 (the highest level since 1981). Labor conditions in the US remain tight as April numbers (released June 1) showed job vacancies fell only slightly to 11.4m after hitting a record high of 11.8m in March . Chairman Powel hinted at another 50 to 75 basis point rate hike to be announced at the July 2022 FOMC meeting.
As central banks tighten, supply chain issues coupled with political instability continue to drive commodity prices higher. Oil led the way with light oil futures hitting $120 a barrel before stabilizing above $105 in recent trading sessions. Supply/demand continues to balance towards higher demand. Despite some demand losses from high oil prices, supply chain constraints from sanctions on Russian exports have kept supply tight.
Market Structure: Forced Surrender a Sign of Local Bottom?
Bitcoin The markets have seen two forced sell-offs of significant size in the space of a month. First was the liquidation of assets by the Luna Foundation, which sold up to 80,000 Bitcoinalong with considerable sums of ETH and other liquid assets. In second place was the credit crunch and the liquidation of Celsius, 3AC and Babel Finance. Crypto market cap fell $2.1 trillion from all-time highs reached in November 2021.
This has put pressure on miners, who are also facing increased electricity costs. As prices continue to fall, we can see that profitability for miners is decreasing. According to Glassnode’s Difficulty Regression Model, the “All-in Sustaining Costs” of mining is currently $17,800, which is about the same Bitcoin traded last weekend.
With Bitcoin’s hashrate already down 10% from its all-time high, unprofitable miners already appear to be going offline.
It can be argued that as profitability decreases, miners become forced sellers. The Puell Multiple (PM), shown in orange in the chart below, is an oscillator that tracks revenue generated by miners. The PM shows a value of 0.35, which corresponds to sales that are 61% below the annual average. This is close to the levels of the 2014/2015 and 2018/2019 bear markets. At the time, miners saw a PM multiple of 0.31, representing a 69% drop in revenue from the yearly average.
Difficulty Ribbon Compression (DRC), shown in purple in the graph above, is a miner stress model. It indicates that mining rigs are going offline. There are many reasons why mining rigs go offline. These include regulatory considerations, increasing difficulty of the Bitcoin algorithm, rising electricity costs, and of course, decreasing profitability due to lower market prices. In the chart above, we see a drop in this metric, indicating fewer rigs are active for one or more of the reasons stated.
Next, we will look at the Long Time Holders (LTH) cohort. When market participants capitulate, LTHs come under pressure. As shown below, the LTH cohort has experienced a total supply drop of 178,000 Bitcoin last month, accounting for 1.31% of the total holdings of this group.
Another interesting metric to understand the status of the current sale is the revival of old supply. As seen below, around 20-36K Bitcoin are currently reviving per day, which is similar to April 22nd levels. This indicator can be viewed as a fear index as it shows that long-term holders need to sell their positions due to the current conditions.
Finally, we look at the inflows and outflows of centralized exchanges, also known as netflow exchange balance. When we see market inflows to exchanges, we can assume that market participants are trying to sell their tokens. When we see a market outflow from the exchanges, we can assume that market participants are trying to hold onto their tokens.
Below we can note a strong market inflow in May 2022 due to the LUNA crash, with inflows reaching +4% per week (currency balance). This was similar to the 2018-2019 sell-off (>1% of inflows from FX balance).
However, in the last sell-off (June) we notice a drain of 2.8% per week. This can be attributed to the uniqueness of the sale. As the creditworthiness of some of the largest crypto players has been questioned, participants may have been prompted to move their tokens to self-custody where less risk is perceived.
To sum up, the market saw consecutive sell-offs in May and June 2022. Although these were prompted by strong macro headwinds, two black swan events (namely the LUNA crash and the bankruptcy of 3AC and other major players) may have caused the oversold. This may indicate that we have already seen a local bottom. However, in the longer term, it is likely that the macro picture will continue to strongly influence markets.
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