Analyst: Judging from on-chain data and the macro environment, the cryptocurrency market has not yet bottomed out

Author: jbjbjb

Source: jbjbjb's twitter

The author of this article is a trader and analyst for a large cryptocurrency fund. According to its view, the current cryptocurrency market has not yet bottomed out. This article will combine data on the chain and the macro environment to prove this point.

Activities on the chain

First, we haven't seen all the Three Arrows Capital (3AC) drama end yet. While it is clear that 3ACs are being liquidated, their positions have not yet been dumped into the market. Their Bitcoin (BTC), Ether (ETH) and other assets will eventually be sold to pay creditors.

On-chain contracts

I created a table for observing 3AC and their on-chain activity. This has been very useful for myself and my fund to help me figure out what's going on behind the scenes. Note: The figure below only captures the most important addresses.

3AC has dozens of such wallets with thousands of ETH. These wallets are likely to be liquidated in order to repay creditors. See how much money has been moved from just one wallet alone.

Not to mention their NFTs. The total value of the NFTs in their Starry Night wallet is approximately 12,500 ETH, all of which will be sold at a discount to raise funds to pay off creditors. Their NFTs include Apes, Punks, Squiggles (note: all NFTs were transferred in June).

3AC is facing liquidation and all we can do now is wait until the legal system starts actually selling their cryptocurrencies, stocks and NFTs.

This would lead to a severe sell-off in the broader crypto ecosystem, creating the catalyst for the next plunge.

smart investor

So the question is, what are savvy investors doing?

Using Nansen's analytics tools, we can easily track agency activity and analyze what those with the best financial resources are doing. Here is a list of some of the top wallets I follow.

Nansen has a feature where you can identify other "related wallets" that are highly related to certain wallets. This can help us watch whales and track the activity of savvy investors, knowing what contracts they are interacting with.

funds

After digging into the activity of savvy investors, I found that they are not active, ETH balances are low and almost unchanged. These funds appear to have allocated most of their funds to stablecoins like USDC, USDT, and DAI.

There is no such thing as an easily foreseeable recession in the global macro economy due to obvious information planes. Yes, the US is in an intensified tightening cycle, but so is the rest of the world.

However, the Bank of Canada unexpectedly raised rates by a full 100 basis points.

Bank of Japan and the Yen

The yen is trading at levels not tested since 1999, and the Bank of Japan could be the trigger for a contagion from a global recession. The Bank of Japan launched quantitative easing in 2001 as a temporary measure. They now own 50.2% of the entire Japanese bond market.

It is important to remember that the BoJ will have to do everything it can to support the rapidly falling yen, including discontinuing yield curve control (YCC). In turn, inflation soars - which calls for a tightening cycle. That also includes the $1 trillion in U.S. Treasuries on their balance sheets.

Macro environment

Based on current Fed Funds futures, there is an 85% chance the Fed will raise rates by 100bps in July (the highest in over 40 years considering the 9.1% change in the CPI). The Fed's Bullard has said it will target rates of 3.75% - 4% by the end of the year.

What happens when quantitative tightening in the U.S. steepens and the Bank of Japan starts selling $1 trillion in U.S. Treasuries?

Liquidity in credit markets is already at zero, with buyers preferring new issues over existing bonds -- meaning bond prices fall and yields jump to sell existing bonds.

So, if the Fed won't buy it, who will? Mostly hedge funds, but since we are already in a severe tightening cycle, hedge funds will tend to hold cash to limit their exposure.

If that happens, interest rates will climb even higher.

There is a global consensus that countries need to tighten money supply to curb rampant inflation. Based on this consensus, the idea that we will return to a bull market almost immediately is purely an illusion.

Total value locked (TVL) is slashing almost everywhere. The sentiment in the cryptocurrency market has been completely shaken. The TVL of all dapps is now a fraction of what it used to be. No one wants to lend out tokens, and no one wants to participate in the DeFi ecosystem. Right now the crypto market has been dominated by pure and strong bearish sentiment.

Check out Liquity's TVL (a peer-to-peer protocol lending dapp). Borrowing has fallen from nearly $5 billion to now $556 million (an all-time low). Loans and leverage are extremely important (when used correctly) as they are necessary to support on-chain activity and incentivize purchases.

Where does the investor's money come from? Just Weeks After Crypto Armageddon, How Has Consumer Confidence Reversed? Will savvy investors return to venture capital after the peak of the tightening cycle?

These are the questions we should first consider carefully when we consider whether the bull market is coming.

Finally, based on our comprehensive analysis above, I don’t think the bottom of the cryptocurrency market is here yet, not even close.

We won't know if the market has bottomed until the housing market shrinks significantly and the bond market starts to stabilize.

Note: This article is only an analyst's personal data analysis and does not constitute any investment advice.