The state of crypto – January 2023

Immediately upon interacting with a blockchain, much data becomes publicly available on a public ledger. Analyzing this data may provide crypto traders and investors with helpful insight into the present state of the market. In “The state of crypto”, we take a look at the most important metrics to observe the market based on transaction and trading activity. Our main focus is the two largest cryptocurrencies Bitcoin and Ethereum, and we divide the metrics into short-term and long-term indicators. You find the report for the last month here.

Short-term

In November 2022, the crypto market withdrew billions worth of crypto assets from exchanges, following the collapse of crypto exchange FTX earlier in November. This flow continued throughout the last month of 2022, where around 0.4% and 0.8% of Bitcoin’s and Ethereum’s total supply were withdrawn from exchanges, respectively. For both Bitcoin and Ethereum, the percentages on exchanges are at a 4-year low. As to Ethereum, it is approaching its all-time low set in May 2018. At that point, 10.5% of the Ether supply was on exchanges. This net outflow of funds from exchanges is largely due to fear of other collapses. Nevertheless, the metric suggests that many holders arguably have a long-term view, potentially limiting short-term selling pressure.

On the other hand, the decreasing exchange balances might merely be a result of the non-existing volatility in December, causing market makers and active traders to reduce risk on centralized exchanges by withdrawing funds when they can no longer profit from volatility. In that situation, the liquidity is less dense than normal, making the trading environment poorer.

In December, it is primarily the mid-size wallets controlling 10 – 100 BTC and 100 – 1,000 BTC which have increased their share of the total supply. For Ethereum, particularly wallets with between 100 to 1,000 Ether have increased in importance, whereas wallets controlling 1,000 – 10,000 and 10,000 – 100,000 Ether have been flat in the past months. The accumulation of more wealthy wallets is in contrast to most of last year, in which the same wallets were mostly flat or even decreasing their holdings.