Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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The state of crypto – April 2023
Mads Eberhardt
Cryptocurrency Analyst
Summary: The collapses of crypto banks last month caused an uptick in exchange inflow as prices tumbled. Yet, dormant circulation did not move much, indicating that mostly short-term holders found themselves nervous. In sum, the exchange balance of Ether continues to decline, but uncertainties could be on the horizon, as the Shanghai hard fork is scheduled for April 12th, potentially opening the floodgates to over 19mn staked Ether, some of which have been locked for over 2 years.
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
The crypto market was rocked to its core in March, just as two vital crypto banks in the US specifically Silvergate and Signature ceased operations, followed by Silicon Valley Bank shortly after. The bank closures were a source of excess volatility and should be of concern going forward, as it may indicate a continual regulatory crackdown on crypto, particularly in the US.
In March, market participants continued withdrawing Ether from exchanges, as the total balance of Ether stored on exchanges declined by around 0.5%, whereas the Bitcoin balance is unchanged. This may indicate an accumulation of Ether. Yet, it may primarily be a result of the collapses of Silvergate, Signature, and other centralized intermediaries, so holders withdrew Ether fearing that these collapses were not isolated incidents. Both Bitcoin and Ethereum experienced greater exchange inflow in March as the contagion spread, but without significantly increasing transfers of dormant circulation, indicating that mostly short-term holders liquidated Bitcoin and Ethereum in March, contrary to the collapse of FTX in November last year, which caused a much greater uptick in dormant circulation.
In terms of Ethereum, we are closely watching the Shanghai hard fork scheduled for April 12th. The hard fork allows stakers to unstake their Ether. This signifies that over 19mn Ether may over time be unstaked to perhaps hit the market, some of which have been inaccessible for well over 2 years, yet it is mostly held by long-term holders. We expect the market to have trouble pricing the impact of the hard fork, in that case, excess volatility is likely.
Long-term
For the first time since June 2022, Bitcoin holders are on average in profit on their positions. This is solely based on on-chain data, though. If the market maintains this position, it may make the overall sentiment of Bitcoin and the crypto market as a whole more positive compared to the extremely negative sentiment the last year.
In March, the outflow continued out of crypto ETPs, mutual funds, and OTC trusts, particularly from Bitcoin, indicating that more traditional investors continue to liquidate crypto. Interestingly, exchange-traded products being short Bitcoin saw an inflow of $64.4mn in March.
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