2022 is coming to an end and our staff at Bitcoinist have decided to launch this Crypto Holiday Special to provide some perspective on the crypto industry. We’ll be talking to multiple guests to understand the highs and lows of this year’s cryptocurrency.
In the spirit of Charles Dicken’s classic A Christmas Carol, we’ll look at cryptocurrency from different angles, look at its possible trajectory for 2023, and find common ground between these different visions of the industry that can support the future of finance.
Last week, we spoke to institutions about their vision for 2022 and their outlook for the months ahead. We’ll start with our experts Material indicatorsa market data and analytics firm dedicated to creating trading tools for the emerging sector.
Material Indicators: “While we have yet to see tradfi (Traditional Finance) price on earnings declines (~Q1’23), we are already close to the downside in terms of sentiment.”
Material Indicators and their analyst team measure market sentiment and liquidity and try to read between the lines of what the big players are doing to get a clear view of its conditions and possible direction. Here’s what they told us:
Q: What is the most significant difference for the cryptocurrency market today compared to Christmas 2021? Apart from the price of Bitcoin, Ethereum and others, what has changed from that moment of euphoria to today’s perpetual fear? Is there a drop in adoption and liquidity? Are the basics still valid?
A: The difference is obvious! Since the FTX explosion, the influx of new people to Crypto Twitter has dropped by a drop. Salty Youtubers will now advise you to sell your remaining coins to avoid a total loss. Telegram communities are shrinking. Big accounts that told their followers to buy have either quit or rebranded. While we have yet to see tradfi (Traditional Finance) price on the earnings beat (~Q1’23), we are already close to the downside in terms of sentiment.
Q: What are the dominant narratives driving this shift in market conditions? And what should be the story today? What do most people overlook? We’ve seen a major cryptocurrency explode, a hedge fund thought to be untouchable, and an ecosystem promising a financial utopia explode. Is crypto still the future of finance or does society need a new vision?
A: On the contrary. Conditions create stories. Loose monetary policy and abundant cheap credit create bubbles and increase fraud. Only after the tide recedes do we see who is swimming naked. With the inevitable rise in unemployment, people will try to hide in bonds, which improves the creditworthiness of risky assets. So while earnings-driven assets will feel the pain at higher unemployment, credit-driven assets (risky assets) will feel relatively less pain.
Q: If you had to pick one, what do you think was the defining moment for cryptocurrency in 2022? And will the industry feel the consequences in 2023? Where do you see the Christmas industry next? Will it survive this winter? Mainstream is once again announcing the death of the industry. Will they finally get it right?
A: Terra/Luna was probably the catalyst for all the subsequent explosions, and we haven’t seen the full effects of the contagion yet (DCG/Grayscale/Genesis hasn’t been fully resolved yet). As with any boom, this will invite more regulation, which will neither protect investors nor improve growth potential. We wanted institutional adoption and now we see they had zero risk management and gambled away user funds.
Q: Finally, on social media, you guys at Material Indicators publicized your bearish bias. Are you more or less pessimistic than you were at the start of 2022? What would you like to see to change your bias and lean towards the long side of the market? We know a lot depends on the Federal Reserve, are the chances of a turnaround and lower interest rate hikes higher?
Answer: We may not be out of the woods yet, but we can almost see the light. Bonds on weak earnings and poor outlook are likely to capture supply in 2Q23 and therefore provide credit to riskier assets to cushion their fall or even help their recovery (especially as Treasuries raise RRP from ~$2T idle if he manages to release) liquidity). Bitcoin can also benefit from this, since it depends only on the availability of credit, not on earnings. However, while inflation has continued to fall for some time and is likely to continue to do so, it is unlikely that we have seen the last of it. So watch for inflation potentially picking up again in late ’23/early-’24.