Over the past few months, the cryptocurrency market has been pretty serene. Bitcoin has been crab-moving around $20,000 for quite some time, waiting for broader macro conditions to bring some change. I wrote in late October to be cautious of this price action and that Bitcoin could be one bearish event away from an aggressive bearish wick. What I didn’t expect was that the event would shake cryptocurrency to its very bones, as one of the top tier companies in the space, FTX, inexplicably fell into insolvency. This obviously shook the markets. Last week, I assessed how the flow of bitcoins off exchanges has been ferocious, as people’s trust in these central entities to store their coins was understandably at an all-time low. In fact, I saw yesterday that 200,000 bitcoins have left exchanges since the FTX implosion. But now, the data suggests that the market is calming down a bit. And again, it looks like we might go into crab mode until the macro provides impetus one way or another – or an unexpected crypto-specific development comes out of the woodwork. The first way to demonstrate that the dust is starting to settle is by looking at Bitcoin volatility. This obviously escalated when Sam Bankman-Fried’s “games” were revealed to the public. But after remaining elevated over the past few weeks, it has dropped back to more normal levels over the past few days. Another way to look at this is the drop in large transactions. These transactions (defined as greater than $100,000) increased in the few days after the bankruptcy, but have gradually declined since then, back to the same levels we saw for much of 2022. Another useful metric to track is net realized profit or loss of coins moved. This increases in times of crisis as the price drops steeply, before typically returning to the $0 mark when markets calm down. The chart below shows this well, with the trades on Nov. 9 generating an ugly loss of $2 billion, before Nov. 18 then topping them off with a loss of $4.3 billion. That’s less than the worst post-crash mark for Celsius ($4.2 billion loss) and Luna ($2.5 billion loss). This also reflects continued downward pressure on the price of Bitcoin, but the trend has returned to near zero again.
FTX was a core part of the ecosystem and its failure understandably rocked the market. As I wrote recently, this contagion is not over. However, data from the last week suggests that normality is returning to cryptocurrency markets. Going forward, we might stop walking on eggshells again for a while. With China opening up post-lockdown, the latest inflation figures looming and the EU ban on imports of Russian oil, there is certainly a lot going on in the macro environment. Cryptocurrency investors just need to hope that native crypto scandals are out of the way for now.
Normality Returns to Cryptocurrency Markets, On-Chain Data Shows
