Monthly Macro Update (Jul 2022): The Bear, the Rally, and the Merge


When everyone thought everything was going to zero, the markets decided to take a U-turn, as Ethereum led the bear market rally to an impressive +56% month-on-month run. BTC eventually followed with a +16.8% monthly return, giving the market a chance to breathe as markets across all asset class is still in a mess amid central banks across the globe trying to curb inflation.

While Fed Chairman Jerome Powell hiked 75 bps on the fed funds rate on 27 July, the focus centered around the Fed mentioning they have achieved a neutral interest rate, meaning they are not loosening or tightening the economy. He also eliminated forward guidance and said the policy would be data-dependent from here (despite CPI prints still standing at 9%). With the Fed funds rate at 2.25% - 2.50%, we have now gone to pricing in a 50 bps hike in September, followed by 25 bps in November and December, respectively. The change in tone made the market believe the Fed is not as hawkish as before, taking it as a green light to go bid in risk-on assets.

Source: Tradingview


Back to cryptoland - much of July we saw continued news of lending firms/exchange providers and such coming out to state their exposure and losses from 3Arrows Capital ("3AC") contagion. It seems as though the majority of the firms that are in trouble are exposed and have already taken steps to cut and absorb losses (not to mention 3AC declaring bankruptcy themselves thereafter); meaning what needs to be liquidated or unwound should be more or less completed. This combined with the Ethereum foundation announcing the Goerli merger happening in August, the last test for the transition to proof of Stake, sparked a formidable rebound for Ethereum. The king of smart contracts climbed from as low as $1,000 to as high as $1,780 in a matter of 4 weeks.


So, have we bottomed?

Many of you are probably pondering if we have bottomed. First and foremost, no one can tell in absolute whether we have (or have not) bottomed. What we can do, however, is to find data and give an educated guess in terms of how likely we are at or near a bottom. We've found a few interesting charts to share why we may think we are at (or near) a bottom.

BTC Supply Transferred at a loss at peak

The percentage of total supply transferred at a loss hit around 1.9% last month. Historically, when this number goes above 1.5%, most of the market participants have sold/capitulated at a loss. In other words, these are usually the times the market reverses when the majority sells at a loss.

Short-term holders seem to have capitulated as well

Usually increasing the amount of Short term holders is a sign of a speculative/bullish market where gamblers alike look for a quick buck. The time you see short-term holders disappear is during a bear market. The below graph shows the number of short-term holders of BTC (less than 12 months) dropped from 90% in November 2021 to only 58% last month. While we don't know whether this is near the top yet, it is approaching levels near previous bear market cycle tops in 2015 and 2108.

Long-term holders are also in pain

Long-term holder Net Unrealized Profit and Loss (LTH-NUPL) have dipped hard this summer of 2022 and appears to have found a short-term bottom. While we do not know how much longer we will stay in this area, looking at previous bear cycles, we are at near oversold levels, making it a prime area for accumulation.

Miners are near capitulation

When BTC prices drop to a level where it affects miner's profitability and future operations, they are forced to dump the corn at the market and even turn off their machines to prevent from losing money. One of the indicators we like to look at is the hash ribbons indicator, which tracks the moving average of the Bitcoin hash rates and has successfully identified cycle bottoms the past 3-4 times. We're seeing an extended miner cycle capitulation as we speak and expecting the indicator to flash a 'buy' hopefully soon:



Bitcoin's "PE" ratio broke below March 2020 covid crash

The Dynamic Range Network Value to Transaction Value (NVT), tracks Bitcoins' circulating market capitalization to its daily on chain transaction value. Interpreting this ratio like a PE multiple of stock, you can see that this bear cycle has sent the number to an area lower than the covid crash of March 2020. There are fractals that suggest a recovery is on its way - regardless the chart is also suggesting Bitcoin is at a relatively cheap value.


Bitcoin's Market Value to Realized Value (MVRV) near all-time low

MVRV is a ratio by dividing Bitcoin's market value by its Realized Value. In Realized Value, BTC prices are taken at the time they last moved, instead of the current price like in Market Value. You can see that the MVRV score is near the bottom similar to previous bear cycles, suggesting we are in a possible accumulation zone.



Capitulation volumes on exchanges

Another interesting observation looking at the price chart is the volume traded on exchanges. Here you can see on Binance (the most active exchange by volume globally) that huge amounts of volume are usually recorded near cycle bottoms (highlighted in purple, looking at the weekly timeframe). While it doesn't always be the case, when a phenomenon like this occurs it usually signals we are at/near the bottom of the cycle:


... and more capitulation

This is more of a tweet rather than a graph, but retail's once most beloved Fund Manager Cathie Wood and its ARK investments finally capitulated on its Coinbase ($COIN) holdings, selling it pretty much at the bottom after (you guessed it) buying it near the top (of):


it's also worth mentioning Tesla ($TSLA) have sold 75% of their Bitcoin Holdings in the Q2 earnings report. Combine all of the above to the long list of crypto funds, lenders, exchanges that went under (3AC, Celsius, Voyager, Blockfi, Babel, Vauld, etc), how much more selling could there be given majority of the once top tier firms, have been taken out?

Final Word

The information shared above covered onchain, on exchange and also financial status of key industry players which hopefully gives a comprehensive view of where we are in the market. Make no mistake - bear markets can last longer than one can tolerate and it usually likes to push one to capitulate before heading back upward.

However, alot of the data shows are are in a high value, accumulation area. Bitcoin and Ethereum are trading near the 200 week moving exponential moving averages ($25,000 and $1,540 respectively).

We leave you with this question: If you truly believe crypto long term will be a disruptive asset class, do you think the total market cap should be sitting at a mere $1 Trillion USD? Would you agree that this could be an attractive area to accumulate your holdings in preparation for the next bull cycle?