2022 is drawing to a close and our staff at NewsBTC has decided to launch this Crypto Holiday Special to provide a perspective on the cryptocurrency industry. We’ll be talking to more guests to understand this year’s ups and downs for cryptocurrencies.
In the spirit of Charles Dicken’s classic, “A Christmas Carol,” we’ll look at cryptocurrencies from different angles, examine its possible trajectory for 2023, and find common ground between these different visions of an industry that could support the future of finances.
In the last week we spoke to institutions about their perception of 2022 and their prospects for the coming months. We will start our expert round with Material indicatorsa market data and analytics company dedicated to building trading tools for the fledgling industry.
Material indicators: “Although we have not yet seen tradfi (Traditional Finance) price in earnings contraction (~Q1’23) for the latest downside leg, we are already near the bottom from a sentiment perspective.”
Material Indicators and their team of analysts measure market sentiment and liquidity and try to read between the lines of what the big players are doing to provide a clear, noise-free view of its condition and possible direction. This is what they told us:
Q: What is the most significant difference for the cryptocurrency market today compared to Christmas 2021? Beyond the price of Bitcoin, Ethereum and others, what has changed from that moment of euphoria to today’s perpetual fear? Was there a drop in adoptions and liquidity? Are the fundamentals still valid?
A: The difference is remarkable! Since the explosion of FTX, the influx of new people to Crypto Twitter has been reduced to a trickle. Salty Youtubers will now advise you to sell your remaining coins to avoid a total loss. Telegram communities are shrinking. Big accounts that have been telling their followers to buy have closed or been rebranded. While we still haven’t seen tradfi (Traditional Finance) price in earnings contraction (~Q1’23) for the latest downside leg, we are already near the bottom from a sentiment perspective.
Q: What are the dominant narratives driving this shift in market conditions? And what should the narrative be today? What do most people overlook? We’ve seen a major cryptocurrency exchange explode, a hedge fund deemed untouchable, and an ecosystem that promised a financial utopia. Are cryptocurrencies still the future of finance or should the community pursue a new vision?
A: It’s the other way around. Conditions create narratives. Loose monetary policy and abundant cheap credit create bubbles and fuel fraud. It is only after the tide has gone out that we see who has been swimming naked. With an imminent rise in unemployment, people will seek to hide in bonds, which actually improves the availability of credit for risky assets. Thus, while earnings-based businesses will suffer from rising unemployment, credit-based businesses (risk-based businesses) will suffer relatively less.
Q: If you have to pick one, what do you think was a significant moment for cryptocurrencies in 2022? And will the industry feel the consequences in 2023? Where do you see the industry next Christmas? Will it survive this winter? Mainstream is once again declaring the death of industry. Will they finally get it right?
A: Earth/Moon was probably the catalyst for all subsequent explosions and we have yet to see any effects of the plague (DCG/Grayscale/Genesis are not fully resolved yet). As with any explosion, this will only invite more regulation that will neither protect investors nor improve growth potential. We wanted institutional adoption and now we see that they had zero risk management and gambled away user funds.
Q: Finally, through social media, you guys at Material Indicators have made your bearish bias public. Are you more or less pessimistic than at the beginning of 2022? And what would you like to see to shift your bias and lean to the long side of the market? We know a lot depends on the Federal Reserve, are the chances of a pivot and lower interest rate hikes any higher?
A: While we’re probably not out of the woods yet, we can almost see the light already. In the event of meager earnings and poor forecasts, bonds will likely take a bid in Q1 23, and then make credit available to risk assets to cushion their fall or even help them recover (especially if the Treasury manages to ease the MSRP of its ~$2T idle liquidity). Bitcoin could also benefit as it is subject only to credit availability and not earnings. However, while inflation has been and will likely continue to decline for some time, it is unlikely we have seen the last of it. So, keep an eye out for potentially rising inflation in late ’23 and early ’24.