Crypto market meltdown: key data to look at
Crypto market meltdown: key data to look at
mai 12 2022

After weeks of doubts, it looks like the crypto market capitulation is finally upon us.

Market capitulation is a period of dramatic surge in selling pressure that launches a chain reaction: investors surrender and sell their crypto at lower and lower prices, leading to leveraged/derivatives positions liquidations, which in turn leads to more investors surrender and more liquidations…

This would be Bitcoin’s 3rd significant capitulation: it lost over 82% during 2014 (from ATH of $1’150 to $240), then 81% during 2018 (from $19’600 to $3’600). In this cycle ending in 2022 and timed with a disturbing precision, Bitcoin has so far lost 63% (from $68’800 to $25’500).

Market conditions, however, are different each time, so let’s take a look at what happens now and what does it mean.

📈 Derivatives liquidations on the rise

Over $2Bn worth of long positions and $928M of short positions have been liquidated on trading platforms since the beginning of the week (Coinglass).

Despite being horrible for the holders of these positions, massive liquidations are rather good for the market, allowing it to deescalate price swings. This does not mean, however, that traders took a break, quite the contrary: the open interest (all open positions) on major coins has reached 5-11-months high across platforms (Glassnode).

💱 Exchanges inflow spikes

Reversing the many-months trend, coins start to flow to exchanges, with BTC inflow reaching an 11-months high (Glassnode). This means that people are more likely to trade, and more volatility is to be expected.

🌑 TerraUSD breakdown weakened the larger DeFi space

As in legacy financial markets, where assets are often intertwined and co-dependent, DeFi protocols from the Terra ecosystem, like Astroport and Anchor, have suffered greatly, losing 80-90% of their tokens price.

Overall, the DeFi space has lost 44% of its TVL this week, or total value locked (DeFiLlama).

This is not good for the confidence in DeFi and crypto in general (imagine how many “journalists” will equate Terra to all cryptoassets), and we do hope Terra creators will find a solution that works.

⛏️ Mining activities continue unfazed

The current Bitcoin hashrate of 222M TH/s is practically at its all-time high, and Cointelegraph’s survey shows that mining companies do not intend to stop or decrease their activities.

According to Glassnode, miners do sell more coins than before (over 95BTC hourly vs 88 last week), but still not as high as a month ago (over 120BTC), which is a good thing.

Miners secure Bitcoin and keep it running, and their resolve to continue working as usual not only sends a positive signal as to Bitcoin’s future price movements.

It is not the first meltdown in the history of finance, and crypto finance in particular, nor it will be the last. So hold on tight 😅