Crypto Winter Bleeds Into Summer - Monthly Chartbook

The Monthly Chartbook is a collection of interesting charts and trends we’re watching across crypto and markets. This month’s edition focuses on:

• Macro Outlook – Market Bottoms & Macro Headwinds

• Crypto Market Review – Market Structure & On-Chain Observations

• L1s, L2s, & DeFi Analysis

• NFTs & Gaming Sector Breakdown

Summer Doldrums

Q2 was an absolute bloodbath for crypto markets. BTC finds itself ~70% off of its all-time high, ETH is down 75%, and many smaller crypto assets are down 85-90%. The total crypto market cap down has dropped from $3T to $991M, a drawdown of nearly 67%.

In fact, bitcoin’s nearly 40% decline in June marked one of its worst calendar months on record.

The broader equity markets have not been spared either, with all major indices down significantly from their highs as well. Be sure to check out last week’s Market Insights, “It’s All Just Volatility”, where we discuss the correlations between risk assets, namely BTC and major equity indices (SPX, Nasdaq).

May and June were extremely tense months for the crypto market with two major crypto-native events occurring: the collapse of LUNA/UST in May 2022, and the liquidation of 3AC and counterparty contagion in June 2022. Understandably, the market wasn’t resilient enough to withstand such negative pressures, especially with the overhang of a challenging macro backdrop.

After the LUNA/UST collapse, BTC found itself selling off into the 18-month price range support structure around $28K-$30K. BTC did a relatively decent job of holding onto this support zone in the immediate aftermath with a noticeable bid reappearing for the first time in months. However, this relief was short-lived.

The macro backdrop continued to worsen in the weeks following. CPI prints came in hotter than expected and risk assets began to take another plunge, with crypto and BTC leading to way. Shortly after, news began to surface of 3AC insolvency and possible contagion. It did not take long for many of these rumors to transition to fact as several counterparties publicly spoke out about the liquidation of 3AC accounts. BTC and crypto markets began yet another liquidation cascade, slipping through the low volume void that we have been discussing for the last several weeks. BTC found itself retesting the 2017 all-time highs, and briefly traded as low as $17.7K.

Regardless of these crypto-specific events, macro is still in the driver’s seat right now.

Market Bottoms & Macro Headwinds

We analyzed the conditions we’re tracking to signal a market bottom in our recent report, “Searching for Market Bottoms”.

“Signs are starting to emerge that the worst is likely behind us, but we need to see a little more pain before we have conviction that a market bottom is in. Sentiment is in the gutter, but it can get worse, especially if today’s macro headwinds don’t subside. Previous market bottoms were characterized by extreme oversold conditions and a retest of key long-term support levels. We’ve seen both of those conditions fulfilled over the last week, but history shows sideways price action is the most likely path for at least the next few months.

Market cycle bottoms typically share some (or all) of the following characteristics:

• Extremely bearish sentiment

• Clear evidence of price capitulation and forced selling (which eventually leads to seller exhaustion)

• Liquidity and funding dries up; private market valuations reprice as public market comps see their valuations crater

• Companies announce layoffs and cost cutting measures to batten down the hatches in anticipation of a multi-year bear market

• Macro trend reversal, usually driven by a catalyst event like a drastic change in rhetoric that causes the market to reposition for a different policy regime, which brings renewed enthusiasm and capital into risk assets and crypto

We’re getting closer to a market bottom, but we’re not quite there yet, at least in our opinion.”

The price of BTC fell ~85% from peak-to-trough in each of the last two major bear markets. Right now it’s down ~72% from its high, but if history repeats it would imply a low just above $10K and another 50% drawdown from current levels.

On the macro front, we believe there’s still more pain ahead for risk assets. After the FOMC’s mid-June meeting, the market started pricing in less rate hikes in 2H 2023 as the aforementioned risks became more apparent. But inflation is still a huge problem, which puts the