A summarizing review of what has been happening at the crypto markets of the past week. A look at trending sectors, liquidity, volatility, spreads and more. The weekly report in cooperation with market data provider Kaiko.
The last 7 days in cryptocurrency markets:
- Price Movements: Ether closed July as one of the market's best performers, although the asset trailed far behind Ethereum Classic's 145% gain.
- Market Liquidity: Trade volume on the top four Korean exchanges now equals FTX's as the exchange enters talks to buy Bithumb.
- Derivatives: The ratio between BTC spot and perpetual futures volume spiked in July, suggesting markets have been largely spot-driven.
- Macro Trends: The Fed raised the benchmark rate another 75bps, although futures markets suggest a reversal in rate hikes by next spring.
ETH closes July up 54%
The crypto markets experienced a strong turnaround in July led by Ethereum (ETH), which closed the month up 54%, far outpacing Bitcoin's (BTC) 20% gains. The ETH rally comes ahead of the network's upcoming migration to proof-of-stake (PoS) which is slated for this September. Ethereum Classic - a hard fork of the Ethereum network that will continue to leverage the proof-of-work mining algorithm - experienced a bullish reversal of its own following news that one of the largest mining pools had invested $10million into development on the network. The ETC token has climbed 145% since the start of July, despite limited user activity and a low market cap.
The crypto market rally has emerged despite decades-high inflation, a strong dollar, another 75bps rate hike, and news that the U.S. economy contracted for a second quarter in a row.
Lido token soars as VC firm eyes investment
Last week, Lido, the decentralized liquid staking protocol for the Ethereum network, debated a proposal to allocate the DAO’s native LDO token to the VC firm Dragonfly. Controversy soon ensued. Initially, Dragonfly proposed an offer to buy 10mn LDO when the price was $1.45 in order to provide Lido with more runway in a bear market. However, the offer was met with backlash from the Lido community due to the lack of a lockup period for the tokens, sparking fears the fund would just dump the tokens instantly.
Dragonfly then responded with a new offer, introducing a 1 year lockup period which seemed to be well-received by the Lido community. However, contained in the offer was a clause that Dragonfly could withdraw the proposal if the price of LDO rose above $2.25, which briefly happened last week. There has been no word if the proposal goes ahead as both Dragonfly and Lido will be paying particular attention to the price of the token in the coming days. LDO’s price has risen from a low of $1.30 to a high of just over $2.60 as broader markets rally.
Celsius token outperforms despite bankruptcy
Crypto lending platform Celsius Network’s CEL token has outperformed Bitcoin since the start of June despite the company filing for bankruptcy mid-July after weeks of turmoil. CEL has exhibited strong volatility throughout the past two months, falling to a record low of $0.22 after the platform halted withdrawals on June 12, before surging nearly six-fold to $1.29 in less than ten days. While CEL’s price has stabilized at around $0.8 since the start of July, it remains well below its all-time high of nearly $8 a year earlier.
Celsius has continued operating after filing for bankruptcy protection, claiming it will restructure and stabilize its business through asset sales, third-party investment and revenues from its internal mining operations. However, uncertainty as to the outcome of the months-long restructuring process persists as much of Celsius’ $4.3bn assets are illiquid and the company revealed a sizable $1.2bn hole in its balance sheet.
FTX eyes Korean exchange acquisition
As the Kimchi premium narrows and daily volumes plummet, FTX has reportedly entered talks to buy the South Korean exchange Bithumb. Volumes on the big four Korean exchanges - Upbit, Bihumb, Coinone and Korbit - have declined from an average of over $10bn a day to just $2-3bn, which is now comparable to daily volume on FTX. The Korean exchange sector has consolidated significantly over the past few years, with global exchanges like Binance and Okex exiting the market after failing to fulfil increasingly strict regulatory requirements for crypto service providers.
Ether market share surges as merge approaches
For the first time this year, ether's market share of trade volume achieved 50% parity with bitcoin's as the network's transition to proof-of-stake - known as the Merge - edges closer to reality. The cryptocurrency outperformed bitcoin throughout July and has seen strong bullish inflows across both spot and derivatives markets. Over the past month, average trade sizes for the most liquid ETH-USD pairs have spiked on most exchanges, which suggests that larger traders are reinvesting as prices rebound and market sentiment recovers.
The spike in average trade sizes marks a reversal in a broader downward trend that has been present since the start of the year: on LMAX Digital, average trade sizes fell from $6k to $3k, on Kraken, from $4.5k to $2k, and on Bitstamp from $5.5k to $2k. While most whale traders will break apart their orders into smaller sizes, trends in trade sizes have historically followed bull/bear cycles, thus the reversal can be interpreted as a bullish sign.
Market depth for the most liquid ETH-USD and ETH-USDT trading pairs has also recovered strongly, as measured in native units of ether to discount price effects. Since January 2022, the quantity of ether placed within 2% of the mid price has more than doubled from around 50,000 to 100,000. These trends suggest that traders have steadily rotated funds into ether over the past few weeks, likely in anticipation of the Merge and on the back of the broader crypto market recovery. The strong improvement in ether order book depth has likely contributed to improvements in overall liquidity.
Coinbase underperforms amid rising regulatory scrutiny
Last week, Coinbase's share price lost nearly one fifth of its value in a single day after news broke that the US Securities and Exchange Commission (SEC) was investigating the exchange for offering unregistered securities. The investigation prompted large selling by tech focused asset manager ARK Invest, which sold over 1.4mn Coinbase shares. While Coinbase has mostly underperformed BTC and the broader market over the past year, the gap has widened in 2022. Overall, the share price fell 11% last week and 76% YTD. Coinbase, which draws the bulk of its revenue from transaction fees, has reported larger than expected loss in the first quarter of the year and announced layoffs citing bear market conditions. Its spot market share shrank considerably from a multi-year high of over 60% in December 2021 to around 40% in July.
Market prices in rate cuts in 2023
Last week, the Fed hiked the benchmark rate by 75bps in a largely expected move that came amid decades-high inflation. Yet, sentiment from markets suggests that the Fed’s tone was more dovish than usual. The Fed Funds Futures Rate gives an insight into the market’s views on interest rate movements in the future. Based on the futures rates, investors are speculating that rate cuts might be coming sooner than originally expected in Spring of 2023, depicted by a drop in the implied rate from a high of 3.3%. The Fed’s next moves will be closely tied to inflation figures and gross domestic product.
