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Bitcoin․com Exchange Market Insights Report for June 2022

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This is the June 2022 Monthly Market Statement prepared by Exchange. In this and subsequent reports, you will find a summary of the cryptocurrency market, an overview of macroeconomic indicators, an analysis of the market structure, and much more.

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Crypto Market indicators

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Cryptocurrency markets continued their downtrend as BTC as well as Ethereum decreased by 30% and 44% respectively over the last 30 days.

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The macro outlook remains weak for risky assets as high inflation couples with high commodity prices and tight US labor market conditions. On top of that, the cryptocurrency has gone through a credit crunch as major lending/lending players such as Celsius, 3AC and Babel Finance have become insolvent.

Despite the heavy losses observed in BTC as well as Ethereum, some large-cap assets remained strong. Of the top 50 assets by market capitalization, Helium performed the most positively, gaining 33% over the past 30 days. LEO rose by 11.20%, while LINK remained virtually unchanged. AVAX, which fell 44%, Bitcoin Cash (down 39%), and Cronos (down 40%) were the biggest laggards.

Macro Summary: Commodity pressure despite central bank action

At the latest FOMC meeting, the US Federal Reserve raised rates by 75 basis points for the first time since 1994. This comes against the backdrop of persistently strong CPI data, which stood at 8.1% in May 2022 (the highest since 1981). Working conditions in the US remain tense as April data (released June 1) showed job openings fell only marginally to 11.4 million after a record 11.8 million in March. Chairman Powell hinted at another 50-75 basis point rate hike to be announced at the July 2022 FOMC meeting.

As central banks tighten up, supply chain problems coupled with political instability continue to push commodity prices higher. Oil led the way with light oil futures hitting $120 a barrel before stabilizing above $105 in recent trading sessions. Supply/demand continues to balance towards higher demand. Despite some reduction in demand due to high oil prices, supply chain restrictions due to sanctions on Russian exports prevented sufficient supply.

Market Structure: Is Forced Surrender a Sign of a Local Bottom?

BTC markets experienced two forced sell-offs of considerable size during the month. First there was the liquidation of the assets of the Luna Foundation, which sold up to 80,000 BTCas well as significant amounts Ethereum and other liquid assets. The second was the credit crunch and liquidation of Celsius, 3AC and Babel Finance. Cryptocurrency market capitalization has fallen by $2.1 trillion from its all-time high reached in November 2021.

This puts pressure on miners who are also facing rising electricity costs. As prices continue to drop, we see miner profitability drop. According to Glassnode’s difficulty regression model, the “total cost to maintain” mining is currently $17,800, which is roughly the same as BTC traded last weekend.

With Bitcoin’s hashrate already down 10% from its all-time high, it seems like the unprofitable miners are already going offline.

It can be argued that as profitability declines, miners will become forced sellers. The Puell Multiplier (PM), shown in orange in the chart below, is an oscillator that tracks the income earned by miners. PM shows a value of 0.35, which corresponds to revenues 61% below the annual average. This is close to the levels of the 2014/2015 and 2018/2019 bear markets. At the time, miners were seeing PM multiples of 0.31, which corresponded to a 69% decrease in revenue compared to the annual average.

Difficulty Tape Compression (DRC), shown in purple in the above diagram, is a miner stress model. This indicates that mining farms are shutting down. Disabling offline mining farms occurs for many reasons. These include regulatory considerations, the increasing complexity of the Bitcoin algorithm, increasing electricity costs, and, of course, reduced profitability due to lower market prices. In the chart above, we see a decrease in this figure, indicating that fewer rigs are active for one or more of the reasons mentioned.

Next, we will look at the long-term holders (LTH) cohort. When market participants capitulate, LTH gets stressed. As shown below, in the LTH cohort, total supply decreased by 178,000 tons. BTC for the last month, which is 1.31% of the total assets of this group.

Another interesting metric for understanding the status of the current sale is the restoration of the old offer. As seen below, about 20-36K BTC are currently rebounding daily, similar to levels seen on April 22. This indicator can be viewed as a fear index as it shows the need for long-term holders to sell their positions due to current conditions.

Finally, we will look at the inflows and outflows from centralized exchanges, also known as the exchange’s net flow balance. When we see the market flow to exchanges, we can assume that market participants want to sell their tokens. When we see a market drain from exchanges, we can assume that market participants want to keep their tokens.

Below we can see a strong inflow into the market in May 2022 amid the collapse of LUNA, the inflow reached +4% per week (currency balance). It was similar to the 2018-2019 sell-off (>1% foreign exchange inflow).

However, during the last sell-off (June), we saw a churn of 2.8% per week. This can be explained by the uniqueness of the sale. As the creditworthiness of some of the biggest crypto players came into question, participants may have been forced to move their tokens into safekeeping where the perceived risk is less.

Thus, in May and June 2022, the market saw consecutive sell-offs. Although they were triggered by strong macroeconomic headwinds, two “black swan” events (namely, the collapse of LUNA and the insolvency of 3AC and other major players) could have mattered. caused an oversold. This may indicate that we have already seen a local bottom. However, in the long term, it is likely that the macroeconomic picture will continue to have a strong influence on the markets.

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