Bitfinex Alpha | Macro Headwinds Grow Stronger Though Crypto Growth Continues - Bitfinex blog
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Bitfinex Alpha | Macro Headwinds Grow Stronger Though Crypto Growth Continues

Macroeconomic indicators look bleak, but crypto is still looking positive.

With the Fed’s rate hike last week, US interest rates are now higher than the target long-term neutral rate of inflation, which is 2.5%.

GDP is now expected to grow by only 0.2% in 2022 and not return to its long-run target of 1.8% until 2025; similarly, unemployment is expected to rise to 4.4%, and inflation is seen cooling only slowly. Rates in the meantime are forecast to rise to 4.4% by the end of the year.

Housing prices, which are a key component of GDP, are falling as buyers face the worst levels of affordability for four decades, with mortgage costs now 36% of a household income compared to 21% just a year ago.

Meanwhile, in Europe, the European Central Bank seems set on a similar path as the Fed. With the war in Ukraine and high energy prices driving inflation upwards, it appears likely that as further increases in the cost of borrowing are announced to control inflation, it will drive many European countries into recession.

In crypto, however, while the bearish macro conditions have not gone unnoticed in terms of the price, adoption is still growing.

Chainalysis has ranked Central and South Asia and Oceania (CSAO) as one of the leading regions for receiving crypto payments and the fastest growing  – with the largest onramps being NFTs. NFT-related websites received 58% of web traffic from CSAO IP addresses to cryptocurrency services in Q2 2022; play-to-earn blockchain game websites received another 21%.

More broadly, on-chain data suggests that many of those attracted by rising prices in 2020 and 2021 have stuck around, and they continue to invest a significant chunk of their capital in digital assets. Big, long-term cryptocurrency holders have continued to hold through the bear market. So while their portfolios have lost value, those losses aren’t locked in because they haven’t sold— the on-chain data suggests those holders are optimistic the market will bounce back, keeping market fundamentals relatively healthy.

The number of HODLers of up to 0.1 BTC has also grown under bearish market conditions since April 2022, which is anomalous to previous bear market data. This is even more testament to retail investors and crypto adoption growing even when the macro conditions face headwinds.

We also note that there is a new force in crypto driven by Football as the FIFA World Cup approaches. Algorand’s establishment of a FIFA Collect NFT marketplace has seen new users of the Algorand blockchain growing – a phenomenon that has been apparent since the Summer.

The percentage of supply held by ALGO whales (addresses with > 1% of supply) climbed sharply throughout August and September. Whales’ aggregate holdings climbed by over $280M since August. The excitement surrounding the World Cup and football generally has found a new outlet in crypto.

Crypto-on-chain metrics are also telling a consistent story about investor behaviour. An analysis of the Bitcoin realised price, which is the value of all Bitcoins at the price they were bought, divided by the number of Bitcoins in circulation, indicates that the realised price is $21,300 – which means that most participants are holding BTC at a loss.

This is backed up by the Spent Output Profit Ratio (SOPR), a tool that allows you to track the overall state of profit/loss of the market as a whole. On this measure, even Whale-sized wallets are being forced to realise losses in the current market.

Interestingly, Short Term Holder Realised Price and Long Term Holder Realised Price are now within $200 of each other, and it is possible the reason for the realised price closing in on the actual price might also be due to the losses being realised on all of the Bitcoin purchased at much higher prices.

In Crypto news, we report on the Wintermute hack; the new Nasdaq Crypto custody service; charges against a well-known crypto influencer by the SEC; a request for public comment on the role of crypto in illicit finance by the US Treasury Department; the white hat hack of the Ethereum Arbitrum bridge; EU finalisation of the Markets in Crypto Assets regulations; and the continuing bid battles for Voyager.

Happy trading!