Crypto Fund DeFi Analyst: Why Hasn't the Crypto Market Reached Its Bottom Yet?
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Crypto Fund DeFi Analyst: Why Hasn't the Crypto Market Reached Its Bottom Yet?
We haven't seen the market bottom yet, not even close.
Navigating Web3 tides with focused insightsAuthor: Bryptobricks
Translation: TechFlow intern
Analyzing from both on-chain and macro perspectives: why this is not a bottom zone?
(Disclaimer: The views expressed in this article are solely those of the original author and do not constitute any investment advice.)
On-Chain Analysis
First, the dramatic 3AC event isn't over yet. Although 3AC is being liquidated, their positions haven't been dumped onto the market—BTC, ETH, and other assets will eventually be sold off to repay creditors.
Below is a list I created to monitor 3AC and its on-chain movements. This has been extremely useful for me and my fund to understand exactly what's happening behind the scenes.
There are dozens of wallets like this, and 3AC still holds thousands of ETH. Most likely, all these wallets will be liquidated to repay creditors—just look at how much capital has already been moved from just one wallet.
Not to mention their NFTs. Just in their "Starry Night" wallet, the total value of NFTs amounts to 12,500 ETH—all of which will be discounted and sold for fiat to raise funds to repay creditors.
Therefore, as they face liquidation, all we can do is wait until the legal system begins actually selling their cryptocurrencies, equities, and NFTs. This will trigger even more severe sell-offs across the entire crypto ecosystem and act as the next catalyst for further declines.
Smart Money
So this raises the question: what is smart money doing? Using Nansen, we can easily track institutional activity and follow the footsteps of those with the best financial resources. I'm still curating my list, but here are some top wallets I'm watching.
Nansen has a feature that allows you to identify other wallets highly correlated with a given wallet. This is extremely helpful when observing whales and tracking what smart money is doing or which contracts they're interacting with.
After some investigation, smart money is currently inactive, with ETH balances remaining low and nearly unchanged. It appears that funds have allocated most of their capital into stablecoins such as USDC, USDT, and DAI.
Bank of Japan and the Yen
The yen is facing its toughest test since 1999, and the Bank of Japan could become the match that ignites global economic recession contagion. The BOJ began QE in 2001 as a temporary measure and now owns 50.2% of Japan’s entire bond market.
What’s concerning is that the BOJ may have to do everything possible to support the rapidly falling yen, including halting Yield Curve Control (YCC). In return, inflation would surge sharply, requiring a tightening cycle to ease inflationary pressures. Yes, this also includes the $1 trillion in U.S. Treasuries on their balance sheet.
Macro
According to current Fed funds futures, there's an 85% chance the Fed will hike by 100 basis points in July (given the 9.1% CPI print—the highest in over 40 years). Bullard himself stated the target rate should reach 3.75%-4% by year-end.
What happens when the U.S. QT curve becomes steeper and the Bank of Japan starts selling $1 trillion in U.S. Treasuries? Liquidity in credit markets is already zero—buyers prefer newly issued bonds over existing ones, meaning existing bonds get downgraded while yields spike to dump current holdings.
Then, if the Fed doesn’t buy, who does? Mainly hedge funds—but since we’re already in a severe tightening cycle, hedge funds will tend to hold cash to limit risk exposure. If this occurs, interest rates will go higher.
Given the global consensus that monetary supply must be tightened everywhere to fight inflation, believing we'll soon rebound into a bull market is purely an illusion. TVL has dropped massively almost everywhere.
Sentiment toward cryptocurrency has shaken to the core. Now, the TVL of all dApps is merely a fraction of what it once was. No one wants to lend out their tokens, and no one wants to participate in the DeFi ecosystem—this is a powerful, pure bear market.
Look at Liquity’s TVL (a lending dApp)—from nearly $5 billion in loans outstanding down to a mere $556 million today (an all-time low). Lending and leverage are very important (when used properly), as they support on-chain activity and stimulate buying confidence.
Where will investor capital come from? How can consumer confidence shift so quickly just weeks after the crypto apocalypse? During a tightening cycle, will smart money rotate back into risk assets? All these questions need answers before turning bullish again.
Outlook
We haven’t seen the market bottom yet—not even close. We’ll know the bottom has arrived only when real estate takes a major hit and bonds begin to stabilize. Until then, I won’t be holding assets long-term.
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