Cryptocurrencies: Only Trust Wallet Token Has Gained A Positive Return
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Cryptocurrencies on the brink of a nervous breakdown
Cryptocurrencies have been in retreat for the last quarter of 2022. For the 75 largest of these (excluding stablecoins), the average decline since the beginning of the year has been as much as 65.09%. Bitcoin (BTCUSD) has fallen by 63.22% in that time. Interestingly, in this pool, only one cryptocurrency - Trust Wallet Token - has gained a positive return of more than 240% since the beginning of the year.
However, let us recall the structure of this market. The value of all cryptocurrencies, according to MacroMicro data, is currently around 860 billion USD and has fallen by 69% (2.82 trillion USD) since its peak. Currently, Bitcoin accounts for 38% of the capitalisation, with the second largest digital currency Ethereum accounting for 18%. The average correlation of all currencies against Bitcoin was 0.71. It may indicate a high dependence of this market on the valuation of just this one cryptocurrency. Therefore, with elevated volatility, increases or decreases in Bitcoin, we could expect similar reactions in other cryptocurrencies. The correlation of Bitcoin with the S&P500 (US500) index was 0.56, which appears to be a significant correlation.
Additionally, the cryptocurrency volatility was noticeably higher than the stock market, measured by an annualised standard deviation of 58.5% compared to the S&P500’s 21.7%. The average deviation of the market for the largest digital currencies was 91%, and the record holder was Synthetix (SNXUSD), whose annual volatility was as high as 141%. This shows us how this asset class had increased risk relative to the equity market.
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Cryptocurrencies the babies of cheap money
Previously, central banks’ monetary policies may have been behind the success of the cryptocurrency market. Measures to stimulate post-pandemic economies by providing cheap money in the form of low interest rates have historically led to local speculative bubbles. It appears to be no different in this case. We can see a correlation with regard to changes in the size of the M2 monetary base and the Bitcoin price, whose growth rate has slowed considerably this year. Therefore, as we are currently in a cycle of ever higher interest rates and monetary tightening, it seems that we may not see increases in this market any time soon.
„Only when the tide goes out that do you discover who’s been swimming naked” - the consequences of the FTX stock market collapse
Since we saw the bankruptcy of the 3rd largest cryptocurrency exchange FTX, the digital currency market has pierced in recent support levels. Currently, the price of Bitcoin (BTCUSD) is hovering around 17,000 USD.
To answer the question of which exchanges may be at risk of insolvency, we should assess the level of coverage of positions taken. The Coinmarketcap website has introduced such a feature. However, it seems that the lack of transparency in this case could be one of the first clues to warn investors. The exchanges currently characterised by relatively high turnover and, at the same time, a lack of transparency are Ecxx, MEXC, IndoEx, Upbit and BitCoke. Increased liquidity could be linked to investors’ willingness to withdraw funds and close positions, so that these entities need to be particularly watched.
Good to watch cryptocurrencies
