May 2022 has been quite a difficult month for crypto investors, especially with the collapse of the Terra ecosystem. The collapse of the Terra ecosystem has been devastating not only for investors, but also for developers and other members of the crypto community. Crypto exchange Bybit has partnered with blockchain analytics firm Nansen to study the state of the crypto market. This is what investors are doing after everything that has happened in the crypto space.
1. Move to risky assets
Amid skyrocketing inflation and a tightening of monetary policy by the Federal Reserve, investors have been adopting a risk-averse attitude that has resulted in a sharp decline in the US stock market, as well as in the cryptocurrency market.
Bitcoin it has been showing a close correlation with the Nasdaq Composite over a 30-day period. Therefore, any volatility in traditional asset classes is likely to affect cryptocurrencies in the near future. In addition, institutional participation could be a double-edged sword. On the one hand, it helps instill confidence, but as institutions begin to de-risk, it can create additional selling pressure. As a result, capital flows, in and out of Bitcoin, have remained volatile.
2. ETH outflow decline
Earlier this year, there was a significant outflow from ETH which led to anticipation of The Merge upgrade on Ethereum. In early March 2022, users started staking their ETH on DeFi protocols. Back then, total ETH outflows were 1,143,529 ETH. However, as selling pressure mounted in the market, the outflow almost halved to 665,898 ETH in April. In May, they decreased further and ETH net outflows so far stood at 108,045 ETH. The Bybit report mentions:
In May, we saw a net inflow of 1 billion ETH, with massive spikes on May 12 and 14, possibly caused by the unfortunate UST unpeg.
3. Declining interest in crypto derivatives products
In the middle of the sharp market decline, there has been a significant decline in open interest across all major crypto derivatives. In early March, open interest rebounded sharply, peaking on April 5. However, it has been on a very steep downward trend ever since. In May, the surge in market liquidations caused open interest in crypto derivatives to plummet to new lows. Thus, despite increasing stablecoin inflows on exchanges, open interest remains subdued. This suggests that capital has been fleeing the crypto space. Furthermore, the Terra episode could also have triggered the sell-off of stablecoins to fiat. In addition, the supply of stablecoins has also been reduced in recent times. It suggests a strong de-risking phase and money out of the market. Almost 8.08 percent of the capital tracked by Nansen is stored in stablecoins, as of May 16.
4. Total Value Locked (TVL) via blockchain in decline
The impact on the broader crypto market was also quite visible in the DeFi space. In the decentralized finance (DeFi), the total value locked on popular blockchain networks reached new highs in November 2021. However, the TVL has been on the decline and has fallen to July 2021 metrics. Also, the cooling of cryptocurrency prices during the last month also affected the number of daily active addresses and the daily transaction count. However, Ethereum competitor Avalanche has been an exception in making a spike in daily active transactions. This comes in the midst of the launch of Crabada’s Swimmer subnet. In the report, Bybit points out:
With the DeFi Kingdom and Crabada subnets already launched, and with several other subnets yet to come, it looks like the Avalanche ecosystem could flourish in the medium to long term, especially with regards to daily transactions.
Avalanche (AVAX) continues to lead the pack amidst all of Ethereum’s Layer 1 competitors. In April 2022, despite bearish market conditions, Avalanche facilitated an average of 800,000 transactions per day. The report adds:
When sorted by bridge volume over the last 30 days, we can see that the Avalanche has still maintained its high volume. Compared to Ethereum, the Avalanche network has seen significant growth in daily transaction volumes since it rose to relative fame in August 2021.
5. The state of the NFT market
For him NFT market Broader, Nansen has its own NFT-500 index. The blockchain analytics firm noted that amid the global market crash, the NFT market has taken a huge hit. During the recent episode of the Terra ecosystem collapse, NFTs witnessed some severe price corrections. Nansen notes that its NFT-500 index has returned all the gains it made since the beginning of 2022 as of current status. If we look at the different categories of NFTs, the whole market is changing. For example, some of the most significant projects and social NFTs like BAYC, CloneX, and Azuki continue to dominate the market with a whopping 83 percent market share. On the other hand, the once very popular Metaverse and Gaming NFTs have entered a period of long consolidation. In the report, Nansen mentions:
In April 2022, the NFT market saw an excellent rally, mainly led by Social NFT. The rally continued and peaked on May 3, led primarily by the BAYC ecosystem and Azuki. At their peak, both BAYC and Azuki reached a minimum price of 160 and 32 ETH respectively.
The popular BAYC NFTs continue to witness massive trading volumes with their parent company Yuga Labs announcing the latest NFT metaverse collection, Otherdeed for Otherside. The minting of these NFTs resulted in a sharp increase in the gas fee on Ethereum.
