22 charts comprehensively review the encryption market and Web3 development in 2022
Original title: "2022: 22 Graphs That Defined the Year for Crypto》
Original title: "
Original Author: Lewis Harland
Compilation of the original text: Kate
Every year around this time, Decentral Park takes a step back and looks back at the crypto market and Web3 developments over the past 12 months.
2022 is an extraordinary year for cryptocurrencies.
Following tradition (and popular demand), we've rounded up the year's key trends, why we think they're representative, and what we think about the future.
Without further ado, we bring you: "2022: 22 Charts That Define the Year in Cryptocurrencies."
"Happy holidays and a happy new year!
- Decentral Park Team”
1 : Daily transaction volume
Contents: Global daily trading volume (USD) on cryptocurrency exchanges since January 2020. This important indicator has been a good proxy for market interest rates and liquidity. The trough in trading volume coincides with the trough in sentiment.
Why it is defined: We can see that this metric continues to decline during 2022, with both lower peaks and lower lows (now at $11.7 billion). Macroeconomic factors and several capitulation events in 2022 mean that both market rates and liquidity will go downhill.
Where do we go from here? Volume will still correlate with price action. With the reasonable possibility of a global recession in 2023, it is unlikely that H1 volumes will remain above $20 billion. Growth momentum could change as the market anticipates lower interest rates.
2: Encrypted market capitalization vs. Federal Reserve net liquidity
Contents: Global cryptocurrency market capitalization and Fed net liquidity. Net liquidity is defined as the Fed's balance sheet, minus TGA accounts and overnight reverse repurchase agreements. The TGA and RRP have changed considerably since 2020, which means that considering these factors is important to actually measure the available liquidity that can circulate in the economy.
Why it is defined: The theory is that the market liquidity cycle (and M2 supply) has been driving the cryptoasset market since its inception. Central bank tightening monetary policy to cap prices (e.g. QT) negatively impacts net liquidity in 2022.
The startling correlation between crypto markets and net liquidity means that a key driver of crypto asset performance over the past year has been the market liquidity cycle — at least in the US. The recent divergence since last November reflects FTX's influence on the crypto asset market.
Where do we go from here? Greater competition for funding (through the combined effect of QT and higher interest rates) could mean more dollars flowing out of the Fed's reverse repo facility. However, more than $2 trillion reflects excess liquidity in the system and the Fed may do more. The Fed will continue to cut $95 billion a month from its balance sheet in the coming months, which means the market is biased to the downside. Fed net liquidity should return to trend levels, while cryptocurrencies face an uphill battle into recession.
3: Cryptocurrencies and the Nasdaq 100
What: Cryptocurrency market capitalization is positively correlated with growth tech indices like NDQ for most of 2022, but not always.
What defines it: The Terra/Luna/3 AC crash caused the cryptocurrency market to drop 23% in May. When LUNA plummeted from $82 in mid-May, the NDX fell 8%, suggesting a relatively close relationship between the two markets.
It also shows that there is a negative skew in cryptocurrencies - there are clear examples that when LUNA or FTX crash, the cryptocurrency market will not be able to gather momentum, while NDX will recover with more optimistic macro sentiment (see decomposition of positive correlation) . A down day for NDX could mean a down day for cryptocurrencies as well.
Where do we go from here? The same pattern will continue until 2023. From now on, any black swan event or highly contagious event in the crypto space will lead to more negative correlation after the event, because the negative sentiment inside the crypto space is more sticky than outside the crypto space.
4: Global flow of encryption funds
Contents: Total global inflows into cryptocurrency funds since 2011. Total money flows were $85.8 million (as of December 8) - a 99% drop from 2021 total flows.
Why it's defined: It reflects a collapse in investor interest in the cryptocurrency market, as risky assets take a "secondary role" in allocations. It also shows the popularity of the Grayscale Trusts cash carry trade that ends in 2021. Despite the market pullback, there are still plenty of ETPs soaking up cash.
Where do we go from here? Increased flows in 2023 ($1bn+) if the market expects a rate cut. If the prolonged recession is finally over, it will take years to return to 2021 levels.
5: Binance Volume Dominance vs. BUSD Supply
What: Binance’s BUSD supply grew to an all-time high of 22.2 billion, while Binance volume dominance rose to an all-time high of over 60%.
Why it’s defined: The growth in BUSD supply speaks to Binance’s continued blitzscaling and out-of-the-box product strategy in 2020. These include automatically converting USDC to BUSD for users in September to "improve capital efficiency." Meanwhile, Binance continues to dominate the CEX market in terms of trading volume. The collapse of its main competitor, FTX, certainly helped, but an upward trend is already evident.
Where do we go from here? Binance's strategy is being questioned as USDC withdrawals are now generated due to slow traditional banking infrastructure (requiring BUSD to sell it for cash and buy USDC). A lack of sufficient audits, regulatory pressure and a more skeptical market could lead to Binance's dominance eventually waning in 2023.
6: BTC Realized Volatility
Content: Bitmex's 7D BTC Realized Volatility Index remains low in H2 2022.
Definition reason: BTC (beta) vol remained relatively high in the first half of 2022 and continued the same pattern throughout 2021. Strong deleveraging events (including LUNA, 3 AC) from May have reduced speculative activity. Liquidation of user account balances (like FTX) could further dampen volatility in an already worrisome market.
Where do we go from here? Actual volume has fallen close to the yearly low (13.5) and remains in an area that typically precedes high volume action. Given the ongoing macroeconomic, regulatory and collateral pressures on crypto asset markets, this tilt is downward.
7: UST/USD vs. LUNA supplyContents: Terra's UST pegged to USD vs. LUNA supply. On May 7-8, UST began to lose its peg as a large number of stablecoins began to leave Curve. On May 9, the Luna Foundation Guard attempted to secure the UST peg by deploying $1.5 billion. With LUNA serving as the ultimate backstop for UST, we have seen new issuances of LUNA skyrocket to
<16 T units.
Why it's defined: It represents the final nail in the coffin of the "pure" algorithmic stablecoin experiment. The "pure" aspect means that in just 4 days, everything is over for Terra.
It has also drawn attention from regulators and investors. Just 4 months later, a House committee drafted legislation to regulate stablecoins, imposing a two-year ban on algorithmic stablecoins like UST.
Where do we go from here? A market increasingly hungry for fully collateralized stablecoins. Firms like Circle will capitalize on this momentum, doubling down on existing TradFi relationships. . As for Terra - nothing more than a distant memory. We also found evidence of FTX's role in the network crash.
8: L2/Ethereum L1 TVL ratio
What: Total Value Locked (TVL) on L2 exceeds TVL on Ethereum L1. L2 dominance climbed to an all-time high (7.8%) despite a decline in TVL in USD terms (in line with the direction of the broader market).
Definition reason: It shows that in 2022, L2 retains more locked value than L1. The launch of new L2 network tokens (such as Optimism) and their liquidity incentive model are key drivers for continued growth in 2022. L2 is becoming the future of Ethereum.
Where do we go from here? L2/L1 TVL ratio climbs to all-time highs (>15%) in 2023 due to potentially lower gas costs for L1, but people still want to transact on a more scalable basis (multiple periods throughout 2022 All are true).
9: L2 TVL/Alt L1 TVL Dominance
Content: Total L2 value locked vs Alternative L1 (Alt L1) dominance to grow from 3% to 10% in 2022.
Defining why: The technical and philosophical battle between Ethereum L2 and its replacement L1 has intensified over the past 12 months. Due to the continued development of rollups, 2022 marks the first real liquidity growth of L2 relative to alternative blockchains. This graph suggests that, based on current trends, all roads lead to Ethereum.
Where do we go from here? A surge in rollups and incentive programs will drive this ratio higher throughout 2023. TVL beyond L2 will start to consolidate around an AppChain structure like Cosmos, where a data availability layer like Celestia can support the growth of both segments.
10: GBTC Premium vs. BTC/USD
What: Grayscale's GBTC premium to NAV makes new ATL in 2022.
Why it's defined: Grayscale cash carry trades are no longer viable in early 2021 due to oversupply. The bear market deters net new investors from accessing better alternatives to investing in cryptocurrencies, while private equity investors continue to sell their shares.
It was revealed that in 2022, a large number of GBTC shares were used as collateral for large funds such as 3 AC, whose value fell by 85% from the peak in February 2021. The widening discount accelerated after Genesis halted its lending business as investors worried that DCG/Genesis might be forced to sell ($600M-800M in crypto collateral) to raise cash. The truth is, these events only accelerated the previous discounting trend.
Where do we go from here? Due to the lack of public information, it is difficult to predict the outcome. If the GBTC collateral is from Genesis (vs. DCG), there is a greater risk that lenders will be forced to sell shares that are more than 2.5 years old to repay creditors. A Reg M or Grayscale Trust liquidation would result in as much as $11.2 billion in Bitcoin being sold on the market. By the way, the US Securities and Exchange Commission (SEC) will not approve the transformation of spot ETFs anytime soon.
11: DEX/CEX trading volume ratio
Content: Global trading volume on decentralized exchanges surpassed that on centralized exchanges, growing from 9% in September to 11.7% in November.
Why it’s defined: After a bear market in DEX activity, growing concerns about centralized players and asset safety drove a reversal in the DEX/CEX ratio, with the biggest jump occurring in the month of the FTX crash. Changes in the ratio reflect changes in user self-hosting sentiment through the end of 2022.
Where do we go from here? A marketplace that redefines transaction security. The DEX/CEX ratio is likely to remain below 15% for some time, but the ratio is unlikely to fall to new lows from 2020. If this happens, regulatory pressure on DEX teams and users could be a driving factor for the latter.
12: Bitcoin STH-SOPR
Content: Bitcoin's short-term holder spend output profit ratio (SOPR) will be suppressed below 1 by 2022. This metric reflects the degree of realized profit for all tokens on the chain.
Why it is defined: Using short-term holders of SOPR allows us to gain insight into the sentiment and behavior of traders who are just entering the market. SOPR uses 1 for resistance in long bear markets and 1 for support in more bullish periods. Every rejection1 in 2020 shows that, on average, short-term traders are selling Bitcoin close to their cost basis or at a loss at every opportunity (every market rally for the year).
Where do we go from here? STH-SOPR has been suppressed below 1 until a more constructive market develops, which may start when the market first "smells" easier monetary policy.
13: The number and supply of global stablecoins
Contents: The total amount of stablecoins and the total free circulation. Total size will triple ($35 B; 14 d MA) by 2022, while global free float of stablecoins has declined by 14% over the same period.
Why it's defined: In 2022, stablecoins show that they've achieved true product-market fit even during bear markets. We saw higher trading volumes despite severe deleveraging events and primary exchange closures. Higher transaction volume and lower supply means fewer stablecoin units are traded more frequently (higher velocity).
Where do we go from here? Maintain current trends until 2023. Daily stablecoin volume peaked at $40 billion, with lows remaining above $20 per day.
14: DeFi/ETH Ratio
Content: The DeFi market cap/ETH market cap ratio is making lower highs and lower lows in 2022.
Why it defines it: It highlights the struggles the $35 billion DeFi industry will experience in 2022 relative to the broader crypto market. The market capitalization of DeFi has fallen by 82% from the ATH level in November 2021 ($200 billion), a decline faster than ETH (beta).
The collapse of Terra and the fallout from 3 AC and centralized lenders this summer paved the way for the ratio’s single largest drop. However, regulatory headlines, such as the leaked CFTC bill in mid-October, also had an impact, causing the ratio to decline by 4%, even as the industry grew by $10 billion over the same period. As a result, investors have started to relatively reduce their allocation to the sector due to mounting regulatory pressure.
Where do we go from here? It is difficult for the DeFi/ETH ratio to break through 25% in the short term. Market deleveraging is likely complete, which means high drawdowns may have leveled off. That said, investors are allocating assets to major institutions as more liquid proxies come into play in the next adoption cycle, which could keep pressure on the ratio in the near term.
Still, the industry continues to push forward, with many household names embracing blockchain, such as Disney and Starbucks. DeFi has also benefited greatly from the integration of CeFi.
15: US personal income vs. global NFT transaction volume
Content: US personal income year-on-year change rate and global NFT transaction volume.
Why it's defined: NFTs represent a high-risk sub-sector in a high-risk market that should be susceptible to the rate of change in individual income. Rising inflation and slower real wage growth are the perfect combination for lower disposable income.
There is some evidence that US PI often leads NFT trading volume by 4-6 months. Stimulus checks (Economic Impact Assistance Payments) and quantitative easing meant more money was spent on riskier assets.
In March 2022, the rate of change in US PI also hit an all-time low, while monthly NFT trading volumes soared to a new ATH (over $16 billion).
Where do we go from here? The model implies that a low or negative PI rate of change could hinder significant adoption of NFTs. The weakness in the consumer space is the weakness of NFT. If the global recession persists, it is unlikely we will see a new monthly NFT volume ATH in 2023.
16: FTX hot wallet withdrawal
Contents: Scatterplot of USDC and USDT withdrawals from FTX exchange hot wallets on November 7-8, 2022.
Why it's defined: Data shows that on Nov. 7, high-value USDC traders initially scrambled for the exits. It all came to a screeching halt on the 8th as low-value traders continued to trade incessantly. A final, higher-value cluster is for "some specific customers," which some define as Bahamian users.
FTX will suspend withdrawals for the last time on November 8, 2022 at noon.
Where do we go from here? years-long bankruptcy proceedings.
17: FTX/USDT Binance order book
Content: Order sizes for FTT/USD at different price levels on Binance from November 2-8, 2022.
Why it's defined: It provides on-chain evidence (backgrounded by off-chain data) that at least one market participant wants to support the price of FTT (the native cryptoasset of the FTX exchange). Strong support at $23.50 before Caroline (Alameda CEO) offered to buy FTT at $22/unit. That's a bunch of damn proof - you don't publicly tell people a price level unless you're pretty confident you need it.
Where do we go from here? FTT transactions asymptotically approach 0 over time, accessible in limited venues outside of decentralized exchanges.
18: Solana asset performance after FTX crash
Contents: Solana and Solana-based ecosystem assets and market betas (BTC, ETH, Total MCAP). Solana-based assets fell more than 50% after the FTX crash, while SOL itself fell 60%.
Why it's defined: Clustering of Solana asset performance and beta highlights the persistent FTX/Alameda vulnerabilities of Solana and its ecosystem.
Where do we go from here? Trust and investment in Solana has slowly returned, and many of Solana's assets will be tied up in several bankruptcy proceedings.
19: Bitcoin hash price and mining difficulty
Content: Bitcoin's rising hash rate (hash rate/price) vs. suppressed BTC/USD ratio and climbing mining difficulty.
Why it's defined: The Bitcoin mining market is in extreme trouble. Bitcoin hash rate surged 61% from January to ATH peak (273 m TH/s), while BTC/USD fell 62% (divergence).
The hash price ratio bounced back to 2020 levels and entered a zone coinciding with a local market bottom (miners complete capitulation). However, the convexity of the mining market means that unprofitable miners are forced out of business.
The biggest difference between then and now is that market conditions have been more tense and the macroeconomic environment has been tougher.
Where do we go from here? Consolidation of Bitcoin miners into 3-5 major (and profitable) players, likely led by increased M&A activity. New BTC/USD lows could mean new ATHs for hash prices and longer miner capitulation periods.
20: Ethereum vs Ethereum Classic Hash Rate
Contents: Ethereum 1 hash rate trend vs. Ethereum Classic hash rate trend since March 2021. Red areas indicate ETH consolidation.
Why it's defined: The ETH merger marks the first mainnet network switch in history from proof-of-work (PoW) to proof-of-stake (PoS).
This coming summer, the Ethereum transition means that miners will soon be out of work. Ethereum Classic, which uses the same mining algorithm, is the next best thing and started moving months before the merger event in September.
The only problem is that the market capitalization of ETC is only about 2.5% of ETH 1, and the network activity is negligible to generate transaction fees or maintain the interest of the exchange. Ethereum 1 sheds its mining skin and overburdens the Ethereum Classic mining environment relative to the USD rewards those USD-denominated operators receive.
Miners started unplugging unprofitable machines, and the network mirrored a trend of Ethereum 1 hash rate decline throughout 2022.
It also emphasizes the self-sufficient nature of PoW, including mid-stream consensus layer switching.
Where do we go from here? Ethereum Classic’s hash rate continues to drop, with resource commitments falling back to the pre-merge 200 TH/s range (all else being equal).
21: ETH perpetual contract funding rate
What: Total funding rate vs. ETH/USD. The ETH perpetual market has experienced the most negative funding rate period in two distinct periods in 2022.
Definition reason: The first extreme print occurred during the ETH consolidation period just before September. Traders treat ETH POW tokens as free call options and thus become opportunistic in their positions. By hedging the underlying asset but holding physical ETH, they can claim these units in a delta-neutral way.
The second is more difficult to predict. Traders who were unable to withdraw assets from FTX also became opportunistic, shorting ETH off FTX while long ETH on FTX to construct “synthetic FTX withdrawal transactions.”
These perfectly capture the growing role of futures markets in cryptocurrencies — whether for anticipated or more impromptu events. Investors have become more sophisticated.
Where do we go from here? Funding rates for ETH are normalized to prevent any negative events (e.g. further exchange crashes).
22: Performance of newly listed cryptoassets since launch
What: High-profile crypto asset launches benchmarked against their first day of listing. Regardless of token launch strategy or valuation, all tokens are expected to end the year in the red.
Why it's defined: A broad risk-off environment means investors are under-allocated to offset supply hitting the market (low free float early on).
But it also speaks to the continued ineffectiveness of the release strategy. Tokens such as OP, HOP, and AP are examples of high-profile airdrops, but research on previous airdrops concluded that airdrop strategies were largely ineffective in retaining users and their respective network contributions.
Where do we go from here? Developers used this growing list of failed airdrop use cases to iterate on subsequent models, focusing on how to better incentivize community participation and continued participation in network contributions.
More: Web3 exploit count and value
Contents: Total number of vulnerabilities exploited in Web3 protocols and dollar value since 2020. The total number of exploits in 2022 is down 39%, while the total number of exploits is up 16% ($2 billion).
Why it's defined: The idea that we're doing little to prevent exploits — speaks to the nascent nature of the field.
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