Since November 2021, the cryptocurrency markets have been in a steady downtrend that closely follows the four-year bull and bear market cycles. This downward pressure has been accelerated by unfavorable macroeconomic conditions as well as the bankruptcies of many crypto companies.
June 2022 was one of the most destructive months in the history of the cryptocurrency markets. The total market capitalization has fallen by about $500 billion after the massive drop in May and is now less than $1 trillion. The last time the market cap of cryptocurrencies was below this mark was more than 15 months ago, in February 2021. The correction can be traced back to several crypto-specific events, which we will explain in detail in this article.
It is important to note that deteriorating macroeconomic data, tightening financial conditions and the ongoing war in Ukraine present an unattractive investment landscape. All traditional asset classes are affected by rising inflation, slower-than-expected growth figures and the tense geopolitical situation. Other coding related events:
Bitcoin performance during a bear market
bitcoin price (BTC) increased by 35% in one month, more than most traditional financial assets. The price evolution is due to the huge collateral liquidation. These have been used by many CeFi facilities such as Celsius. Moreover, rising selling pressure due to lower mining yields weakened the price.
In June 2022, Bitcoin experienced its worst performance in over a decade. BTC experienced a similar monthly performance in 2011. Cross-chain activity on the Bitcoin network has slowed amid concerns about rising inflation numbers and a possible recession in the coming months. There is also an increase in the degree of accumulation trend. This indicates that holders of long-term stocks are gradually adding to their investment portfolios.
after this China has banned cryptocurrency miningBitcoin recoveredhash rate Strong in the second half of 2021 and reached an all-time high in June 2022. The higher the hashrate, the harder it is to mine a block and get rewards. Thus, the cost of mining went up. At the same time, in November 2021, the price of Bitcoin began to decline, which led to a decrease in the profitability of miners. In the end, some of those had to shut down their abilities.
Additionally, publicly traded bitcoin mining companies act as agents for investors. The latter does not want to hold the asset directly, but still wants exposure. Taking advantage of this philosophy, these mining companies have started to accumulate bitcoins. They created Bitcoin through block rewards and transaction fees, which increased their reserves and investor confidence. They paid for mining operations with the capital raised by offering equity or collecting corporate debt. But the recent decline in mining revenue has brought a problem. Some of these companies have had to sell their bitcoins to cover the now high costs.
Hard times for Ethereum
ethereum (ETH) had a hard time. The price is down 71% this year and 40% in the last month alone. The current failure of CeFi lenders to lay off employees and restrict access to users’ funds started with a synthetic Ethereum asset called Lido staked Ether (stETH).
The Ethereum blockchain will soon be based on proof of stake (POS) compatibility mechanism. To secure the network, validators must deposit 32 ETH. However, these assets are for more than a year or even one after they are deposited Successful integration locked. Lido Finance (LDO) has provided users with an alternative solution. Thus, users can use ETH to secure the network while still having liquidity available. One stETH was issued for one ETH. This is a synthetic asset that generates staking returns and can be redeemed for a similar amount of ETH after the merge. When the value of stETH started to separate from ETH, panic broke out in the market. Users rushed to exchange StETH for ETH. As a result, there has been a liquidity crisis for companies that are highly exposed to preventive and sanitary measures, such as Celsius.
These events caused investor confidence in StETH and ETH to plummet in the short term. The number of active Ethereum addresses and transactions has continued to decline. They are at very low levels not seen in over a year. The reason for the uncertainty surrounding holding ETH is also the long-awaited Beacon Chain merger. This will complete the transition of Ethereum and usher in a new era. However, concerns about efficient scaling of Ethereum are growing. Therefore, not long ago, the dYdX protocol decided to separate from Ethereum and build its own chain in the Cosmos ecosystem.
In addition, the supply of Ethereum in smart contracts decreased. Investor confidence in the decentralized finance system (DeFi) was through The fall of Terra Luna Its stablecoin (UST) shook. Low activity in the network, low total value deposited (Total Value Locked, TVL) and many other reasons also played their part. As a result, the supply of Ethereum has increased on the exchanges, indicating selling pressure.
Alternative blockchains are doing better than the market leaders
All of the alternative blockchain assets we cover have outperformed the leading assets Bitcoin (BTC) and Ethereum (ETH) but posted a negative performance. Smart contract platform Avalanche (AVAX) fell 32%, followed by a 27% correction for Interoperability Polkadot (DOT) and 24% for Stellar (XLM).
- Litecoin (LTC) launched one of the most anticipated upgrades to its network called MimbleWimble a few months ago. Improves transaction privacy while reducing the data required to send transactions. This improvement increases the scalability of the network. However, several centralized exchanges have delisted Litecoin citing anti-money laundering (AML) and know-your-customer (KYC) laws.
- Avalanche (AVAX) introduced the Bitcoin Bridge via a Web3 wallet browser extension (called Core). It enables native Bitcoin support in the Avalanche ecosystem. This gives Bitcoin holders direct access to vast earning and return opportunities in DeFi applications. It is important to note that this native Bitcoin support is only available through the Core browser extension and is not yet supported by Metamask or any other wallet.
- The Solana (SOL) blockchain continues to attract new users despite suffering with the huge challenge of multiple network outages in the past. Solana has the second largest NFT ecosystem after Ethereum. Magic Eden, the leading NFT marketplace, raised $130 million last month at a valuation of $1.6 billion and plans to expand across multiple blockchains. Solana of her new smart device and platform for that. The platform is expected to bring blockchain applications native to the device and will be launched in the second half of 2023.
The graphic below shows the comparison of different smart contract blockchains. Solana has the highest market capitalization share, followed by Cardano (ADA) and Avalanche. On the other hand, Ethereum has the largest number of validators. Even before moving to PoS. Polkadot offers the best return, followed by an avalanche.
Decentralized Finance (DeFi)
After the Celsius incident, MakerDAO launched a survey. It decided to deny lending platform Aave the ability to generate DAI in exchange for stETH derivative token. The reason for this is that 50% of the DAI borrowed on Aave was percentile and backed by stETH. This decision highlights the risks DeFi applications are exposed to by the poor risk management practices of selected CeFi companies.
- Synthetix (SNX) saw trading volume of over $200 million on June 20 as the corn swap product was well received by traders. This was a significant increase compared to the average daily volume from $500,000 to $3 million. Industrial ether (sETH) and industrial dollar (sUSD) were the most active trading pairs during this period. SNX token surged more than 100% on the same day but has since corrected and is down 3% on a 30-day basis.
- Uniswap (UNI) is down just 4% this month. Leading DEX has acquired NFT aggregator platform Genie to integrate NFT trading alongside ERC-20 trading. Uniswap will also be airdropped for anyone who used Genie before April 15, 2022.
A liquidity crisis has rocked the entire cryptocurrency system in recent months. This is why it is important to understand the main differences between centralized and decentralized financial platforms. The following table shows some of the key features.
Since stablecoins are the backbone of the crypto economy today, what follows is the market share distribution among the different USD stablecoins operating in the market. USDC has grown in popularity over the past year, gaining market share from USDT.
The full extent of the current liquidity crisis is not quite behind us. We continue to see multiple centralized platforms halt user withdrawals, layoffs, and raise funds to survive. Therefore, it is safe to say that negative sentiment prevails in the market. This makes it difficult to predict price developments in the short term. An uncertain geopolitical scenario continues to dominate the entire financial ecosystem, raising the risks of further high inflation, slower growth, and recession.