Recently, with the opening of the ETF channel, the "flooding amount of funds" expected by the crypto market has not met expectations, and the lack of liquidity in the global financial market has spread to the crypto market. The opening of new channels also means that the rules of the previous complex and mature market will collide with the culture and investment logic of the crypto market. As a result, the crypto market has changed from a nearly closed haven to a small boat in the vast ocean. Fundamental changes in the nature of the market also bring new challenges.
Bitcoin, no longer digital gold?
To understand the crypto market, let’s start with Bitcoin, which accounts for half of the market.
圖源：statistaDominance of Bitcoin and other crypto in the overall market from 2nd quarter of 2013 to 1st quarter of 2024
Looking back on this year, we can observe several key events. For example, in April this year, tensions between Iran and Israel led to Iranian retaliation. Although the Asia-Pacific market reaction was not reflected in financial markets, Bitcoin experienced a significant decline. In addition, U.S. economic data not only affects the U.S. financial market, but also stirs the nerves of Bitcoin. For example, in the first half of the year, the number of unemployed people in the United States rose several times and exceeded expectations. The market will think that this prompted the central bank to adopt more loose monetary policies, which in turn can promote the rebound of U.S. stocks and also promote the rise of Bitcoin.
Source: Bloomberg
In the past, we regarded Bitcoin as "digital gold" and believed that it ran counter-cyclically to the US dollar. However, now it seems that Bitcoin is more like the "amplifier" of Nasdaq. Compared with traditional stocks and bonds, these new institutional investors find Bitcoin lacks fundamental analysis (financial indicators and cash flow analysis). Its value is mainly determined by market supply and demand and investment trust, so it is a commodity. Coupled with sentiment indicators, it has become a quantitative trend that institutional investors rely on. Coupled with the widespread use of leverage in the crypto market, Bitcoin is more volatile, which is a new market characteristic that we need to adapt to.
Compared with 2022, which saw 7 interest rate hikes, crypto market demand will be significantly reduced
Taking the U.S. market as an example, M2 (broad money supply) has been slowly declining since the first half of 2022. According to statistics from Macromicro.me, the seven Fed rate hikes from March to December in 2022 caused the US market net liquidity index to show a rapid decline and has not increased since then. The U.S. interest rate hike policy in 2022 has had a significant impact on market liquidity, which has not maintained its previous growth. Subsequently, the encryption market demand has also decreased significantly.
Source: Fred
We choose stablecoins to take an in-depth look at the needs of the crypto market. Because the stablecoin issuance mechanism determines that its issuance can represent the market's demand for the crypto market. The overall market value of stablecoins has increased by approximately US$30 billion since 2024 (about half a year). Compared with the second half of 2021 and the first half of 2022, the growth rate has decreased significantly. What's more, 2021 to the first half of 2022 happens to be a time of tight liquidity in global financial markets. This means that the crypto market has changed from a hedging risk market to a small boat in this vast ocean.
Source: PANews
From this, we can roughly conclude that the general style of the entire crypto market has changed from a nearly closed market that hedges financial risks to a market that is more economically sensitive, and Bitcoin has also changed from "digital gold" to Nasdaq. Dak and other "amplifiers" of the U.S. stock market. Economic indicators affect liquidity in the market and directly affect the crypto market.
This OTC is not that OTC, injecting liquidity into the market
How do we address liquidity in the crypto market under existing established general economic policies? There are two general methods: one is to promote the participation of institutional investors; the other is to improve market infrastructure. Here we focus on the first method.
In promoting the participation of institutional investors, over-the-counter trading (OTC) is an indispensable or currently ignored channel by the crypto market. Specifically, we use the global Bitcoin currency as an example. According to CryptoQuant statistics, the daily balance of the OTC trading desk fluctuates between 100,000 and 500,000 Bitcoins (calculated based on the Bitcoin price of approximately US$65,000, approximately 6.5 billion to 32.5 billion US dollars). By comparison, Bitcoin ETFs have average daily inflows of around $122 million (Farside Invest data as of July 5, UTC+8), which is equivalent to dozens to hundreds of times more OTC trades.
Source: CryptoQuant
The OTC that everyone is already familiar with in the encryption market is slightly different. The OTC we are familiar with refers more to the bridge between legal currency and cryptocurrency. This is because before the emergence of compliance channels such as ETFs, OTC channels were accessible to the public. Main channel. However, from a financial market perspective, the other two financial market functions of OTC - the main channel for large-value transactions and liquidity provision and market stability - are yet to be developed.
Source: OKG Research
On the institutional investor side, RWA is another method often mentioned. However, the author believes that to improve liquidity of RWA, it is necessary to truly accept the use of encrypted assets as the unit of account, and RWA should be issued on the public chain instead of being limited to the alliance chain or private chain. At present, RWA mainly stays in enterprise-level alliance chains or alliance chains between financial institutions. For example, Hedera cooperated with Blackrock in April this year to tokenize money market funds (MMF), using an incomplete decentralized public blockchain. chain solution.
As the Web3 market continues to evolve, we can see changes within it. The crypto market has gradually transformed from what was once a safe-haven niche to an industry that is highly sensitive to economic dynamics. Bitcoin has also transformed from "digital gold" into an "amplifier" for U.S. stock markets such as Nasdaq. In response to the recent liquidity problems in the encryption market, we need to solve them in a multi-pronged manner. Not only must we adapt to the fluctuations of the overall economic cycle, but we must also pay attention to and develop business industries that have been ignored in the past, thereby injecting new vitality and enhancing the stability and maturity of the market.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reproduced with permission from: "PANews"
Original author: Ouke Cloud Chain
