Data interpretation of the repositioning of the crypto world: the pain of transformation under the global liquidity dilemma

By Hedy Bi, OKG Research

There will be more than 5 billion searches every day in the world, and 491EB of data will appear in our lives every day. If all this data is presented in the form of emails, it is equivalent to one person processing 3.6 billion emails a day. With the continuous development of blockchain technology, from off-chain to on-chain, the world built by on-chain data can no longer be ignored. According to OKLink on-chain data, the daily trading volume of USDT alone has reached 1/10 of the daily trading volume of the entire New York Stock Exchange.

The world is being digitized. In particular, the blockchain publicly and rigorously records every transaction. The huge amount of data and complex transaction network make it more difficult for people to comprehensively and clearly analyze the market environment we are in. OKG Research and PANews jointly launched a new topic to restore a real blockchain world with data.

This article is produced by OKG Research and PANews: data-oriented, insight into the real on-chain world.

Recently, with the opening of the ETF channel, the "huge amount of funds" expected by the crypto market has not met expectations, and the liquidity shortage problem in the global financial market has spread to the crypto market. The opening of the new channel also means that the rules of the previous complex and mature market have collided with the culture and investment logic of the crypto market. As a result, the crypto market has changed from a nearly closed safe haven to a small boat in the vast ocean. The fundamental change in the nature of the market has also brought new challenges.

Bitcoin, no longer digital gold?

To understand the crypto market, we start with Bitcoin, which accounts for half of the market.

Pic: Dominance of Bitcoin and other crypto in the overall market from 2nd quarter of 2013 to 1st quarter of 2024

Source: statesman

Looking back at this year, we can observe several key events. For example, in April this year, the tension between Iran and Israel led to Iran's retaliatory actions. Although the reaction of the Asia-Pacific market was not reflected in the financial market, Bitcoin fell significantly. In addition, the US economic data not only affects the US financial market, but also touches the nerves of Bitcoin. For example, the number of unemployed people in the United States rose several times in the first half of the year and exceeded expectations. The market believed that this prompted the central bank to adopt a more relaxed monetary policy, which could drive the rebound of US stocks and also drive the rise of Bitcoin.

In the past, we viewed Bitcoin as "digital gold" and believed that it was counter-cyclical to the US dollar. However, it now seems that Bitcoin is more like an "amplifier" for Nasdaq. Compared with traditional stocks and bonds, these new institutional investors lack fundamental analysis (financial indicators and cash flow analysis) for Bitcoin. Its value is mainly determined by market supply and demand and investment trust. Therefore, commodity attributes plus sentiment indicators have become the quantitative trends that institutional investors rely on. In addition, with the widespread use of leverage in the crypto market, Bitcoin is more volatile, which is a new market feature that we need to adapt to.

Compared with 2022, when there were 7 interest rate hikes, the demand for crypto market has decreased significantly

Taking the U.S. market as an example, M2 (broad money supply) has been slowly declining since the first half of 2022. According to Macromicro.me statistics, the seven Fed interest 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 a previous growth. Subsequently, the encryption market demand has also decreased significantly.

Source: Fred

Source: MacroMicro

We choose stablecoins to look deeper into the demand of the crypto market. Because the stablecoin issuance mechanism determines that its issuance can represent the market demand for the crypto market. In terms of the overall market value of stablecoins, it has risen by about 30 billion US dollars since 2024 (about half a year). Compared with the second half of 2021 and the first half of 2022, the growth rate has significantly decreased. Moreover, 2021 to the first half of 2022 is exactly the time when liquidity in the global financial market is tightening. This means that the crypto market has also changed from a previous hedging risk market to a small boat in this vast ocean.

Pic: Stablecoin Total Market Cap

Source: DeFiLlama

From this, we can roughly conclude that the general style of the entire crypto market has changed from a nearly closed market for hedging financial risks to a market that is more sensitive to the economy, and Bitcoin has also changed from "digital gold" to an "amplifier" of US stock markets such as Nasdaq. Economic indicators will affect liquidity in the market and will also directly affect the crypto market.

This OTC is different from that OTC, injecting liquidity into the market

Under the existing macroeconomic policies, how do we solve the liquidity problem in the crypto market? There are two common solutions: one is to promote the participation of institutional investors; the other is to improve market infrastructure. Here we focus on the first solution.

In promoting the participation of institutional investors, over-the-counter (OTC) trading is an indispensable channel or one that is currently ignored by the crypto market. Specifically, let's take the global Bitcoin as an example. According to CryptoQuant statistics, the daily balance of OTC trading desks fluctuates between 100,000 and 500,000 BTC (based on a BTC price of approximately $65,000, approximately $6.5 billion to $32.5 billion). In contrast, the average daily inflow of Bitcoin ETFs is approximately $122 million (Farside Invest data, as of July 5, UTC+8), which is equivalent to dozens to hundreds of times more than OTC trading.

Source: CryptoQuant

The OTC that everyone is familiar with in the crypto market is slightly different. The OTC we are familiar with is more of a bridge between legal currency and cryptocurrency. This is because before the emergence of compliant channels such as ETFs, the OTC channel was the main channel accessible to the public. However, from the perspective of the financial market, the other two financial market functions of OTC - the main channel for large transactions and liquidity provision and market stability - need to be developed.

Source: OKG Research

In terms of institutional investors, RWA is another frequently mentioned method. However, I believe that RWA needs to truly use crypto assets as accounting units to improve liquidity, and RWA should be issued on public chains, rather than limited to alliance chains or private chains. At present, RWA is still mainly in the enterprise-level alliance chain or the alliance chain between financial institutions. For example, Hedera, which cooperated with Blackrock in April this year, tokenized money market funds (MMFs) using an incompletely decentralized blockchain solution.

As the Web3 market continues to evolve, we can see its inherent changes. The crypto market has gradually transformed from a niche market that used to be a safe haven to a market that is highly sensitive to economic dynamics. Bitcoin has also transformed from "digital gold" to an "amplifier" for US stock markets such as Nasdaq. In response to the recent liquidity issues in the crypto market, we need to solve them in a multi-pronged way. Not only should we adapt to the fluctuations of the macroeconomic cycle, but we should also pay attention to and develop business areas that have been neglected in the past, so as to inject new vitality and enhance the stability and maturity of the market.