Q: What’s the most significant difference for the crypto market today compared to Christmas 2021? Beyond the price of Bitcoin, Ethereum, and others, what changed from that moment of euphoria to today’s perpetual fear? Has there been a decline in adoption and liquidity? Are fundamentals still valid?
A: The most significant difference comes from two aspects: liquidity and investor confidence. In 2021, the liquidity of the crypto market is still sufficient, and the impact of the liquidity contraction in the risk asset market has not yet fully manifested. In 2022, with the Fed’s (U.S. Federal Reserve) continuous interest rate hikes, Luna’s collapse, 3AC Capital’s (Three Arrow Capital) bankruptcy, and chapter 11 of the FTX exchange, the liquidity of the crypto market is basically squeezed dry. One of the apparent signals is that in December 2022, monthly crypto spot volumes have returned to 2020 levels.
Blofin: “One of the apparent signals is that in December 2022, monthly crypto spot volumes have returned to 2020 levels.”