Past, present and future with material indicators

2022 is coming to an end, and our staff at NewsBTC decided to run this Crypto Holiday Special to provide some perspective on the crypto industry. We’ll be talking to multiple guests to understand this year’s highs and lows for cryptocurrencies.

In the spirit of Charles Dicken’s classic, “A Christmas Carol,” we’ll look at crypto from different angles, look at its possible trajectory for 2023, and find common ground between these different views of the industry that could underpin the future of finance.

During the last week, we talked with institutions about their perception of 2022 and their prospects for the coming months. We’ll start with our experts Material indicatorsa market data and analytics company dedicated to building trading tools for the emerging sector.

Material Indicators: “While we have yet to see tradfi (traditional finance) price in earnings contraction (~Q1’23) for the latest stock, we are already near the bottom on sentiment.”

Material indicators and their team of analysts measure market sentiment and liquidity and try to read between the lines of what the big players are doing to provide a clear, noise-free view of its conditions and possible direction. Here’s what they told us:

Q: What is the most significant difference for the crypto market today compared to Christmas 2021? Besides the price of Bitcoin, Ethereum and others, what has changed from that moment of euphoria to today’s eternal fear? Has there been a drop in adoption and liquidity? Are the basics still valid?

A: The difference is striking! Since the explosion of FTX, the influx of new people to Crypto Twitter has been reduced to a trickle. Salty Youtubers will now advise you to sell your remaining coins to avoid a total loss. Telegram communities are shrinking. Big accounts that were telling their followers to buy have either dropped out or changed. While we have yet to see tradfi (traditional finance) prices in earnings contraction (~Q1’23) for the latest stock, we are already near the bottom in terms of sentiment.

Q: What are the dominant narratives driving this shift in market conditions? And what should the narrative be today? What do most people overlook? We’ve seen a major crypto exchange explode, a hedge fund that was thought to be untouchable, and an ecosystem that promised financial utopia. Is Crypto still the future of finance or should the community follow a new vision?

A: It’s the other way around. Conditions create narratives. Loose monetary policy and an abundance of cheap credit create bubbles and encourage fraud. Only after the tide recedes do we see who was swimming naked. With the inevitable rise in unemployment, people will try to hide in bonds, which actually improves credit availability for risky assets. So, while earnings-driven assets will feel the pain of higher unemployment, credit-driven assets (risky assets) will feel relatively less pain.

Q: If you had to pick one, what do you think was the defining moment for crypto in 2022? Will the industry feel the effects during 2023? Where do you see the industry next Christmas? Will they survive this winter? The Mainstream is once again declaring the death of the industry. Will he finally get it right?

A: Terra/Luna was probably the catalyst for all the later augmentations and we have yet to see the full effects of the contagion (DCG/Grayscale/Genesis not fully resolved yet). As with any increase, this will only invite additional regulation that will neither protect investors nor improve the potential for growth. We wanted institutional adoption, and now we see that they didn’t manage the risk and gambled away their user funds.

Q: Finally, on social media, you at Material Indicators have gone public with your bearish bias. Are you more or less pessimistic than you were at the beginning of 2022? And what would you like to see change your bias and lean towards the longer side of the market? We know a lot depends on the Federal Reserve, is there a better chance of a turnaround and lower interest rates?

A: Although we’re probably not quite out of the woods yet, we can almost see the light. With poor earnings and poor forecasts, the bonds are likely to be bid in Q1 2023 and therefore make credit available to risk assets to cushion their decline or even help them recover (especially if the Treasury manages to free RRP from its ~$2T idle walk liquidity). Bitcoin could also benefit from this as it depends only on the availability of credit and not on earnings. However, while inflation has been falling and is likely to continue falling for some time, it is unlikely that we have seen the last of it. So watch out for a potential rebound in inflation in late ’23/early ’24.

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