Bitwise Q3 Quarterly Report: 5 Market Trends You Need to Know

The third quarter of 2022 passed so quietly and was a very good quarter for cryptocurrencies.

Overall, cryptocurrencies as a whole rose by 10%, with many individual assets rising significantly.

For example, the price of Ethereum has increased by 31%, mainly thanks to the successful technical upgrade of the Ethereum blockchain, Merge, which has reduced its carbon footprint by more than 99% (among many other advantages). Meanwhile, Lido, a popular DeFi asset, saw a 260 percent price rise as users flocked to its “liquid staking” service.

In such an unfavorable macro environment, these achievements are even more impressive. The macro environment at the time caused the S&P 500 to plunge more than 5%.

The positive price trend of cryptocurrencies is supported by generally positive public opinion. On the regulatory front, the White House released the first “comprehensive framework” on cryptocurrencies, and Congress has taken important steps to develop well-rounded stablecoin rules.

At the same time, venture capital continues to flow into the crypto space (albeit at a slower pace), with multiple blockchains surpassing important technological milestones.

However, all this progress cannot hide the damage caused by the thunderstorm of Terra and 3AC and the resulting second-quarter crypto credit crisis.

The second quarter was the worst quarter for cryptocurrencies in 10 years, with major large assets falling by almost 63%. In this environment, the recovery in the third quarter can be modest at best.

To be fair, the third quarter wasn’t all plain sailing. We are seeing the threat of enforcement action from the SEC and a continued decrease in user activity in DeFi, NFTs, and other areas.

Still, we’re excited to see that developer activity remains strong, one of the most fundamental metrics to measure growth in the space. For example, Ethereum’s crypto application deployments grew 143% year-over-year in the third quarter and 14% year-over-year in the two weeks following the Ethereum merger.

As we move towards the fourth quarter, investors are uncertain about the market situation.

Will cryptocurrencies continue the modest recovery that began in Q3, or will negative macro news overwhelm fundamentals and push prices to new lows?

With cryptocurrency increasingly a hotly debated topic among regulators and lawmakers, is it likely to play any role in the upcoming U.S. midterm elections?

The report is a good way to answer these questions. Fundamental data and qualitative news are examined, looking at key trends in multiple areas of the crypto market: Bitcoin, Ethereum and the emerging L1 blockchain, DeFi, NFTs, and crypto stake.

5 market insights from the Q3 report

1. Bitcoin has weathered global currency turmoil

The strength of the US dollar was a major global force in the third quarter, crushing all other currencies. From this point of view, Bitcoin is doing quite well.

The third quarter was difficult for major global currencies and gold. The world’s major currencies (EUR, POUND, JPY, CHF) and the renminbi lost 3-8% against the strong dollar. Gold also fell 8% in dollar terms.

But at the same time, bitcoin bucked the trend and rose 3.1%.

This was so surprising that the New York Times published an article headlined: “Global currencies are plummeting, except for Bitcoin.” ”

Performance of selected global currencies, gold and Bitcoin from June 30 to September 30, 2022

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Major network upgrades have driven the growth of Ethereum and other L1 layers

As positive news about mergers and other network upgrades overcame macro headwinds, Layer 1 blockchains rose 27% in the third quarter.

Ethereum’s inflation rate has dropped by more than 90% after the merger, and its energy consumption has dropped by more than 99% (the network now consumes less energy than PayPal, YouTube, or Bitcoin).

The transition to proof-of-stake is seamless, although many doubt that consensus mechanism can power a large blockchain.

Not only Ethereum, but other blockchains are also undergoing major upgrades. More features, lower costs, and more mainstream applications are a common vision.

Key improvements to blockchain infrastructure announced or deployed from June 30 to September 30, 2022

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3. Lido dominates the liquidity pledge market

Following the merger, liquidity staking cemented its position as a new important DeFi source language, with DeFi’s staking deposits hitting an all-time high in the third quarter.

Staking is one of the first financial services for the DeFi protocol to beat centralized financial service providers: Lido, the leading decentralized staking service platform, surpassed Coinbase in its share of the staking market, dominating 31.0% of the market share of all staking ETH.

Lido has generated more than $375 million in cumulative revenue, almost all of which occurred before the merger.

Liquidity staking as a percentage of total DeFi TVL from January 2020 to September 2022

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4. Venture capital poured into NFTs and Web3 games

Venture capital and partnerships with big brands were the bright spots of NFTs’ difficult situation in the third quarter.

Venture capital for NFTs and Web3 games increased 66% in August compared to July (July and August are the last few months we hold data for).

This data is noteworthy amid the general trend of decreasing blockchain/crypto venture capital activity. Overall, the new transactions point to the evolution of NFT use – from digital art and collectibles to games, Metaverse apps, and more utilities. Another major growth point in the NFT space in Q3: Big Brands, Sports and Media Companies announced new partnerships to launch more NFT strategies.

Major NFT partnerships announced from June to September 2022

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5) Circle is ready to enter the open market

Circle expects to go public through a SPAC (Special Purpose Acquisition Company) in the fourth quarter, providing the public with the opportunity to participate in emerging strong projects in the stablecoin boom.

Circle, a co-creator of USDC, plans to go public with Concord at a valuation of $9 billion between the fourth quarter of 2022 and early 2023.

USDC is one of the fastest-growing stablecoins in the world: as of the second quarter of 2022, USDC’s issuance increased by 85% year-on-year, and USDC currently has more than $55 billion in circulation.

At the same time, Circle’s business model has been affected by rising interest rates — the company earns income from collateral that backs its stablecoins. As interest rates rise, the opportunity for profitability is huge: Circle holds $43.5 billion in U.S. Treasury reserves, which would yield $722 million a year at current yields.

Total USDC assets from September 2018 to September 2022 (billions of dollars)

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Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/bitwise-q3-quarterly-report-5-market-trends-you-need-to-know/
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