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Placeholder Partner: The market has bottomed out and the worst may well be over

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Chris warned that 2023 could see wild swings similar to the last bear market, as well as a huge pullback from another thunderstorm.

Original title: Placeholder Partners: Why the crypto Market has bottomed out

Original article by Ben Giove

aididiaojp.eth, Foresight News

2022 was a brutal year, with the collapse of giants like Terra, 3AC, and FTX wreaking havoc on the crypto industry.

Market sentiment is low and prices have fallen sharply. The total market value of cryptocurrencies has fallen more than 71% from its peak, wiping out more than $2.2 trillion in market value in just over a year.

But is the worst over?

Chris Burniske, partner at venture capital firm Placeholder, thinks so. Chris is a cryptocurrency OG who has been through numerous market cycles, wrote one of the first crypto investing books, and is a crypto market buy-side analyst.

He also successfully called this bear market, having called the bull market peak in November 2021 and urging caution during the July-August rally.

Now, at a time when many are questioning the future of cryptocurrencies, Chris has turned bullish and believes there is a good chance that a bottom has been reached.

No forced seller

One key to Chris's belief that the market has bottomed out is that there are no more large forced sellers.

Many thought that FTX Thunderstorms would trigger a second big credit crunch after Terra's collapse.

However, rather than creating a new wave of forced selling, Chris believes the FTX thunder is the "grand finale", the final blow to the massive unwinding and deleveraging we have seen since the UST collapse.

Who might be the next big forced seller? It's hard to say right now.

The industry as a whole is also better positioned to weather the FTX storm relative to the collapse of Terra and 3AC, as crypto market credit is much tighter now than it was when these events occurred.

While we may see some corporate bankruptcies, this will not add to near-term selling pressure as assets held by failed companies will be auctioned at a later date.

Chris does acknowledge that there is a risk of month-end selling for fund redemptions, but he thinks the impact on the market could be reduced as most funds are likely to have already been redeemed.

BTC is in the deep value area

Another reason Chris thinks we've hit a bottom is that various on-chain, technical, and quantitative indicators point to Bitcoin being in the deep value zone.

BTC MVRV - Source: Glassnode

其中一个指标是市场价值与实现价值 (MVRV) 比率，根据 WooMetrics，「通过将 Token 最后一次在区块链上移动时的市场价值相加，来近似为所有现有 Token 支付的价值。」

Chris thinks BTC is in the value range when MVRV falls below $1, as this indicates that most investors are in the red and therefore unlikely to close out their positions.

BTC Daily Active Address -- Source: Glassnode

Another on-chain indicator is daily active addresses, which surged to 1.07 million on Nov. 9, the highest daily active volume since the summer crash. Chris believes that the increase in addresses shows that new buyers are entering the market.

How else can we gauge whether Bitcoin has hit bottom? One recurring indicator is the 200-week simple moving average SMA, which has historically represented the floor of the BTC, and market prices are already below it.

BTC Funds Rate - Source: Coinglass

Finally, Chris looks at the money rate on perpetual futures to assess traders' positions. In particular, he says he is looking for a sustained negative expense ratio, or the time a short position pays a long position. While it can vary widely depending on the exchange platform, Binance has an annualized money rate of -9.8% for bitcoin contracts.

One potential risk is a sell-off by bitcoin miners, but he thinks this may not have the same impact as in previous cycles because of the institutionalisation of the mining industry.

ETH fundamentals strong

Ethereum's strong fundamentals also suggest a bottom may have been reached.

Chris believes that the impact of the merger on ETH market structure and traffic is beginning to be felt.

In support of this claim, he noted that ETH's bottom during the FTX sell-off on 9 November was higher than its bottom during Celsius and the 3AC explosion. Chris attributed this to the Ethereum merger, which removed selling pressure from miners and resulted in net deflation.

Post-Merge ETH Issuance - Source: Ultrasound.money

Chris also looks at the application layer to assess Ethereum's fundamentals. He noted that the DeFi on Ethereum has continued throughout this crisis. The main DeFi protocol works perfectly, the main lending market remains fully solvent and performs clearing, and the DEX has billions of trading volumes. Chris believes investors who watch the space closely already realize and understand this.

Because it is trading below its 200-week moving average, ETH's technicals suggest it is in the value zone. ETH needs to recover this level in order to sustain the rebound.

The improvement of the macro environment

The final reason the bottom has been reached is the improvement in the macro environment.

Economic growth is strong and further rate hikes cannot be ruled out, but Chris thinks the changing macro backdrop could be conducive to a market bottom.

Risk assets got hammered in 2022 as the Fed raised rates. The sharp rise in risk-free interest rates caused the stock market to plunge, and investors were no longer willing to accept outrageous valuations and began to focus on the true cost of capital.

Cryptocurrencies have also shown a strong correlation with high-growth tech companies, particularly those on Nasdaq, which have experienced declines similar to the bursting of the dotcom bubble in the late 1990s.

A key difference between now and then is the strong fundamentals of many of these companies, with companies such as Meta continuing to be free cash flow giants with a strong hold on their vertical markets.

Inflation, the straw stirring tightening, is also showing signs of ending, with recent CPI and PPI data softening. While some may be confused by the market rally versus 7 point headline inflation, it's important to remember that markets are forward-looking.

As Chris says, the market cares about the concept of a "marginal rate of change" or a "slowdown of bad things," which suggests that things will improve in the future.

summary

With the end of "post-Luna" deleveraging, improvements in on-chain, technical and quantitative metrics and macro backdrop for BTC and ETH, investors in the shadows are positioning themselves for cryptocurrency bottoming.

Chris warned that 2023 could see wild swings similar to the last bear market, as well as a huge pullback from another thunderstorm.

However, these factors are sufficient to suggest that the worst may well be over.