Trader: Why I don't think the market has bottomed

Brypto Bricks, a crypto fund trader and DeFi expert, recently posted on social media that based on on-chain data and macro trend analysis, he believes that the crypto market has not yet bottomed out.

Here is his analysis:

1. Next I will quickly release some alpha: "Why I don't think the market has bottomed out" (applying on-chain data + macro trends for analysis)

Why should you listen to me (my qualifications): I am a trader/defi analyst at a large crypto fund and use Nansen almost every day.

2. On-chain activities

First, we have yet to see the dust settle on the 3AC (Three Arrows Capital) farce. It is clear that 3AC is being liquidated - but its positions have not yet flooded the market. BTC, ETH, etc. will eventually be sold to repay creditors .

3. On-chain content

Below is a list I created to observe 3AC and their on-chain activity. This has been extremely helpful for me and my fund to clearly identify what is going on behind the scenes.

Note: There is a lot of on-chain activity — but these are the most important

4. There are dozens of wallets with thousands of ETH, just like those still held by 3AC. It is likely that all of these wallets will be liquidated to repay the loans. Click the link below to see how many funds have made frequent and multiple transactions with a single wallet.

5. Not to mention NFTs. The Starry Night wallet alone has a total value of about 12,500 ETH - all of which will be converted into fiat currency at a discount to raise funds to repay creditors. Apes, punks, squiggles and other NFTs have all been transferred out in June.

6. So, now that we know they are facing liquidation, all we can do is wait for the legal system to actually start selling off these cryptocurrencies, stocks, and NFTs.

This would lead to a brutal sell-off across the wider crypto ecosystem, bringing about the next catalyst.

7. Smart Money

So, this begs the question… What is Smart Money used for?

Using nansen ai we can easily track the activities of various institutions and follow the footsteps of the best financial resources to see what they are doing. I am still compiling my lists, but here are the wallets I mainly observe.

8. Smart Money

Nansen has a Smart Money feature that allows you to identify other “correlated wallets” that are highly correlated with certain wallets. This feature is particularly useful when watching whales and tracking what smart money is doing/interacting with.

9. Fund

After several in-depth investigations, it was found that smart investors are not making much moves now, and the ETH account balance has hardly changed and is quite low. It seems that all funds are allocated to stablecoins such as USDC, USDT and DAI .

10. According to known information, the global macro-economy has a clear downward trend. Indeed, the United States is in a period of intensified austerity, but other countries in the world are no exception.

In this global situation, the Bank of Canada surprised everyone by raising interest rates by 100 basis points.

11. Bank of Japan and the Yen

The yen is experiencing its lowest value since 1999, and the Bank of Japan was expected to be the match that ignites the spread of global depression.

The Bank of Japan implemented quantitative easing as a temporary measure in 2001. They now hold 50.2% of the entire Japanese bond market.

12. Bank of Japan and the Yen

Remember, the Bank of Japan will do everything to support a rapidly falling yen, including ending YCC (yield curve control).

As a result, inflation surged - necessitating a tightening cycle to combat it. And yes, that also includes the $1 billion in US Treasuries on their balance sheet.

13. Macroeconomics

Based on current Fed Funds futures, there is an 85% chance that the Fed will raise interest rates by 100 basis points in July (which is not radical given that CPI rose 9.1% - the highest level in more than 40 years).

St. Louis Fed President James Bullard himself said the target is a year-end interest rate of 3.75%-4%.

14. What happens when the U.S. quantitative tightening road becomes difficult and the Bank of Japan starts selling $1 billion in U.S. Treasuries?

Credit markets are already seeing zero liquidity, with buyers favoring new issues over existing ones - meaning lower bond prices, higher yields and a massive sell-off of existing bonds.

15. So, if the Fed isn’t buying, who is? Basically only hedge funds. But since we are already in a strict tightening cycle – hedge funds will tend to take the risk of cash .

If this happens, interest rates will rise again.

16. Based on the global consensus that money supply needs to be tightened to combat rampant inflation, it is pure fantasy to think that we will immediately return to a bull market.

TVL has fallen almost across the board.

17. Pessimism about cryptocurrencies is deeply rooted. TVL on all dapps has shrunk to a fraction of what it once was. No one wants to lend their tokens, and no one wants to participate in the defi ecosystem. This is a powerful story about the complete bear market sentiment.

18. Let’s look at the TVL of Liquity (a lending protocol dapp). USD borrowing has gone from almost $5 billion to only $556 million (historical low). Lending and leverage are extremely important (when used correctly) because they are essential to supporting on-chain activity and stimulating purchases.

19. Where does investor money come from? How did consumer confidence flip just weeks after the crypto apocalypse? Will smart money go back to taking risks amid an intense economic contraction cycle?

These are good questions to answer before being optimistic again.

Conclusion

Prediction: We haven’t seen the bottom of the market yet, or even close to it.

Once real estate prices fall sharply and bonds begin to stabilize - we know the market has bottomed.

Until then, I will only trade short term (can use @nansen_ai to look for alpha).