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Crypto Quarterly: Market Review Covering Q2 2022

Q2 started out with excitement around crypto markets heating up, DeFi coins surging, increased attention on the Lightning Network, and the Terra Foundation amassing $165 million more in BTC for its reserve (to total $1.6 billion). Despite a $600 million Axie Infinity hack and continued concerns around global economics, sentiment was positive.

But as mid-April rolled around, we were already seeing some cracks in the pavement, as a lesser known algorithmic stablecoin depegged (USDN), stocks crashed, and Bitcoin and all its minions entered a correction phase. By the end of April, the TerraUSD (UST) stablecoin bumped ahead of BUSD in volume and markets remained somewhat positive. But three weeks later, UST depegged sending LUNA to zero and causing unprecedented ripple effects across the crypto universe.

As our first Crypto Quarterly report, we’ll cover news, trends, insights, and technical analysis to try and make sense of crypto’s most volatile era to date.

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Key Market Trends

All the key crypto trends of Q2 2022 should be viewed against a backdrop of disarray in world markets caused by fragile economic policies coming under the pressure of combined forces, including Covid-19, the Russian War, record high fuel prices, political upheaval, soaring inflation in many regions, and a major US stock market correction.

UST Depegs and Starts a Death Spiral

The TerraUSD (UST) algorithmic stablecoin lost its peg due to an exploit, sending UST and LUNA crashing in early May. Leading up to the depegging, the Luna Foundation Guard (LFG) was in the news for adding millions in Bitcoin to the UST reserve system to thwart what early observers had noted as a major vulnerability in the algorithmic stablecoin - exposure to volatility.

Terra_LUNA_crashThe TerraLuna (LUNA) Crash

The day following the unpegging, UST depositors who’d been enjoying double-digit yields on Anchor (Terra Blockchain's leading protocol), lost confidence and made a mass exit, draining $5 billion and sending the UST stablecoin down by 35% in one day. The next day, UST price fell to $.76 and within a few days it dropped to $.13.

Even with LFG’s Bitcoin reserves applied in full to try and stop the bleeding, the Terra blockchain was shut down temporarily, twice. The community, led by Founder Do Kwon, voted to fork the Terra blockchain and release a new coin called Luna Classic (LUNC), which promptly fell to zero in a matter of days. A capital flight ensued as big investors who held UST tried to recoup their losses. Over the next two days, TVL on Anchor (Terra’s biggest DeFi protocol) dropped by $11 billion in total.

And this was only the beginning...

DeFi Contagion Sends Crypto Markets Reeling

The after effects of the UST depegging were acute and swift after the complete loss of two top ten coins (UST and LUNA) and a massive drop in market confidence.

Other crypto companies and hedge funds struggled to recoup UST-related losses and a series of large-scale (and likely small-scale as well) liquidations ensued. The “contagion” as it came to be termed, spread quickly to other liquidity protocols with investors scrambling to minimize losses and cover margin calls. The "death spiral" then continued to infect all areas of crypto from centralized exchanges and other stablecoins, to DAOs, Bitcoin miners, and hedge funds. Here’s just a sampling of the contagion events that followed:

  • Celsius, another top ten crypto and DeFi protocol, encountered a liquidity crisis, froze withdrawals, and began bankruptcy talks.
  • Three Arrows Capital (3AC) hedge fund (a major investor of LUNA) defaulted on a loan with Voyager Exchange. Both have since filed for bankruptcy.
  • BlockFi crypto lending protocol, who also had exposure to 3AC, signed a term sheet with FTX for a $50 million line of credit to help them after experiencing $80 million in losses.
  • Bitcoin miners were also feeling the squeeze as markets contracted. For instance, the CEO and CFO of Compass Mining resigned shortly after the news of legal proceedings regarding a mining facility’s unpaid power bill.
  • Crypto companies, including Coinbase, Gemini, ConsenSys, and others started laying off staff en masse.

In the weeks following the UST depegging, BTC fell 50% more, taking most of crypto with it. After an all-time high in total market cap of $3 trillion in November of 2021, the market cap at Q2’s end was under $1 trillion. Yet, Hodlers largely remained firm in their belief that Bitcoin’s long-term outlook was something worth waiting for.

Rebalancing your portfolio? Quadency has a bot for that.

NFTs Continued to Attract Top Influencers

Throughout the UST depegging incident and all that followed, the NFT industry, despite record low floor prices, continued to draw in some of the world's biggest media stars. The NFT industry’s growth during this horrendous era was driven by GameFi and Play-to-Earn projects with giant communities like Axie Infinity, which exploded in early 2022 and managed to stay above water throughout the contagion. Metaverse projects, which were funded to the tune of $12.1 billion in 2021, continued to build out NFT-related protocols and games.

NFT industry highlights for Q2 include:

  • Yuga Labs made history with the Otherdeeds Metaverse mint, crushing Opensea volume records and making $317 million in one day.
  • The Metaverse industry outperformed other markets and coins, led by MANA, SAND, AXS, APE, and GMT.
  • Gamestop (famous for a 2021 short squeeze) launched a beta self-custody wallet in preparation for its upcoming NFT market.
  • In a testament to low NFT floor prices in Q2, Jack Dorsey's original tweet, which was made into an NFT and sold for $2.9 million in 2021, sold on the secondary market in April for $280.

Quadency’s Q2

Despite all the market disarray, Quadency stayed true to its form and continued to build out during the latest bear market. Milestones reached during this period include:

  • Deposits and withdrawals were enabled for QUAD and USDC (see eligible countries).
  • Our fair pricing model was rolled out to provide low fees and high access to features.
  • We had our first token burn, amounting to 420k QUAD tokens.

The price model roll-out brought us one step closer to the launch of Quadency’s QUADX exchange, which is coming soon. The team also began an upgrade to the trading bot ecosystem and started work on a new bot interface.

Speaking of bots, Quadency trading bots saw wide utilization across the twelve strategies currently available during Q2. The top 5 most used bots for the quarter were lead by TradingView Bot and Grid Trader:

Q2_2022_Quadency_Top_Trading_BotsThe TerraLuna (LUNA) Crash

The top 5 trading pairs recorded on the Quadency platform for Q2 included primarily USDT-based pairings with top crypto coins. Trending cryptos that saw a good amount of activity included (of course) Bitcoin and Ethereum, but also DeFi protocols that were part of the Terra contagion (LUNA, NEAR), some Layer-1 protocols like Solana, Avalanche, and Polkadot, and one Move-to-Earn coin, GMT (STEPN).

  1. BTC/USDT 20%
  2. ETH/USDT 17%
  3. NEAR/USDT 9%
  4. LUNA/USDT 6%
  5. SOL/USDT 6%

Market Data Q2 2022

Market Data Q2 2022
Market cap end of Q2 2022 $904 billion
Market cap change -59%
Highest volume assets USDT, BTC, ETH
Bitcoin dominance 43.95%
Tether dominance 17.71%

Gainers & Losers Q2 2022

Top_Gainers_Losers_Q2_2022Top 5 Gainers & Losers for Q2

Market cap dominance (quarter end)
Bitcoin: 43.95%
Ethereum: 19.60%
Tether: 7.71%

Key industry milestones

  • Compound (COMP) became the first DeFi platform to receive an S&P rating (B-).
  • Coinbase became the first crypto company to be listed on the Fortune 500.
  • Blockchain games grew by 2000% according to a DappRadar report.
  • Blockware published a report stating crypto adoption is on target to reach 10% by 2030 while The Block reported a surge in cryptocurrency awareness.
Awareness_of_Cryptocurrencies_GrowthGrowing Awareness of Cryptocurrencies - Source: The Block & TFTC

Top Memes

Memes were out in full force to embody the emotions of the Q2 market dynamics, with running themes such as max pain, getting a job at McDonald's, bashing CeFi, delusional sentiment, and an overall rekt market disposition.

Spotlight on Innovation

The Quadency team has plenty of expertise in building during bear markets, having thrived through several since their initial launch in 2019. Luckily, they were not alone this spring, as innovation in the crypto industry is seemingly unstoppable:

  • Soul bound tokens (SBTs) were introduced by Vitalik Buterin as digital credentials.
  • ETH successfully completed a shadow fork and Ropsten PoS test.
  • Solana announced it was building an Android smartphone.
  • An Argentinian educational program launched in 40 schools.
  • The first stablecoin-backed mortgage was closed using USDC.

Bitcoin Recap

Bitcoin (BTC) experienced its worst ever monthly candle in Q2 - nothing anyone wants to celebrate. But despite all the extreme market conditions and the loss of so many investor funds, Bitcoin active wallets continued to show strong growth.

  • BTC uncorrelated temporarily from traditional markets several times this quarter, once prior to the FED rate raise announcement, and again when worsening inflation numbers came out.
  • Directly following the UST depegging, BTC had fallen to more than 50% from its all-time high.
  • Towards the end of May, Bitcoin dominance reached a 6-month high of 44.4%.

Technical Analysis Q2 Highlight - Bitcoin
In early June, BTC was showing a little less bearish, following its 9th consecutive weekly red candle. It was maintaining the 28k - 29k support level and an Inverted Hammer began to materialize, signaling a potential reversal trend. However, the short-term chart was leaning towards a more bearish outlook

BITCOIN-Long-TermBTC Potential Inverted Hammer Development

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BTC data insights:
Quarter high: $44,838 April 1, 2022
Quarter low: $17,760 June 18, 2022

Ethereum Recap

Ethereum continued to make its way towards its Merge to Proof of Stake (PoS), including a successful merge of its Ropsten testnet with the PoS Beacon Chain. Delays in the Merge progress could have been part of the downward pressure on ETH, but so many other events happening it is hard to say.

  • ETH holdings on exchanges, similar to Bitcoin, started to dwindle in mid-April.
  • Ethereum dominance in TVL saw more of a challenge as Layer-1’s like Binance Smart Chain, Solana and Avalanche showed steady growth.
  • ETH failed to consolidate around $2000 during the first part of the market crash, and by the end of the quarter was trying to build support around the $1100 level.

Ethereum Killers BSC, TRX, AVAX, SOL, and MATIC make progress in TVL share (source)
Technical Analysis Highlight - Ethereum

ETH_BTC_chartA macro line in the sand for ETH/BTC?

An Orange line (0.0536) seemed to present a macro line in the sand for ETH/BTC in mid-June. This line was a point of resistance and support in 2017 throughout October and December. ETH/BTC bounced off it in April 2018 and had a 2-day battle to break through on August 11th, 2018. In May of 2021, ETH/BTC broke through the line and turned it into support line #2 between May and August of 2021. From that point, we could study the link and see if the line was challenged.

Regulatory Roundup

After a long bull cycle and during the crypto contagion events this quarter, regulatory scrutiny became heavier and much more focused.

On the positive side:

  • El Salvador showed regulators from 40 countries how to open a Bitcoin wallet at a financial inclusion summit.
  • The UK proposed stablecoins as a legal form of payment.
  • The Central African Republic became the 2nd country to adopt Bitcoin as legal tender.
  • The Lummis-Hildebrandt Crypto Bill became a hot item for discussion. Of particular interest were the ideas of a crypto sandbox and the handing over of regulatory authority of Bitcoin from the SEC to the CFTC (to be treated as a commodity).

On the not-so-positive side:

  • The European Union introduced an AML travel rule for crypto transactions of any amount.
  • The Central African Republic became the 2nd country to adopt Bitcoin as legal tender.
  • After the SEC rejected another Grayscale Bitcoin spot ETF, Grayscale has taken legal action against the agency.
  • Avanti (Crypto) Bank, headed by Caitlin Long, sued the FED claiming it was illegally blocked from Reserve assets.

Summary

As wild as Q2 was, many in the industry feel that the pain we experienced will lead to a stronger and more focused market going forward. That’s certainly the view we’re taking here at Quadency. We invite you to embrace the market, but with Quadency’s state-of-the-art trading bots at your side to help you weather the storms and enjoy cutting-edge automated strategies.

Check out our new bots page and find a trading strategy that’s right for you.

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Quadency is a cryptocurrency portfolio management platform that aggregates digital asset exchanges into one easy-to-use interface for traders and investors of all skill levels. Users access simplified automated bot strategies and a 360 portfolio view with a free account.

Disclaimer: The content of this article is for general market education and commentary and is not intended to serve as financial, investment, or any other type of advice.