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We are delighted to announce the release of CryptoCompare’s latest research report:
2023 Outlook: New Year, New Narratives.
In this report, CryptoCompare assess the macroeconomic and digital asset environment of 2022 while looking forward to the trends it expects to see in 2023, including developments in the centralised exchange sector, decentralised finance, stablecoins, CBDCs and more.
2022 was the second worst-performing year in Bitcoin’s 13-year history, with the whole digital asset ecosystem suffering from multiple collapses of some of the largest entities in the sector.
However, it was not just digital assets that performed poorly in 2022 – many traditional asset classes, including equities and bonds, also saw double-digit losses this year, putting into context the adverse macroeconomic conditions we are currently under.
You can access the report here.
Key takeaways:
- Throughout 2022, digital assets saw a notable increase in correlation with traditional assets. Bitcoin and Ethereum returned -65.4% and -68.3% respectively in 2022, compared to -33.6% for the NASDAQ 100 and -19.0% for 10y US Treasury Bills.
- The collapse of FTX dramatically influenced exchange outflows, volumes and liquidity on almost all centralised exchanges. For example, exchange volumes saw a drop of 43.0% in December relative to November. Outflows also saw a spike in November – recording a 47.8% increase in outflows compared to the 2022 average.
- Severe inflation in emerging markets has led to increased investment in crypto assets. Binance, being one of the most widely used exchanges, has been able to capitalize on this trend and is often the most available choice for users in these markets. For example, TRY and BRL saw their BTC volumes on Binance increase by 232% and 72%, respectively.
- The total value locked (TVL) in DeFi fell 24.7% to $74.3bn, recording the second-largest quarterly TVL decline in DeFi history (2018 – Present), only behind the collapse of the Terra ecosystem in Q2 2022. DeFi also recorded its first yearly decline in TVL, falling 76.4% from the start of the year.
- In 2022, the median yield of all liquidity pools in the DeFi sector fell from 6.24% to just 1.87% at the end of the year. This is lower than the 3-month Treasury Bill yields which currently sit at 4.40%. Alongside declining token prices, low yields have been a factor contributing to the decline in TVL.
- The market cap of stablecoins, which currently stands at $138bn, has grown its dominance over the total crypto market cap to 16.6% from 6.76% at the start of 2022. Though Tether has remained the largest stablecoin with a market capitalisation of $66.2bn, its market share has declined due to the rise of Circle’s USDC and Paxos’ BUSD.
Digital Assets Increasingly Correlated to Equities
Throughout 2022, digital assets saw a notable increase in correlation with traditional assets. Bitcoin and Ethereum returned -65.4% and -68.3% respectively in 2022, compared to -33.6% for the NASDAQ 100 and -19.0% for 10y US Treasury Bills.
As unfavourable market conditions continue to settle in and impact the economy, we expect the correlation between crypto assets and equities will begin to decline in 2023.
Stablecoin Market Cap Dominance On The Rise
The market cap of stablecoins, which currently stands at $138bn, has grown its dominance over the total crypto market cap to 16.6% from 6.76% at the start of 2022. Though Tether has remained the largest stablecoin with a market capitalisation of $66.2bn, its market share has declined due to the rise of Circle’s USDC and Paxos’ BUSD.
Decentralised stablecoins have largely taken the back seat to centralised stablecoins, with DAI and FRAX, the largest in the sector, seeing their market cap fall 43.6% and 43.0% to $5.06bn and $1.02bn, respectively.
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DeFi Experiences its First Yearly Decline in Total Value Locked (TVL)
The total value locked (TVL) in DeFi fell 24.7% to $74.3bn, recording the second-largest quarterly TVL decline in DeFi history (2018 – Present), only behind the collapse of the Terra ecosystem in Q2 2022. This also meant that DeFi recorded its first yearly decline in TVL in its history, falling 76.4% from the start of the year.
Ethereum remains the largest network in DeFi with a dominance of 68.7% – increasing its market share from 64.8% in Q3, despite TVL in the chain falling 20.2% to $51.0bn. Notably, the total value locked in Solana fell 81.7% to $445mn in Q4 following the collapse of FTX and Alameda Research.
One important factor that was increasingly prominent in the DeFi sector last year is the decline in the annual yield on DeFi Protocols, particularly relative to yields in traditional finance, which have moved upward due to quantitative tightening. In 2022, the median yield of all liquidity pools in the DeFi sector fell from 6.24% to just 1.87% at the end of the year. This is lower than the 3-month Treasury Bill yields which currently sit at 4.40%.
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Emerging Markets Digital Asset Usage Accelerates
Binance’s increasing market share is also a result of the growing adoption of cryptocurrencies, particularly in emerging markets. Severe inflation in these markets has led to increased investment in crypto assets as people try to safeguard their wealth from devaluing currencies.
Binance, being one of the most widely used exchanges, has been able to capitalize on this trend and is often the most available choice for users in emerging markets. For example, it saw its RUB and BRL volumes increased notably, with its BTC volumes on Binance increasing by 232% and 72%, respectively.
The information provided by this report does not constitute any form of advice or recommendation by CryptoCompare. Any redistribution of charts appearing in this Review must cite CryptoCompare as the sole provider and creator.
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