2022 is coming to an end, and our staff at Bitcoinist decided to launch this Crypto Holiday Special to provide some perspective on the crypto industry. We will talk with multiple guests to understand this year’s highs and lows for crypto.

In the spirit of Charles Dicken’s classic, “A Christmas Carol,” we’ll look into crypto from different angles, look at its possible trajectory for 2023 and find common ground amongst these different views of an industry that might support the future of finances.

Over the last week, we spoke with institutions about their perception of 2022 and their outlook for the coming months. We’ll begin our experts round with Material Indicators, a market data, and analytics firm dedicated to building trading tools for the nascent sector.

Material Indicators: “While we have yet to see tradfi (Traditional Finances) price in earnings contraction (~Q1’23) for the last leg down, we are already close to bottoming sentiment-wise.”

Material Indicators and their team of analyst gauge market sentiment and liquidity and try to read between the lines of what big players are doing to provide a clear view, absent of noise, about its conditions and possible direction. This is what they told us:

Q: What’s the most significant difference for the crypto market today compared to Christmas 2021? Beyond the price of Bitcoin, Ethereum, and others, what changed from that moment of euphoria to today’s perpetual fear? Has there been a decline in adoption and liquidity? Are fundamentals still valid?

A: The difference is striking! Since the FTX blowup, the influx of new people to Crypto Twitter has been reduced to a trickle. Salty Youtubers will now advise you to sell your remaining coins to avoid a total loss. Telegram communities have been shrinking. Big accounts who’ve been telling their followers to buy have either quit or rebranded. While we have yet to see tradfi (Traditional Finances) price in earnings contraction (~Q1’23) for the last leg down, we are already close to bottoming sentiment-wise.

Q: What are the dominant narratives driving this change in market conditions? And what should be the narrative today? What are most people overlooking? We saw a major crypto exchange blowing up, a hedge fund thought to be untouchable, and an ecosystem that promised a financial utopia. Is Crypto still the future of finance, or should the community pursue a new vision?

A: It’s the other way around. Conditions create narratives. Loose monetary policy and abundant cheap credit create bubbles and nurture fraud. It’s only after the tide recedes that we see who has been swimming naked. With an imminent rise in unemployment, people will try to hide in bonds, which actually improves credit-availability for risk assets. So, while earnings-driven assets will feel pain on higher unemployment, credit-driven assets (risk assets) will feel relatively less pain.

Q: If you must choose one, what do you think was a significant moment for crypto in 2022? And will the industry feel its consequences across 2023? Where do you see the industry next Christmas? Will it survive this winter? Mainstream is once again declaring the death of the industry. Will they finally get it right?

A: Terra/Luna was probably the catalyst for all the subsequent blowups and we have yet to see the full effects of contagion (DCG/Grayscale/Genesis are not fully resolved yet). As with any blowup, this will just invite more regulation that will neither protect investors, nor improve the potential for growth. We wanted institutional adoption and now we see that they had zero risk-management and gambled away their user funds.

Q: Finally, across social media, you guys at Material Indicators made your bearish bias public. Are you more or less pessimistic than you were at the beginning of 2022? And what will you like to see to shift your bias and lean towards the long side of the market? We know a lot depends on the Federal Reserve, are the chances of a pivot and lower interest rates hikes higher?

A: While we’re probably not quite out of the woods yet, we can already almost see the light. On poor earnings & poor forecasts bonds will likely catch a bid in Q1’23, and therefore make credit available to risk assets to dampen their fall or even help them recover (especially if the Treasury manages to relieve the RRP of its ~$2T idle liquidity). Bitcoin could also benefit from this as it’s only subject to credit-availability and not earnings. However, while inflation has been and will likely continue to fall for some time, it is unlikely that we’ve seen the last of it. So, keep an eye out for potentially re-surging inflation sometime in late-’23/early-’24.

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