Today we wrap up the first quarter of 2023: we dive into the factors leading crypto’s remarkable recovery, a brief overview of the macro forces at play, the most relevant on-chain data and analysis on catalysts likely to shape the second quarter of the year.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Quarterly fees for Bitcoin reached their highest since Q4 2021, with the advent of Ordinals’ NFT-like artifacts renewing network activity
- Ethereum fees climbed to their highest since Q2 2022, rising through events like the USDC de-peg and the ARB and BLUR airdrops
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation under regular circumstances
- Bitcoin recorded $663M worth of net inflows to CEXs in Q1, compared to $4.1B in outflows last quarter, likely due to some profit-taking given its outstanding price increase of approximately 70%
- $815M worth of ETH left exchanges this quarter, with this figure continuously decreasing, but a smaller magnitude than Q4’s $5.8B net outflows
Q1 2023 On-Chain
Crypto bounced back strongly in the first quarter of 2023, with Bitcoin and Ether both realizing their largest quarterly price gains since Q1 2021. The rebound in prices comes after selling exhaustion following FTX’s collapse, an improving macro outlook for risk assets and positive catalysts for crypto in the horizon.
Bitcoin Leads the Way — Bitcoin outperformed most assets in Q1 2023
- Bitcoin’s outperformance is likely indicative of its growing appeal as a digital store of value, with it’s correlation with gold prices increasing from -0.3 at the beginning of the year to 0.9 closing the quarter per ITB capital markets
- In Q1 we witnessed stablecoin wars heat up, with USDT gaining further market share as Circle struggled through the banking crisis and USDC experienced its largest de-peg to date
- Ether’s 49% quarterly increase also surpassed many crypto-assets (and certainly stocks), though it has lagged behind Bitcoin since the Silicon Valley debacle and the Fed’s corresponding reaction
True to Bitcoin’s Inception — The recent bank crisis fuelled Bitcoin’s rally
- The first Bitcoin block had the news headline “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” inscribed in it, touting Bitcoin’s value as a potential alternative
- Fourteen years later, as the US and parts of Europe experience another banking crisis and ensuing central bank intervention, Bitcoin rallied over 20% outperforming the vast majority of assets
- The Fed’s balance sheet has since increased by $392 Billion, prompting bullish sentiment as many foresee greater liquidity and lower rates ahead buoying Bitcoin higher (with price targets as high as $1M from Balaji)
Where is Crypto Going Next?
While prices and sentiment have recovered in Q1, what comes next for crypto is still unclear. On the macro landscape, the headwinds that had been pushing down risk assets seem to have eased, but at the same time it is increasingly evident that crypto has reached the “then they fight you stage”, with Elizabeth Warren running for senate on an anti-crypto campaign and Signature Bank being suspiciously taken over by regulators despite being solvent.
This, along with internal crypto forces, is creating doubts on whether prices will continue climbing or retrace following the strong quarterly performance.
Testing Strong Support — Based on blockchain data we can see that both Bitcoin and Ether are currently at a spot of large buying activity
- $27k and $1.7k for Bitcoin and Ether, respectively, are the levels to watch near-term as they have the largest concentration of buyers, with 623.8k BTC (~$17B) and 8.4M ETH (~$15.1B) being acquired at this level
- If prices were to breach this level, there is not much support based on previous buying patterns until $24.5k and $1,500 for Bitcoin and Ether
- On the selling side, recent highs of $29k and $1,850 have pressure from addresses that previously bought around that area, but there is not much further resistance if prices climb beyond those levels
Long-term Investors Accumulating — The amount of Bitcoin and Ether owned by hodlers continues to hit all-time highs
- Addresses holding assets for over a year have increased their holdings by $13.4B and $4.7B of Bitcoin and Ether respectively so far in 2023
- If history from previous bull markets repeats, these addresses are unlikely to sell until we approach previous all-time highs
Q2 Catalysts — Asides from macro and on-chain factors there are other upcoming events to keep in mind as the second quarter begins
- Ethereum’s Shanghai upgrade is expected to go live on April 12, bringing staking withdrawals after more than two years. Initial withdrawals may cause some selling pressure, though these have to go through an exit queue, which prevents massive staking withdrawals. Longer-term, this encourages more ETH holders to stake as the uncertainty from being unable to withdraw is removed, which can be seen as a bullish force by temporarily locking supply while also making the network more secure
- Bitcoin’s halving is still a year away, but given how many look at this event as a force behind crypto cycles, it is possible that many will begin to front-run this narrative and buy in advance. On the other hand, the dates for Mt. Gox to return previously hacked Bitcoin worth $17.6 billion are getting closer.
Overall, there is a confluence of both bullish and bearish factors likely to make Q2 interesting. While the path ahead comes with uncertainties, we’ll make sure to keep you up with the most relevant analysis and catalysts shaping what comes next for crypto markets.
Read more: https://medium.com/intotheblock/q1-2023-on-chain-85131b11df3
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