Crypto Assets Market 5 Positive Signals

Recently, ETH and other crypto assets have shown impressive performance. After the Ethereum Shanghai upgrade, the price of ETH has continued to rise, increasing by more than 75% this year. Despite many uncertainties in the market, the overall trend of cryptocurrencies has been upward since the FTX incident. This article will explore 5 positive signals in the current crypto market to provide references for investment decisions.

1. The scale of open contracts rises

Futures contracts are one of the primary ways for traders to gain leveraged exposure to Crypto Assets. Open interest (unsettled contracts) reflects the number of unsettled futures contracts, including long and short positions. Higher open interest is generally associated with increased risk appetite and liquidity.

The total open interest of Bitcoin futures has exceeded the $9.9 billion peak before the FTX collapse, and recently even broke through $10 billion. This indicates that market liquidity is recovering, but we must also be wary of the risks that may come from the accumulation of leverage.

2. On-chain activities are becoming active

Despite the ongoing uncertainty in the macroeconomic outlook, the blockchain economy is showing signs of prosperity. The total number of daily active addresses on major smart contract public chains has stabilized at around 2 million, marking the first time since the end of the bull market in 2022, and a 77% increase from the low point in August 2022.

The total yield of DeFi has continued to rise since June 2022, increasing by 94.2% from its lowest point. This reflects an increase in on-chain trading activity, a rise in lending demand, and an overall improvement in market capital conditions. As inflationary pressures ease, the appeal of crypto assets has increased.

3. The proportion of stablecoin holdings decreases

Since the bottom of the FTX crisis, the "smart money" in the Crypto Assets market has continuously increased its net exposure, showing no signs of slowing down. The on-chain "smart money" exposure to stablecoins has dropped to the lowest level since the Terra-Luna collapse in May 2022, with an average of only 15% of portfolios held in stablecoins.

Although liquidity has decreased, there is still a considerable amount of "smart money" remaining before hitting a bull market low below 5%. The banking crisis in March affected investors' confidence in stablecoins like USDC, prompting a shift of funds from dollar-pegged assets to token assets, which is a positive signal for market sentiment.

4. Decrease in Volatility

The crypto assets market also has volatility indicators similar to the traditional financial VIX index. The crypto volatility index developed by CVI Finance tracks the implied volatility of Ethereum and Bitcoin. This index has not only continued to decline during the recent turmoil in the banking sector, but is currently even below the 62.80 low point before the FTX incident.

Although the rapid increase in open interest may trigger price reflexivity, the weakening of the CVI index regarding future price volatility expectations is still reassuring. This indicates that market sentiment is stabilizing.

5. Limited Impact of Ethereum Withdrawals

Despite the previous widespread concerns about large-scale withdrawals after the Shapella upgrade, the actual situation is relatively optimistic. As of April 19, only 25.7k validators are queued for full withdrawals, with Kraken accounting for 46.5%. Due to the withdrawal limits set by the network, these withdrawals will be processed within two weeks and will tend to normalize.

The market has successfully absorbed over 500,000 in excess supply. A significant portion of the extracted assets has not been sold but rather re-staked into the network. This indicates that the upgraded withdrawals have not caused a significant impact on the market.

Market Outlook

Despite the ongoing uncertainty in the macro environment, the Crypto Assets market is showing a positive trend. Major digital coins such as ETH and BTC have broken through the bear market trading range, and other smaller coins are also exhibiting a clear upward trend. Following the pessimistic sentiment at the beginning of 2023, investors are increasingly adding positions, driving up prices and pushing the Crypto Assets market to the brink of a small bull market.

This round of increase is not only reflected in the price; the Crypto Assets have also found sustainable application scenarios, maintaining high user activity and pushing up DeFi yield rates. The volatility indicators of the crypto market have broken through the low points of 2022, with trading levels reaching new highs since the last bull market. The smooth completion of the Ethereum Shapella upgrade has further alleviated market concerns.

Overall, multiple indicators show that the Crypto Assets market is gradually regaining vitality, laying the foundation for future development. However, investors still need to closely monitor market changes and rationally view risks and opportunities.