Tuesday, May 30, 2023

Unrealized Gains In Bitcoin Despite Bear Market – CoinDesk


CoinDesk has published its Q2 Research Report covering the most important trends impacting the crypto market. Pressure from Chinese regulators on mining and renewed attention on the asset’s overall energy footprint pushed prices down overall creating a new bear market.

Bitcoin Chart

Key Findings

  • For institutional investors: There are two metrics in this report (Slide 25 & 23) that suggest unrealized gains in the BTC market. Therefore, a strong possibility that the current Bitcoin bear market we’re in will be short-lived.
  • In 2021 Q2, BTC had its third-worst quarter ever, in terms of price performance. Bitcoin price dropped 40.39%. Only 2018 Q4 (-44%) and 2018 Q1 (-50%) were worse. On the other hand, ETH finished the quarter up 18.69%.
  • Bitcoin and continued to progress technologically in Q2 with the completion of a “Speedy Trial” for Bitcoin’s Taproot software upgrade and the release of Ethereum’s London upgrade on two Ethereum test networks.
  • The DeFi ecosystem also continued to adapt amidst bearish market trends with total value locked increasing roughly 13% over the quarter.
  • Notably, during Q2, the amount of ETH locked in DeFi decreased, suggesting a rise in other asset types for DeFi collateral and liquidity such as stablecoins, governance tokens, and other fungible ERC-20 tokens.

After two consecutive quarters of strong price gains for most of the assets in the CoinDesk 20, 2021 Q2 finally brought an end to market euphoria with a resounding crash.

Most CoinDesk 20 assets, which constitute roughly 99% of the crypto market by verifiable volume, ended 2021 Q2 with negative returns. The CoinDesk Bitcoin Price Index (XBX) dropped 40.38%, its third worst quarter ever in terms of price performance. The CoinDesk Ether Price Index (ETX), on the other hand, finished the quarter up 18.69%.

As prices swung, trade volumes soared. In May, weekly volumes in dollar markets for and reached record highs and for the first time ever. Volumes in ether-dollar pairs consistently ranked higher than those in bitcoin pairs.

The Decentralized Finance (DeFi) ecosystem being built atop Ethereum continues to grow under bearish market conditions. The total value locked in DeFi, adjusted so that asset prices are fixed over a one year period, has more than doubled. As a side consequence of this growth in assets under management, miners on Ethereum are experiencing a surge in new revenue, based on their ability to order transactions within a block.

Both Ethereum and Bitcoin are expected to undergo significant protocol-level code changes later this year. On Ethereum, developers are in the final stages of testing Ethereum Improvement Proposal (EIP 1559), which is expected to improve the efficiency of the network’s fee market.

On Bitcoin, developers have gathered general consensus for Taproot, an upgrade aimed at boosting network privacy and security through introducing a new transaction signature scheme. Taproot is moving forward after Bitcoin miners signaled approval through their computational power, also called hash rate.

Bitcoin’s hash rate became the center of public scrutiny and debate this quarter after Tesla (NASDAQ:) CEO Elon Musk announced his company would suspend Bitcoin payments over environmental concerns, leading to the formation of a new industry cooperative called the Bitcoin Mining Council (BMC).

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