Crypto Market Recap Q2, 2022
The crypto market faced a lot of challenges during the 2nd quarter of 2022. CryptoRank’s team collected the most significant market updates and trends that are worth noting for consideration. Look into the latest market intelligence and in-depth reports on popular blockchains and digital assets.
Highlights from Q2
- The bear market is officially here.
- The total crypto market cap has dropped below $1T.
- Most of the coins are down below 80% from ATH.
- Terra, the top-10 cryptocurrency, and UST, the top-3 stablecoin, have evaporated and are now worthless.
- Several DeFi projects are nearly dead.
- Tier 1 venture firm Three Arrows Capital has filed for bankruptcy.
- Traditional financial markets are in trouble: rising inflation and increasing rates.
Despite all the bad news, there are several important fundamental factors:
- Ethereum merge is expected to happen by the end of 2022.
- Money is still flowing into crypto: blockchain projects raise much money at record valuations.
- Crypto adoption is getting closer as many brands use NFTs and companies integrate crypto payments.
- A sufficient stablecoin supply allows buying the bottom.
The State of the Crypto Market
The total crypto market cap decreased by 58.1% during Q2 2022.
In the second quarter of 2022 Bitcoin showed the worst performance in more than a decade, and June became the worst month. Bitcoin now is down by almost 70% after reaching an ATH on 10 November 2021. Moreover, the bottom price of $17,600 is lower than the ATH of the previous cycle, which happened the first time.
However, Bitcoin’s problems are less significant than Ethereum’s. Ethereum is struggling due to the difficulties of DeFi. The continued pressure on staking and lending platforms may put in danger their treasuries, where ETH is one of the most significant assets. All this ETH may be liquidated if the sell-off continues or DeFi protocols will face other problems. The result is obvious: major cryptos will sharply sink, which will drown the rest of the market.
Only a few cryptos (excluding stablecoins) outperformed the market. Many altcoins are nearly worthless, and it might take huge gains (thousands of percent) for them to reach ATHs again. As you can see from the picture above, the majority of the worst performers are DeFi projects.
However, poor performance doesn’t mean everything is terrible. Now crypto correlates with traditional financial markets more than ever. Rising inflation and other factors negatively affect global financial markets. Despite all this, crypto adoption is going rapidly, and many countries are preparing crypto regulations, and it is here to stay.
Fundraising Overview
Along with the fall of the market, the activity of public fundraising also declined. Not so many projects left over the past quarter can show a positive ROI after public sale, and the number of genuinely successful projects is even lower.
The current ROI of many projects looks disappointing next to ATH ROI. Relatively few projects turn out to be unprofitable at once. Even if the token price sharply raises after going public, it will be dumped quickly. As a result, many hodlers are currently at very significant losses, not to mention those who bought near peak values.
Worth noting Move To Earn, the trend of the 2nd quarter of 2022. After the very successful IEO of STEPN in March 2022, many projects decided to repeat its success. Great popularity among users, gamification, and the use of various crypto mechanics in one game (Play To Earn and NFT) attract many investors. Move To Earn projects showed one of the highest returns this month.
Many funds also have a hard time. Some of them use the situation correctly and get enriched by increased volatility. However, funds aimed at long-term investment may have problems with part of the portfolio. Data from CryptoRank.io shows that many small cap projects in funds’ portfolios that have recently launched a token are much lower than the prices of public sales. For sure, some private rounds may also be at a loss.
Reaching the peak activity of venture investments in the crypto industry in April was an important event. But in June it fell by almost twice compared to April. This figure is influenced not only by activity (the number of transactions) but also by the re-evaluation of projects. In a bear market, the valuation often falls, which is why the amounts involved decrease.
However, the 2nd quarter was full of notable deals. First of all, these are investments in web3. During this period, many promising projects have been released that have raised impressive amounts of money. Some of them received record valuations for the blockchain. For example, Magic Eden, the leading marketplace on Solana, received a valuation of $8 billion (which is only ~30% less than the current market cap of Coinbase).
GameFi is still one of the main trends in crypto. Most projects use gamification to attract and retain users. Currently, GameFi elements can be seen even where they are hard to expect, in DeFi.
Many NFT projects are either tied to game mechanics or are aimed at its application in other forms (integration into the metaverse or another project). NFT is most likely the closest to mass adoption at the moment. Many popular brands have already launched their NFT collections, and even more to come. One of the latest trends is NFTFi, loans secured by NFT. This shows that their use is not limited to the tokenization of virtual objects, and with the development of a full-fledged market, it can offer many new products.
Web3 is the most popular category of venture investments. The reasons for this are probably clear applications and business models that investors understand. However, regarding the raised amounts, blockchain infrastructure and CeFi projects are far ahead of the other categories.
It is also essential that during this period, several new crypto funds were created. Andreessen Horowitz has launched a $4.5 billion web3 fund and a $600 million fund dedicated to investing in gaming projects. Sequoia Capital has launched two funds with a total value of $2.85 billion to invest in India and Southeast Asia.
In general, this quarter showed 2 crucial things. First, public fundraising is driven by the crowd and the condition of the market. Good projects are willing to wait for the right time to raise more money. The current situation has made not only investors think but also launchpads, which can have a positive impact on the future of public fundraising.
Another important thing is that venture investors are still interested in cryptocurrency. The number of investments is still relatively high, but the funds select higher-quality projects. At the moment, they have money; and are ready to pour it into the blockchain with long-term intentions.
Decentralized Finance
Probably, DeFi had the worst quarter ever. The first thing that catches your eye is that in just 3 months total value locked in DeFi has fallen by more than 2.5 times and almost 3 times since the beginning of the year.
The main reason for the collapse of DeFi is the collapse of Terra, which revealed the issues of many other projects. This was followed by news about the problems of different protocols and platforms.
Ethereum remains the largest DeFi platform and therefore creates a great danger. As the second-largest cryptocurrency, it is the main collateral of many lending platforms. Large borrowers in case of default will lose their coins, which will be thrown on the market to liquidate the position. Such a massive and abrupt sale can provoke a sharp drop in the value of the cryptocurrency, and pull the entire market after it.
Only a few DeFi platforms showed the growth of TVL for the 2nd quarter of 2022. Among the top 5 blockchains, only Tron led relatively good performance, TVL decreased by only 4.8%, mainly over the past month due to increased pressure on the native USDD stablecoin.
DeFi offered substantially higher yields than traditional markets, but many loans were undercollateralized. The rise in rates has also harmed DeFi; traditional deposits and bonds are becoming more attractive, considering risk and profitability.
In 2022 reports of fraud in DeFi protocols have become more frequent, and the amount of stolen money has increased many times over this period. Such news not only reduces the TVL of projects but also repels users.
The amount of negativity around DeFi hints that ‘DeFi is dead’, but this is far from the truth. DeFi is developing, better products are emerging and existing ones are being improved. Some large protocols are increasing TVL, not in money, but in the number of tokens. The bull market has taken some projects beyond the reasonable, which has led them to problems (for sure, some of them have not yet discovered their problems). Cooling DeFi can open the eyes of many users and take a fresh look at the excessively high returns often associated with Ponzi schemes.
The prospects at the moment are ambiguous, and it is crucial for projects that the number of users and volumes in native tokens do not decrease.
Trading Volumes
In the 2nd quarter, there was a slight increase in trading volume on spot and derivatives exchanges compared to the 1st quarter. However, since the last quarter of 2021, the trading volume on CEXs has decreased by almost 28%.
Most decentralized exchanges showed a significant decrease in trading volumes in June. However, due to the high volumes in the previous months, the second quarter closed with a slight increase of 4%.
This quarter of 2022 became the worst since 2011. The bear market is here and it is unclear how much it can take.
Two factors played a big role in the current state of the cryptocurrency market. First is the significant issues of several crypto projects and the second are the problems of traditional financial markets.
Nevertheless, the fundamental factors do not show such a bad picture. Crypto adoption continues, primarily the integration of payments into ordinary businesses and the use of non-fungible tokens by popular brands. The funds continue to look for promising projects and believe that the integration of cryptocurrencies into gaming projects is an up-and-coming business model. New successful projects, such as STEPN, bring a large number of users to the cryptocurrency, and a specific blockchain.
