Disclaimer: Q4 numbers include data until November 30, 2022. Price performance measures data up until November 30, 2022.
After hitting many new all-time highs (ATHs) across the market in November 2021, the start of the year was much more subdued. 2022 saw prices decline across the cryptocurrency market, with many, including bitcoin (BTC) and ether (ETH), retesting and breaking below their 2017 cycle highs. The total crypto market capitalization in 2022 opened the year at $2.2 trillion in January and subsequently hit a yearly low of $1 trillion in November.
Bitcoin remains the clear market leader in terms of total market capitalization, but fell below its 2017-high in June for the ﬁrst time since January 2021 and extended its drawdown to -G4.1% year-to-date (YTD) – versus Gold: -3.3%, S&P500: -14.6%, and Nasdaq: -26.6% in the same time period.
Notably, all top ten cryptocurrencies by market capitalization, excluding stablecoins, generated negative returns. Macro headwinds such as elevated inﬂation, aggressive central bank rate hikes, the war in Ukraine, as well as the continued closure of China, added constant negative pressure. However, the relative performance of cryptocurrencies in the top ten against BTC showed signiﬁcant variance.
Exchange-associated tokens such as BNB and OKB, as well as memecoins such as DOGE fared relatively better than BTC and other Layer-1 (L1) tokens in 2022.
Figure 1: Year-to-date return of top ten cryptocurrencies in 2022 Source: TradingView
Except for XRP, DOGE, and ADA, none of the cryptocurrencies in the top ten had any days with noteworthy (>2%) YTD positive returns. Events surrounding Terra, LUNA, and UST in May, as well as subsequently Three Arrows Capital (3AC) in June, resulted in further market downside. Following these, a low volatility month for most cryptocurrencies ensued. However, starting in the middle of July, the anticipation of the Ethereum Merge, which was successfully completed on September 15, 2022, resulted in a temporary recovery led by ETH. Comments by Tesla CEO Elon Musk on Twitter led to a temporary recovery for DOGE at the end of October. Finally, the collapse of FTX and Alameda Research in early November resulted in a retest of the June lows for many cryptocurrencies in the top ten, notably, with BTC breaking below its June low.
Figure 2: Return of top ten cryptocurrencies in 2022 Source: TradingView
YTD, Bitcoin’s dominance (ratio of bitcoin market cap to total digital asset market cap) remained stable around 40% as of the end of November — with a temporary high of 48% in June, and a temporary low of 39% in September around the Ethereum Merge date.
Total adjusted on-chain volume on a public blockchain, which is a proxy for economic throughput, reached $5.6 trillion between Bitcoin and Ethereum in 2022, a 32.5% decrease from the previous year.
Overall, Bitcoin’s on-chain volume decreased by 14.9% year-on-year (YoY), from $4.7 trillion in 2021 to $4 trillion in 2022. Meanwhile, Ethereum’s on-chain volume decreased 55.6% YoY, from $3.6 trillion to $1.6 trillion.
Figure 4: Quarterly adjusted on-chain volume of Bitcoin and Ethereum 2017 - 2022
Source: Coin Metrics
Throughout 2022, on aggregate, Bitcoin’s on-chain volume exceeded Ethereum’s by ~2.6x. In comparison, Bitcoin’s adjusted on-chain volume was 1.3x the size of Ethereum’s in 2021, showing that Ethereum's economic activity slowed at a signiﬁcantly faster pace relative to Bitcoin’s.
As of the end of November, Bitcoin’s on-chain transaction count of ~2G3,000 remains, 30.6% below its December 2017 high of ~379,000 (30DMA). In comparison, Ethereum’s on-chain transaction count of ~1.04 million at the end of November remains 31.6% below its May 2021 high of ~1.52 million (30DMA).
In 2022, stablecoins continued to be one of the growing handful of cryptocurrencies that found product-market ﬁt and broader institutional acceptance. Since the beginning of the year, and despite a substantial decline in overall market capitalization for the broader industry, the aggregate stablecoin supply only contracted by 2.4% – from $143 billion to $140 billion.
Figure 5: Quarterly adjusted on-chain volume of Bitcoin and Ethereum 2017 - 2022
Source: The Block Research
Moreover, stablecoin usage saw new records in 2022. Annual stablecoin adjusted transaction volume (i.e., a payment ﬂow from one address to another on a public blockchain) crossed $7.2 trillion in 2022, 19% YoY volume growth.
2022 began with monthly cryptocurrency spot volumes falling below $1 trillion, a benchmark surpassed nine times in 2021 and in December 2021. According to The Block’s Legitimate Volume Index, from December 2021 to January 2022, volumes fell 19% to $841 billion. January to April saw volumes stabilize around the $G50 billion to $800 billion range, before the Terra LUNA collapse in May as well as the 3AC collapse in July which further suppressed both prices and volumes. The latter half of the year traded ﬂat until further macro headwinds post-Merge in October as well as the FTX and Alameda Research collapse in November.
Binance remains dominant with G7% of spot trading volume occurring on their exchange in 2022. Their spot trading market share continues to grow, increasing from 60% to 75% YTD. This trend was especially pronounced in November after the collapse of FTX.
Figure 7: Legitimate volume share on spot exchange 2019 - 2022 Source: CryptoCompare, The Block Research
As of November, Binance’s (75%) main competitors are Coinbase (9.2%), Kraken (3.6%), BTSE (1.8%), and LMAX Digital (1.7%).
Figure 8: Legitimate volume on spot exchange 2017 - 2022 Source: CryptoCompare, The Block Research
Figure 9: Volume share on spot exchange by pair denomination 2018 - 2022 Source: CryptoCompare, The Block Research
As with the previous year, Tether continues to maintain its dominance as the most popular trading pair denomination for centralized exchange (CEX) trading. However, YTD, USDT’s share of trade volumes fell from 65% in December 2021 to 59% at the end of November 2022. This means that around 59% of spot trading volumes were denominated in, at times, the controversial stablecoin. In November, BUSD and USD pairs were the second and third largest pairs at 22.6% and 12.7% respectively. With Binance heavily pushing its stablecoin BUSD on its exchange, which accounted for ~75% of all legitimate spot volume at the end of November 2022, BUSD gained the largest share against any other pair this year.
Grayscale’s Bitcoin Investment Trust (GBTC) continues to be the largest Bitcoin fund in existence, owning over G33,200 BTC (~3.3% of Bitcoin’s total supply) as of the end of November 2022. Worse than bitcoin’s G2.9% price decline YTD, the market price of GBTC declined 74.4% since January. Average daily trading volumes reached lows of $55 million in Q4.
On February 23, 2021, GBTC began trading consistently at a discount for the ﬁrst time in its history. This trend reversal can be attributed to a wider offering of Bitcoin ETFs becoming available, such as spot products in Canada. At the end of November 2022, GBTC trades at an ~42% discount to its net asset value (NAV).
A few companies were hit especially hard by this unexpected change. In particular, BlockFi’s core revenue stream relied on arbitrage strategies based on GBTC continuing to trade at a premium. When GBTC started trading at a discount, BlockFi found themselves locked into a soured trade that worsened with the widening spread. Similar events impacted 3AC.
On October 19, 2021, Grayscale ﬁled with the Security Exchange Commission (SEC) to convert GBTC to an exchange-traded fund (ETF). This ﬁling hoped to further legitimize GBTC, increase access to the product, and most importantly, force it to trade closer to its NAV. However, on June 29, 2022, the SEC rejected Grayscale’s bid to convert GBTC to a Bitcoin ETF. The same day, Grayscale ﬁled a suit against the SEC regarding its rejection of the GBTC conversion bid.
Since late February 2021, Grayscale’s Ethereum Investment Trust (ETHE) also trades at a discount. However, the spread increased substantially in 2022. At November 2022 end, ETHE trades at an ~45.2% discount to its NAV. In a similar vein, daily average trading volumes also saw signiﬁcant and continued declines.
YTD Grayscale ETHE declined ~79.5% in market price compared to Ethereum’s ~G4.8% decline. This discrepancy is due to discount deepening, going from -13.6% on December 31, 2021, to -45.2% as of November 30, 2022. Average trading volume decreased with lows of $31.4 million in Q4 2022, last seen in Q3 2020.
Figure 10: Daily average volume of GBTC 2017 - 2022 Source: FactSet, The Block Research
Figure 11: Daily average volume of ETHE 2019 - 2022 Source: FactSet, The Block Research
The digital asset derivatives market mostly declined over the past year. December 2021 Bitcoin futures volumes were $1.3 trillion when aggregated across all major exchanges. Since then, average monthly volumes have not surpassed this threshold and were $G22 billion in November 2022.
While off-shore exchanges continue to dominate the majority of trading, futures markets on traditional US-based exchanges remain a reliable metric for gauging “institutional” interest in the digital asset market. Usually, large players prefer to trade via established exchanges that have the infrastructure, regulatory benchmarks, and trade execution familiar to these institutional traders. This trend will only intensify over the next few years after FTX’s collapse in November 2022.
Figure 12: Aggregated volume and open interest of Bitcoin Futures 2019 - 2022
Source: skew, The Block Research
Figure 13: Volume and open interest of CME Bitcoin Futures 2019 - 2022 Source: skew, The Block Research
CME remains a reliable metric for “institutional” trading activity in both BTC and ETH derivatives. For institutional traders, traditional hedge funds, and large asset managers, CME remains one of the most native products for gaining exposure to bitcoin. In addition, high capital requirements drive away retail ﬂow. However, in March 2022, CME launched both BTC and ETH micro options to build on its previous attempts to attract smaller traders.
YTD, CME BTC Futures open interest declined 50%, from $2.9 billion to $1.45 billion. Simultaneously, monthly volume fell 38%, from $43.9 billion to $27.2 billion. Despite the sharp price decrease, traded volumes and liquidity remain high.
Deribit continues to dominate the options market. Their share of Bitcoin options trade volume stabilized around the 92% mark over this year. As of November 2022, Deribit reﬂects ~$4.1 billion of BTC options open interest, which comprises ~86.2% of total open interest.
Figure 14: Aggregated volume and open interest of Bitcoin options 2019 - 2022
Source: skew, The Block Research
Figure 15: Bitcoin ETF application status in 2022 Source: The Block Research
Ethereum aggregate monthly futures volumes saw a decline of 28% from December 2021 to November 2022. Volumes saw a low of $572 billion in April, before rising sharply in anticipation of The Merge, to an annual high of $985 billion in August. YTD, open interest declined by 51%, with a yearly low in June of $4.4 billion.
CME became the ﬁrst traditional US-regulated exchange to launch both micro Ethereum options in March 2022, and Ethereum options in September 2022. While CME accounts for 17.7% of Bitcoin futures open interest at the end of November 2022, its impact on the Ethereum derivatives market remains subdued, with only 8.7% of futures open interest. As for the Ethereum options market, the share of CME both for volume and open interest is negligible.
Figure 16: Aggregated volume and open interest of Ethereum futures 2019 - 2022 Source: skew, The Block Research
Ethereum options growth was overall strong in 2022, but did not reach 2021 highs. YTD, aggregate monthly open interest declined by 35.5%, and aggregate monthly volumes fell by 36.2%. Like the futures market, Ethereum options consolidated at elevated levels. Open interest recovered sharply after June and in anticipation of The Merge. Open interest growth continued beyond The Merge.
Figure 17: Aggregated volume and open interest of Ethereum options 2019 - 2022
Source: skew, The Block Research
Similarly to Bitcoin options, Deribit holds almost all of the market share, accounting for 96.6% of trade volume in 2022 and for 96.7% of open interest at the end of November 2022.
Like US BTC spot ETFs, the SEC continues to reject US ETH spot ETF ﬁlings.
Figure 18: Bitcoin ETF application status in 2022 Source: The Block Research