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Has this bear market ended? Crypto fund analyst: I don't think so, in fact, it's far from over.

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Has this bear market ended? Crypto fund analyst: I don

An analyst from a major cryptocurrency fund, jbjbjb, used on-chain data from Nansen and macroeconomic trends to analyze why there is a possibility for the current cryptocurrency market to break new lows.

This is a translation and summary of jbjbjb's Twitter post. Please refer to the original post for any uncertainties.

jbjbjb: I Don't Think the Bear Market Has Bottomed Yet

jbjbjb shares the reasons why he believes the market may further decline.

1. On-chain Activities

First and foremost, jbjbjb believes that the series of bankruptcies triggered by 3AC have not yet concluded. Although the liquidation process is ongoing, the positions held by them that are pending liquidation have not been dumped in the market yet, and assets such as BTC, ETH, etc., will eventually be sold to compensate creditors.

Below are some of the 3AC wallet addresses compiled by jbjbjb, each containing thousands of ETH and other cryptocurrencies.

Not to mention 3AC's Starry Night NFT wallet, valued at approximately 12,500 ETH, all of which were transferred out in June this year, also facing the possibility of significant liquidation.

Therefore, jbjbjb believes it is best to wait for the judicial process to unfold, as once 3AC's cryptocurrencies, stocks, and NFTs begin to be sold on the market, it will inevitably trigger a broader wave of selling in the crypto ecosystem.

2. Smart Money

Through Nansen's Smart Money feature, jbjbjb has compiled a list of institutional wallets.

Upon observation, jbjbjb found that these Smart Money wallets do not have much activity in the current market, with a very low proportion of ETH, allocating most of the funds to stable assets such as USDC, USDT, and DAI.

3. Bank of Japan and the Japanese Yen

The Japanese Yen is currently at its lowest point since 1999, and jbjbjb believes that the Bank of Japan may become a major cause of the global economic downturn.

Since 2001, the Bank of Japan has implemented QE as an economic remedy, but currently, the Bank of Japan holds 50.2% of the Japanese bond market and $1 trillion in US government bonds.

To prevent further depreciation of the Japanese Yen, Japan must stop the YCC yield curve control to avoid inflation. However, given its banking policy, the Bank of Japan does not seem inclined to stop. Reverting to a deflationary cycle is not easy.

4. Overall Economic Situation

Based on current Federal Reserve fund futures data, there is an 85% chance that the Fed will raise rates by 100 basis points, considering a 9.1% year-on-year increase in CPI in June, reaching a 40-year high, and Federal Reserve Bank President James Bullard has indicated a target annual rate of 3.75%-4%.

So, what will happen when the US QE intensifies, and Japan begins to sell its $1 trillion in US government bonds?

jbjbjb says that liquidity in the credit market will be reduced to zero. Buyers prefer newly issued bonds over existing ones compared to current debt. This means bond prices will plummet, yields will rise, and existing bonds will be sold off.

But if even the Fed stops buying, who will take over these bonds? jbjbjb suggests it is more likely to be hedge funds, but given the current strong tightening cycle, hedge funds tend to hold more cash and reduce exposure.

If the above scenario unfolds, interest rates will continue to rise.

"Based on global consensus, tightening of monetary supply is needed everywhere to combat rampant inflation, so thinking we will immediately return to a bull market is wishful thinking," says jbjbjb.

5. TVL Sharp Decline

The TVL of all dapps is now only a fraction of what it used to be. No one is willing to lend tokens or participate in the DeFi ecosystem, a clear market sentiment in a bear market.

Looking at the TVL of the lending protocol Liquity, it has dropped from $50 billion to $5.5 billion. Loans and leverage are crucial for supporting on-chain activities and stimulating buying in the market when used properly.

When Will the Market Reverse?

Based on the above reasons, jbjbjb believes the market has not bottomed yet, and it may be far from it. He believes that before people turn bullish again, the following questions need to be answered:

  1. Where will investors' money come from?
  2. How quickly can consumer confidence reverse after experiencing a crash in the crypto market in just a few weeks?
  3. Will Smart Money be willing to re-enter the market during the peak of an economic contraction cycle?

However, he also notes that when real estate prices start to plummet significantly, that may indicate the bottom is near.