The cryptocurrency space saw a bullish third-quarter performance, which can be characterized as a relief rally following the dismal performance we saw in the second quarter of 2022. To recall, in Q2 2022, flagship cryptocurrency asset, Bitcoin, posted its worst quarterly performance in 11 years, from $45,538.68 at the start of the quarter to trade at $19,784.73 on the 30th of June, representing a 130.17% loss for the quarter.
A third-quarter industry report from DappRadar citing on-chain metrics suggests cryptocurrency markets are showing signs of recovery from ongoing bearish market conditions. A number of factors played their part in a busy third quarter of 2022, with Ethereum’s Merge marking a successful shift to proof-of-stake having a notable influence on layer-2 activity before the event. The report also highlights a slight recovery in the overall cryptocurrency market capitalization. Although we saw a recovery, the market capitalization still sits below the $1 trillion mark.
Data from CoinMarketCap reveals that the third quarter saw an 8.10% increase in the total crypto market cap from July to the end of September 2022, from $872 billion to the end the quarter at $943 billion. The decentralized finance space also showed signs of consolidation, with the total value locked (TVL) in the space increasing by 2.9% in the third quarter to $69 billion. Ethereum continues to account for the bulk of TVL, with $48 billion locked in smart contracts, representing 69.57% of the total TVL.
Notable Q3 Facts
DappRadar highlights a 12% increase in unique active wallets across the cryptocurrency ecosystem quarter-on-quarter, adding up to 1.8 million. The blockchain gaming industry contributed significantly, with unique wallet addresses increasing by 8% from August to September.
ImmutableX saw its unique active wallets grow by 30% during the same time period and recorded an 87% growth in non-fungible token (NFT) trading volume from the previous quarter, while Polygon followed a similar trajectory, seeing its unique active wallets increase by 17% to 148,000.
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The number of non-fungible token (NFT) trades increased by 11% from the second quarter of 2022 while Ethereum’s NFT trading volume was down by a large margin of 76%. The NFT trading volume totaled $2.71 billion during the third quarter, which still marks a significant 67% drop from Q2 2022.
Yuga Labs-owned NFT projects dominated the market in September, with Otherside, Bored Ape Yacht Club, Mutant Ape Yacht Club, and CryptoPunks accounting for 46.21% of the entire NFT market cap.
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The theft of cryptocurrency assets was also highlighted once again, with blockchain bridges still being targeted. Nomad’s $190 million exploit in August was a significant contributor to the $461 million worth of crypto assets stolen in Q3. Algorithmic market maker Wintermute also succumbed to a $160 million exploit during the same period.
What to Expect in Q4 2022
Nairametrics was able to interview some of the industry players on what they believe the last quarter of the year has in store for the market;
James Wo, CEO and Founder of DFG
James Wo holds the opinion that the cryptocurrency market will be a bear market in Q4 2022. He stated, “We believe the cryptocurrency market will remain a bear market in Q4 due to the ongoing macroeconomic downturn and lack of aggressive stimulus measures.
The sharp drop in cryptocurrency prices has led to liquidity drying up. In addition, the Luna crash and frequent hacks of DeFi projects have caused a trust crisis, and it will take time for market confidence to repair.
Crypto market fundraising in Q3 was $5.841 billion, which decreased 54% from Q2, and overall fundraising in Q4 is likely to remain sluggish. Before a reversal occurs, the crypto market depends on data such as inflation or rate hikes topping out, coupled with the emergence of new narratives or the adoption of new technologies.”
Alexander Tkachenko, CEO and Founder of VNX
Alexander Tkachenko opines that we will see an increase in the interest for stablecoins. He explains, “Following the LUNA-instigated crypto market drop earlier this year, the increased Bitcoin mining difficulty at an all-time high of 35.61, over 79% increase from 1 year ago, along with the worsening economic environment, both CeFi and DeFi, and rising inflation, the crypto market will remain a bear market. I believe Q4 will also see an increased interest in more secure stablecoins and protective assets, particularly those that are backed by reliable physical assets like gold.”
Pawel Cichovski, Head of Dealing at XBO
Pawel Cichovski believes there are high chances of resurgence in the market following this year’s low set in Q2 2022. He stated, “The crypto market will face significant downward pressure as a result of the stock market’s decline, future rate hikes, and a shift in household spending. As a result, there is a high likelihood of one or two swift attempts to break this year’s low and a speedy recovery powered by institutional custodial market participants entering the market and a large inflow of smart money into the market.”
Simon Schaber, Spool’s Chief Business Development Officer
Simon Schaber believes that in Q4, we will see a massive adoption of Ethereum and Bitcoin. He stated, “With inflation surging around the globe and the king dollar looking to dominate for the foreseeable future, rapid loss of trust in fiat systems is sure to follow. This might be the perfect scenario for the rapid adoption of Ethereum and Bitcoin which proved resilient after taking an initial beating, from both retail and institutional investors.”
The DappRadar report also highlights the effect of wider macroeconomic factors on the global economy. As central banks look to manage inflation to stave off recessionary effects by raising interest rates. The report stated, “Current macroeconomic conditions significantly influence the crypto market, making it impossible to foresee a worldwide expansion of cryptocurrencies without a general recovery in conventional financial markets.” This slightly gloomy outlook was countered by a number of positive events during the third quarter of 2022. The European Union’s approval of the Markets in Crypto-Assets regulatory plan indicates that governments are looking to manage the industry carefully.
Similarly, the White House published the “First-Ever Comprehensive Framework for Responsible Development of Digital Assets” in September 2022 in a bid to protect investors, which indicates that cryptocurrencies have become a fully-established industry.