Report from Nansen Analysts


Nansen researchers are trying to answer the difficult question of whether crypto has gone down or we have another source.

Prices in the cryptocurrency market have fallen significantly from their all-time highs, and the total market value is about $2.2 trillion, a decrease of around 73%. Many altcoins, including some large caps, have lost more than 90% of their value since they hit all-time highs, and industry players are struggling to keep up with all-time lows.

With the above in mind, crypto analytics tool Nansen has published a report outlining the trends in the crypto-inventory market and the traditional spot market, analyzing their implications for the current market environment. In short, they are trying to answer the question whether the crypto bear market is coming to an end.

Nansen outlines three key steps to take.

US Dollars – Nansen Analysts

As of this writing, the USD has begun to weaken against other major currencies such as the JPY and the CNY.
Nansen argues that one driver of this could be the Fed’s higher interest rate pricing through the bond market in the future. Bond Futures are now predicting the Fed policy rate to peak at ~4.84% in May 2023 and cut 40bps + in H2 2023. In fact, the US CPI released expectations for the second month in a row, which has able to explain some of the price of the rate. hikes.

However, a rate cut could happen if there is a strong weakness from the US at the macro level, and its real growth slows down significantly. The chairman of the Federal Reserve – Jerome Powell – has repeatedly emphasized that “the risk of a small shutdown is greater than the risk of a large shutdown” and that the labor market is too high and needs restructuring.

Using complex indicators to measure growth between the United States and other countries, Nansen came to the conclusion that:

“… maybe it is too soon to call for change to be easy in the global financial situation, and, therefore, the main thing for real estate and crypto assets is probably not there .”

With this, researchers focus on the producer market.

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Call vs Put for BTC and ETH

The question Nansen wants to answer here is whether the options investors in BTC and ETH have already created, and to answer that they are looking at the changes in the open interest of the call. enter option (CPIV).

The data they analyze covers the period from January 2021 to November 2022, assuming that the construction market will start in the future. Their conclusions can be summarized as follows:

The CPIV indicator manages to deliver risk and risk indicators more frequently compared to the stablecoin indicator.
Both pointed to a multi-month decline in BTC that began in November last year. The stablecoin indicator returns to risk in May 2022, while the CPIV indicator is in risk on November 20, 2022.

  • Note: The Stablecoin Indicator mentioned above is the Nansen Smart Money Stablecoin Risk Appetite Indicator. Crypto Risk Money
    In the last part of the report, the researchers propose and calculate the risk premium for crypto, which is called Crypto Risk Premium or CRP. It is linked to the main value of crypto assets owned by investors.
  • Nansen also uses historical options data from Deribit to estimate the day’s entry and ask price for calls and puts in BTC, ETH, and SOL. However, when it comes to investing in crypto and equity markets, analysts warn that the crypto market is still young and not as well-developed as the equity options market. , which means it’s important to keep in mind when evaluating CRP plans.

That said, the conclusion (rather than speculation) is that:

“… in the event of a US recession and a sell-off of US equities (our main scenario for 2023 given the Fed’s strong decision to maintain monetary conditions for the long term), ERP may rise above, and again, money CRP or crypto risk can also jump. Therefore, it is possible that crypto prices will experience a further (and “final”?) decline in this cycle before the financial situation becomes more favorable for both stocks and crypto-assets.

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