Is the cryptocurrency market healthy? (YO)

Beyond Price to Understand the Underlying Vital Signs of the Crypto Economy

Beyond the volatility of prices and daily operations, the cryptocurrency market has a structure defined by the collective behavior of investors over longer periods of time. Liquidity, volume, and other "macro" trends give the market its general shape and offer clues as to its resistance. The head of research Chainalysis specializes in analyzing billions of data points to see beyond the turbulent surface of the crypto economy.

In a sense, cryptocurrency prices don't matter. That may seem like a bold claim, given the endless online talk and speculation surrounding cryptocurrency price movements. But seen through the lens of the research team at Chainalysis, the cryptocurrency market is not really defined by the rises and falls of prices.

Instead, it is made up of less visible trend lines, such as liquidity levels, transaction volume, and wealth distribution biases.

The global crypto economy took a heavy hit in mid-2022, when prices plummeted. They have not yet fully recovered. Today, many market participants are wondering: Has something fundamental broken in the cryptocurrency markets?

As concerns of a prolonged “crypto winter” grew, researchers at Chainalysis recently dug into their billions of data points to find the answer.

Their goal was to look beyond price to see if the bear market had changed one or more of the measures they believe are critical to the health of the market. For example: have long-term investors in Bitcoin and Ethereum pulled out? Has market liquidity run out? Have the whales eaten the market?

“Prices are prices,” says Kimberly Grauer, Director of Research at Chainalysis. “But how much has the cryptocurrency ecosystem fundamentally changed during this crash?” The answer, surprisingly, is: not much.

Looking at trends related to volume, liquidity, wealth distribution, etc., Grauer and his team found more continuity than change. “Overall, the ecosystem today is very similar to what it was a year ago,” says Grauer.

While adoption has fallen in each of the past two quarters with the bear market, global adoption remains well above its pre-2019 bull market levels, according to Chainalysis's 2022 Global Crypto Adoption Index.

Grauer believes that the underlying stability in the market structure – at least when looking at Bitcoin and Ethereum – is a positive sign for the strength of the cryptocurrency market.

This should reassure institutional investors and other market participants who are betting on crypto and web3 for the long term, but are spooked by weak prices.