Week of May 24, 2022

DeFi TVL Drops, Consolidation in the Industry is Expected

Investors Panic and Market Sees Major Bitcoin Outflows. Valuations Drop, Inflation Continues to Make Central Banks Hike Rates. The U.S. Dollar Retrieves, Gold Above $1,850.




Crypto assets saw major price volatility last week and experienced price corrections across the board. Digital asset investment products experienced outflows of $141 million last week, negating about half of the $299 M inflows from last week. 

As a result of market turbulence, assets under management on traded crypto asset funds declined to $38 billion, a low point not seen since July of 2021. Inflows on a year-to-date basis represent 5.3% ($185 million in AUM). Blockchain equity investment products saw outflows totalling US$20m, suffering in parallel with the broad sell-off in the equity markets.

After dipping roughly 3%, from its recent high level seen in the second week of May, the U.S. Dollar Index (DXY) has taken a breather and could offer support for BTC due to its negative correlation to the greenback. Historically, peaks in the U.S. Dollar Index havehas coincided with price troughs in Bitcoin. 

The Market Value to Realised Value (MVRV)  ratio is calculated by dividing the market capitalization of bitcoin (last traded price * number of units), by the Realised Value of bitcoin - which calculates the price at which bitcoins were purchased by adding up the price paid by all of the coins at the time of purchase.

Historically, it has been used by some investors as an indicator of whether the price of Bitcoin is relatively “fair” or not. In other words, it could be useful to get a sense of market tops and bottoms. Historically, values over 3.7 have indicated  possible market tops and investors tend to sell or short their positions, while values under 1 have signaled market bottoms and are aligned with investors longing positions. 

  • Increasing trend: Increasing selling pressure
    As MVRV increases, it indicates that the market cap is outpacing realized cap meaning there is increasing motive for selling in the market.

  • Decreasing trend: Decreasing selling pressureAs MVRV decreases, it indicates that realized cap is outpacing the market cap meaning there is decreasing motive for selling in the market.

The current MVRV ratio stands at 1.22. The last time the MRVR ratio stood so low was in April of 2020. 

S&P 500

The equity markets continue to be volatile given the global macroeconomic headwinds, rampant inflation and central banks around the world taking calculated decisions on how to proceed with monetary policy. The S&P 500 has currently avoided falling into bear territory (-20% drop in price) after seeing a 18%-19% decline from its ATH. 

The sell-off in equity markets has created new investment opportunities for investors sitting on the sidelines with fresh capital to deploy. After the S&P 500 equity sell-off, the index is trading below its 10-year average trading multiple. The S&P experienced a losing seven week streak. On Monday, markets experienced a bounce as President Joe Biden signaled the U.S. would consider reducing tariffs on China.

U.S. retail sales for the month of April continued to climb despite a 20-year high inflation. Retail spending has been net positive since the beginning of the year. The U.S. consumer continues to pour money into the economy. In April, retail spending grew 0.9%, offering investors and economists the latest sign that consumers are still driving demand at stores and manufacturers despite rampant inflation. Retail sales provide a gauge for consumer spending at stores, online and at restaurants. One important fact to keep in mind is that gas prices cooled down slightly in April but energy prices remained elevated and prices remain volatile. 

Central banks around the globe have become increasingly hawkish. Central banks are described as “hawkish” when they are in support of increasing interest rates to fight inflation, even if it's at the detriment of economic employment and growth. Around the world, central banks have begun increasing rates in an attempt to tame inflation. The map above shows the hawkish stance from central banks around the globe. Recent central bank hikes include Israel, Britain, Australia, the U.S. and South Africa with the ECB , India, Thailand and other central banks looking to raise in the near future. 


Finally, the U.S. dollar index has fallen to a one-month low of 102 (having fallen ~2%) after the index experienced a two decade high at the beginning of May 2022. The price of Gold rose and broke the $1,800 resistance level. 

U.S. treasury yields  continued to retreat after the yield on the 10-year treasury bond hit a nearly four year high earlier in the month of May. Treasury yields move inversely to gold prices. Rising yields affect the price of gold as they raise the opportunity cost of holding non-yield assets. A weaker dollar tends to help gold prices increase as international buyers' cost to purchase the precious metal is less expensive relative to other international currencies. Wall Street analysts estimate that the U.S. dollar has more ground to lose as the monetary policy gap between the Fed and the ECB starts to narrow from one another. 


Decentralized Finance “DeFi” total-value-locked “TVL” has experienced around a 53% decrease from its last 12-month high levels - reached at the end of 2021. The recent Terra ($LUNA) meltdown accelerated the TVL decline, representing a ~43% drop from when $LUNA began experiencing its catastrophic market decline. The DeFi market has seen nearly $90 billion evaporate from its TVL. As protocol market capitalizations have severely declined, in addition to an overall market bearish sentiment and elevated cash burn rates by protocols, market analysts believe that market consolidation will occur in the near future as protocols seek for ways to stay afloat in the current “bear” market conditions and as investors look to scoop up assets at lower valuations. 

Despite the rough market conditions for DeFi, institutional players continue to strategically think long-term and find ways to accelerate Web3 adoption. Coinbase is rolling out a self-custodial dApp wallet based on multi-party computation (MPC) to provide secure private key management for institutional grade custodial solutions as it seeks to compete with the likes of Fireblocks and others. Via the wallet, users will be able to directly interact with DeFi applications such as Uniswap ($UNI) and Compound ($COMP). The wallet will make it simpler for users to have access to DeFi without the need to withdraw assets from Coinbase and migrate these assets to other platforms to have access to DeFi. Coinbase is working on making the wallet compatible with Ethereum Virtual Machine (EVM), as well as other blockchains. 

Even in a market downturn, institutional service providers continue to see the value of DeFi offerings. Nansen, the on-chain data provider and analytics company is acquiring DeFi portfolio tracker Ape Board as it looks to boost its Web3 offerings to clients. Nansen’s analytics and Ape Board’s portfolio tracking capabilities will allow Nansen to provide an all-in-one information suite of services - establishing it as the Web3 data and information super application. Ape Board lists over 375 protocols across 33 blockchains, including Ethereum, Binance Smart Chain, Avalanche, Solana and Polygon.


The Bitcoin mining difficulty remains at all-time-high “ATH” levels. The most recent ATH was achieved on May 2, 2022, with a hashrate of 275 EH/s. Currently, the harshate stands at 215 EH/s - 225 EH/s. Despite Terra Luna’s fall and despite over $350 billion being erased from the crypto market, the network continues to see high computational costs for miners. The Bitcoin difficulty is expected to see a drop of nearly 4% this week. The drop would represent a drop from an ATH level of 31.25T to 30.1T. Increase in mining difficulty is a great thing for the network as it creates a more secure network and protects the integrity of its distributed ledger, but for Bitcoin miners, an elevated mining difficulty means they will spend more resources working to mint a block. When difficulty increases, hash price drops. 

Hash price increases as the price of Bitcoin increases faster than the Bitcoin mining difficulty and also increases when Bitcoin’s price drops slower than the mining difficulty. Hash price is a metric of expected revenue per unit of hash rate a miner contributes to the Bitcoin network. 

Historically, bear markets have been friendlier conditions for Bitcoin miners to start mining operations. Factors that contribute to the fact is that under bear markets, hype fades, hardware tends to be cheaper and miners who entered the market during higher prices (bull run) tend to be squeezed out of the market compared to miners who come in during suppressed market conditions. 

What's Ahead

Investors are eager to read the Fed minutes that will be released on Wednesday. Market participants hope that the minutes can provide some clues on whether the U.S. central bank can curb the most aggressive inflation in over 40 years without putting the economy into a recession. Market analysts across Wall Street have voiced their concerns for a chance of the U.S. economy entering a recession in the near future. The Fed has implemented two rate hikes, increasing interest rates by 75 basis points since March. Wall Street is expecting another 50 basis point rate hikes in June and July. The Fed minutes will give the market some color on how policymakers expect inflation to be and whether the economy is strong enough to withstand tighter monetary policy.

Retail earnings will be released this week. Market analysts are expecting profits to be suppressed by elevated energy costs. Additionally, analysts noticed that consumers have shifted towards buying lower-margin basic goods instead of the more profitable general merchandise. Retail inventory buildup and heavy discounting by retail companies is something market participants will keep a close eye on. 

April market data on personal income and spending will be released this week. The core personal consumption expenditures price index will also be released this week. This report acts as the Fed’s primary gauge of inflation. Economists will look to see if spending remained consistent in the last month despite ongoing inflation. Additional data released will include durable goods orders as well as initial jobless claims, along with revised figures for the first quarter GDP. Last but not least, new home sales could show a potential cooling in the housing market as mortgage rates increase and consumers become more cautious. 

We hope you enjoyed reading and as always, we wrap up with a summary of the upcoming economic data and earnings reports for the week:


8:30 AM EST - Durable goods orders and core capital equipment orders 

12:15 AM EST - Fed Vice Chair Lael Brainard gives commencement address

2:00 PM EST - FOMC minutes


8:30 AM EST - Initial jobless claims, continuing jobless claims, real gross domestic product revision (SAAR), real final sales to domestic purchasers revision (SAAR),  and real gross domestic income (SAAR)

10:00 AM EST - Pending home sales index 


8:30 AM EST - PCE inflation, core PCE inflation, PCE inflation (year-over-year), real disposable income, real consumer spending, nominal personal income, nominal consumer spending and advance trade in goods

10:00 AM EST - University of Michigan consumer sentiment index (final) and 5-year inflation expectation 

It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account.


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About the author

Mauricio Di Bartolomeo

Mauricio is the co-founder and Chief Strategy Officer of Ledn.io. He grew up in Venezuela where he and his family learned about Bitcoin. Now based in Canada, Mauricio holds HBA and MBA degrees from the Richard Ivey School of Business in London, Ontario in Canada.