The blockchain industry shows signs of stabilization in 2023: Report

2022 was a roller coaster of ups and downs for the blockchain industry. While the first quarter of the year looked promising, the crypto industry has been on a downward trajectory ever since. While indications of a global macroeconomic slowdown are mounting, these headwinds are hampering the blockchain industry’s potential recovery.

There are some signs of stabilization in the crypto market and a potential upside at the start of the new year. For those serious about understanding the various sectors of the crypto space, including venture capital, derivatives, decentralized finance (DeFi), regulations and much more, Cointelegraph Research publishes a monthly Investors Insights report. Compiled by leading experts on these various topics, the monthly reports are an invaluable tool to quickly get a sense of the current state of the blockchain industry.

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Bitcoin weakness in 2023?

Following positive news from the Consumer Price Index on December 13, Bitcoin (BTC) saw a temporary price jump to $18,300. Despite the bulls’ best efforts, BTC has not been able to post a daily close above $18,000 since November 9, 2022 .As a turbulent year in crypto came to a close, BTC’s price remained within the $15,000 to $17,000 range, handing a victory to bears after the December 30 options expiration, as bulls had to push the price above $18,000 to avoid a potential loss of $340 million heading into 2023.

BTC had gained 1,650% after bottoming in March 2020 below $4,000, bolstered by the US Federal Reserve’s quantitative easing policy. Even as of December 31, 2022, investors who bought BTC in March 2020 are sitting on roughly 330% profit. Since the FTX collapse, BTC’s price has not recovered. The price drop to levels last seen two years ago is causing problems for long- and short-term holders, with over 8 million BTC now held at a loss and falling whale interest showing weak price strength.

Bitcoin Derivatives Market Reversal?

Skewness is a key measure of market sentiment and capital flows because it captures what people are willing to pay to obtain an asymmetric payoff either in the upward or downward direction of the market. The most common measure of bias is 25 delta (25D). It involves comparing the implied volatility of the out-of-the-money (OTM) call with a 25% delta versus the OTM put with a 25% delta.

Delta can be understood as the probability that the option will expire in the money. A one-week $16,000 call with a price of $16,500 would have a delta of nearly 100%, while a one-week $36,000 call would have a delta of nearly 0%. This is because it is almost certain that the $16,000 call will remain in the money, while the $36,000 will remain OTM, given the usual volatility.

Below is a chart of 1 million 25D Bitcoin options skewed since February 2021. The y-axis measures the difference in implied volatility between the 25D call and the 25D put with the same expiration. Negative skew means that the market wants to pay to hedge against further downside risk in the spot price of Bitcoin. Over the past two years, the average of the 25D has risen, signaling rising bearish sentiment. However, the 25D has improved by 46% since November, indicating that traders are becoming slightly more optimistic.

The Cointelegraph Research team

Cointelegraph’s research department is made up of some of the best talent in the blockchain industry. Bringing together academic rigor and filtered through practical, hard-won experience, the researchers on the team are committed to bringing the most accurate, insightful content available on the market.

Demelza Hays, Ph.D., is Director of Research at Cointelegraph. Hays has assembled a team of subject matter experts from finance, economics and technology to bring the premier source of industry reports and insightful analysis to the market. The team uses APIs from various sources to provide accurate, useful information and analysis.

With decades of combined experience in traditional finance, business, engineering, technology and research, the Cointelegraph Research team is perfectly positioned to put their combined talents to good use with the latest Investor Insights report.

The opinions expressed in this article are for general information purposes only and are not intended to provide specific advice or recommendations for any individual or about any specific security or investment product.