While some of the market's losses were recovered over the last couple of weeks, crypto severely underperformed stocks throughout the month of November.
Recent market events have left the crypto industry devastated. November marked one of the most turbulent months in recent crypto history. While some of the market's losses were recovered over the last couple of weeks, crypto severely underperformed stocks throughout the month of November. This trend broke the high correlation the two markets had throughout the year.
Most crypto assets incurred losses greater than 10% during the month of November. Bitcoin and ETH are down 11.65% and 12.92% respectively in the last month, while the S&P 500 and Nasdaq 100 are up 2.76% and 3.96% respectively. Stocks rallied as the Federal Reserve confirmed its stance towards lower interest rate hikes in upcoming meetings.
Crypto's internal troubles and macro's positive tailwinds were reflected in terms of price performance during the month of November. These two opposite paths broke the high positive correlation that the two markets had carried throughout the year.
Bitcoin's correlation with the S&P 500 and Nasdaq 100 reached the lowest it has been since May 2019, marking a three-year-low of -0.84 for both indices. As the crypto industry recovers from its internal troubles its correlation with capital markets has increased. Correlation between the two markets is expected to continue this path since current macroeconomic fundamentals and trends haven’t changed.
Despite crypto dropping and lowering its correlation with capital markets, a bottom for the industry may be approaching. Determining the bottom of a market requires several tools. Price of an asset is often the first place one turns to determine if they can start to be bullish again. Daily active addresses is another important and interesting metric to conclude the bottom of a market that is directly involved with technology, such as blockchain. The indicator allows users to gauge the adoption of the technology and the blockchain on its daily basis.
In the same way that price bottoming is analyzed, it is good to observe higher lows during each market downturn, indicating that there is adoption and a new crowd of users willing to continue using and expanding the technology. Analyzing the graphs above, we can see that the top for active addresses both on BTC and ETH was during the first part of the bull run in May 2021. The beginning of the pandemic or March 2020 could be considered as the beginning of the bull market, in this way we can calculate the addresses that have remained in the market from this cycle.
Ethereum experienced a 63% increase in active addresses, while Bitcoin also experienced around a 14% increase in active addresses since March 2020. Ethereum recorded ~327K addresses on March 8, 2020 compared to 536k addresses on Dec. 5, 2022. Bitcoin number of active addresses on March 8, 2020 was ~826K while on Dec. 5, 2022 it had ~945K. This shows the increase in the number of users after the bull market phased away.
Ultimately, innovation takes time. Crypto protocols have laid the groundwork to overcome the troubles faced. Furthermore, in order to be able to re-establish its long-term growth, the crypto space must continue to expand. Finally, the active user analysis potentially indicates that we are at or near a market cycle bottom for active addresses and therefore at or near the bottom of user reduction.