Hedging bets dominated even amid Terra’s infamous plunge (report)

Crypto exchange Bybit has released another monthly report on the state of the cryptocurrency industry in collaboration with blockchain analytics platform Nansen. Focused on broader market conditions, DeFi activity and NFT markets.

The paper considered Terra’s infamous collapse to be fundamentally destructive to the early crypto community, but beneficial as other Layer 1 competitors attracted outflow capital derived from the corrupted community.

Investors adopting a risk-averse attitude

report belonging The overall cryptocurrency market cap has plummeted in a risk-averse spirit blazing as a “global stock rout.” The report suggests that volatility in the traditional market is expected to lead to drastic price fluctuations among digital assets, as the correlation between the crypto market and the Nasdaq indices remains the same for the foreseeable future.

The report considered the recent launches of various crypto ETFs a double-edged sword, as this will add to the selling pressure in a bear market.

Another notable observation made in the white paper is that net exchange inflows of stablecoins increased in May and the supply of these assets simultaneously decreased. These scenarios showed that as the sell-off intensifies, investors are more likely to trade their risky assets for stablecoins, exchanging stablecoins for fiat to hedge their risk.

The State of the Layer 1 Blockchain in Terra’s Fallout

Of all the “Ethereum Killers”, Avalanche has maintained a significant amount despite extreme market volatility. This is because the network continued to promote an average of 800,000 transactions per day in April. The Rainbow and Orbit Chain of the NEAR protocol also saw significant amounts, and outperformed other major L1 (Layer-1) competitors.

Dominant L1 blockchains such as Ethereum, BSC, and Tron have all benefited from Terra’s fallout as their market share increased after the aforementioned collapse, the report said.

On the other hand, protocols with a long operating history showed a tendency to decrease as the recent sell-off continued. Also, Ethereum’s weakened dominance, which began in early 2021, has recently been reversed as capital tends to flow towards larger protocols to avoid high-risk assets.

However, after analyzing the number of transactions and total revenue generated on the L1 network, the report shows that both indicators remained at the levels observed in July 2021, meaning there was no apparent integration into Ethereum.

NFTs as potential hedges?

During the latest capitulation event that resulted in the collapse of the entire Terra ecosystem, NFTs also saw a significant plunge. However, growth in the number of users and volume was stable during the bearish period. At the same time, famous NFT projects such as BAYC, CloneX, and Azuki continue to dominate, accounting for more than 80% of the total market share.

According to Nansen’s research, the NFT-500 index when denominated in ETH is inversely proportional to the overall cryptocurrency market, with some treating the NFT as a hedge against volatile crypto assets.

The report concludes that with daily active NFT traders multiplying several-fold compared to a year ago, NFTs have successfully secured a new user base outside of DeFi and Web3, which correlates significantly less with the broader crypto market than other sectors. universe.

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