- Nansen released a report on an analysis of the crypto winter and when it is likely to end.
- The report shows three indicators: a leading macro indicator, a mean-reverting call-put implied volatility index, and a crypto risk premium.
- In case of US recession, the report showed there could be another leg down in crypto prices.
A recent report from Nansen delves deeper into analyzing crypto valuations and fundamentals to determine whether a crypto winter has ended. The report mainly takes into consideration three main indicators.
These include the “leading macro indicator for the US dollar and two crypto-derivative metrics: a mean-reverting call-put implied volatility index and a crypto risk premium that proxies crypto valuations.”
The report talks about the weakening of the price of USD which is related to the interest rate hikes by the Fed. Initial conclusions also revealed that it is too early to call for a transition to easier global financial conditions. It also stressed the fact that the bottoming of crypto assets is likely not there yet.
The Nansen report also suggests that the equity risk premium and crypto risk premium are likely to jump higher in the event of a US recession and a US equity sell-off.
It is therefore possible that crypto prices experience a further (and “last” ?) leg down in this cycle before financing conditions turn more favorable to both equity and crypto assets.
The final conclusion by Nansen is with a belief that the Fed is likely to tighten the financial conditions for a longer period. To add to the effects of decision by the Fed, the cryptocurrency market has been going through a slew of unforeseen events. The fall of Terra in May and the recent fall of FTX have triggered a stronger bear market. It also caused the prices of cryptocurrencies to fall unpredictably.
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